Production Possibilities Practice Quiz
Complete this quiz as practice.
- 1.
Which of the following best describes the three fundamental economic questions?
- A.
What to produce, when to produce, and where to produce?
- B.
What time to produce, what place to produce, and how to produce?
- C.
What to produce, when to produce, and for whom to produce?
- D.
What to produce, how to produce, and for whom to produce?
Correct Answer
D. What to produce, how to produce, and for whom to produce?Explanation
The three fundamental economic questions are what to produce, how to produce, and for whom to produce. These questions encompass the core aspects of an economy. "What to produce" refers to the allocation of resources and determining the goods and services that should be produced. "How to produce" involves deciding on the most efficient methods and techniques for production. "For whom to produce" relates to the distribution of goods and services among different individuals and groups in society. Together, these questions address the key considerations in an economic system.Rate this question:
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- 2.
Opportunity cost represents the worst of the various alternatives that must be given up when a choice is made in the context of scarcity.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Opportunity cost represents the value of the next best alternative that must be given up when a choice is made, not necessarily the worst alternative. It is the cost of forgoing the opportunity to pursue the alternative option. Therefore, the statement that opportunity cost represents the worst alternative is incorrect.Rate this question:
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- 3.
Suppose that the alternative uses of an hour of your time in the evening, ranked from best to worst, are (i) study economics, (ii) watch two half-hour TV sitcoms, (iii) play pool, and (iv) jog around town. You can only choose one activity. What is the opportunity cost of studying economics for one hour, given this information?
- A.
Jogging around town.
- B.
Watching two half-hour TV sitcoms.
- C.
Playing pool
- D.
The sum of watching two half-hour TV sitcoms, playing pool, and doing your laundry.
Correct Answer
B. Watching two half-hour TV sitcoms.Explanation
The opportunity cost of studying economics for one hour is the next best alternative that is forgone, which in this case is watching two half-hour TV sitcoms. By choosing to study economics, you are giving up the opportunity to watch the TV sitcoms.Rate this question:
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- 4.
A production possibilities curve shows the various combinations of output:
- A.
Consumers would like to consume.
- B.
Producers would like to produce.
- C.
An economy can produce.
- D.
An economy should produce.
Correct Answer
C. An economy can produce.Explanation
A production possibilities curve shows the various combinations of output that an economy is capable of producing. It represents the maximum potential output that can be achieved given the available resources and technology. The curve illustrates the trade-offs that occur when resources are allocated to produce different goods and services. It does not indicate what consumers or producers would like or should produce, but rather what is physically possible for the economy to produce.Rate this question:
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- 5.
A production possibilities curve is drawn based on which of the following set of assumptions?
- A.
Resources are fixed and fully employed, and technology advances at the rate of growth of the economy overall.
- B.
Resources such as nonrenewable resources will decline, but labor remains fully employed, and technology is unchanged.
- C.
Resources can vary, most resources experience times of unemployment, and technology advances, particularly during wartime.
- D.
Resources such as labor and capital will grow, are fully employed, and technology is unchanged.
- E.
None of the above are correct.
Correct Answer
E. None of the above are correct.Explanation
The correct answer is "None of the above are correct" because none of the provided options accurately represent the assumptions on which a production possibilities curve is drawn. A production possibilities curve is based on the assumption that resources are limited, there is full employment of resources, and technology remains constant. However, none of the given options include all of these assumptions.Rate this question:
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- 6.
If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of thefollowing is true?
- A.
We also increase the production of food.
- B.
We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in shelter.
- C.
We cannot change the production of food.
- D.
None of the above
Correct Answer
B. We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in shelter.Explanation
Increasing the production of shelter along the PPC means that resources are being shifted away from the production of food. This results in a decrease in the production of food, as resources are limited and must be allocated between the two goods. The decrease in food production represents the opportunity cost of increasing shelter production, as the resources used for shelter could have been used to produce food instead.Rate this question:
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- 7.
TRUE OR FALSE: Inward shifts in the production-possibilities curve represents economic growth.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
False. Inward shifts in the production-possibilities curve actually represent a decrease in economic growth. This is because an inward shift indicates a decrease in the economy's ability to produce goods and services. It could be caused by factors such as a decrease in resources, technological regress, or inefficiencies in production. Economic growth, on the other hand, is represented by outward shifts in the production-possibilities curve, indicating an increase in the economy's productive capacity.Rate this question:
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- 8.
Which of the following reasons might explain why an economy would be operating inside its production possibilities curve (PPC)?
- A.
Because shrinking population has reduced the number of productive workers in the economy.
- B.
Because technological innovations have increased the productivity of labor and capital.
- C.
Because damage to natural resources, such as might be caused by deforestation leading to erosion of topsoil, has shrunk the land resource.
- D.
Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender.
Correct Answer
D. Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender.Explanation
The answer suggests that an economy may be operating inside its production possibilities curve (PPC) due to unemployment or underemployment of labor, potentially caused by discrimination against workers of a certain race or gender. This means that there are available resources and potential for increased production, but they are not fully utilized due to the exclusion or limited opportunities for certain groups of workers. This leads to a suboptimal allocation of resources and a lower level of output than what the economy is capable of achieving.Rate this question:
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- 9.
Combinations of goods outside the production-possibilities curve (PPC) have which of the following characteristics?
- A.
They are only attainable today if we employ all unemployed or underemployed resources.
- B.
They are not attainable given our existing stock of resources and technology.
- C.
They imply that some resources, such as labor, are unemployed or underemployed.
- D.
None of the above.
Correct Answer
B. They are not attainable given our existing stock of resources and technology.Explanation
Combinations of goods outside the production-possibilities curve (PPC) are not attainable given our existing stock of resources and technology. The PPC represents the maximum possible production levels of two goods given the available resources and technology. Any point outside the PPC is unattainable because it exceeds the productive capacity of the economy. This could be due to a lack of resources or technology constraints. The other options are incorrect because they do not accurately describe the characteristics of combinations of goods outside the PPC.Rate this question:
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- 10.
TRUE OR FALSE: Everything that is scarce requires a choice, and these choices always involve an opportunity cost.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Scarcity refers to the limited availability of resources in relation to unlimited wants and needs. When something is scarce, it means there is not enough of it to satisfy everyone's desires. In order to allocate scarce resources, choices need to be made. These choices involve deciding what to prioritize and what to give up, which is known as opportunity cost. Therefore, everything that is scarce does require a choice, and these choices always involve an opportunity cost.Rate this question:
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- 11.
Which point represents underutilization?
- A.
B
- B.
C
- C.
A and D
- D.
E
Correct Answer
B. CExplanation
Point C represents underutilization because it is located below the production possibility curve. This indicates that the economy is not producing at its maximum potential and resources are being wasted or not fully utilized.Rate this question:
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- 12.
Which of the following points is not attainable under current situation?
- A.
A
- B.
D
- C.
F
- D.
E
Correct Answer
D. EExplanation
The question is asking for a point that is not attainable under the current situation. Since the answer is E, it means that point E cannot be achieved or reached given the current circumstances.Rate this question:
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