Chapter 2 - Additionals

1. Draw a production possibilities frontier for a society that produces food and clothing.

Show an efficient point, an inefficient point, and an infeasible point. Then in a separate graph, show the effects of a drought (i.e. total lack of rain).

2. Which of these statements about economic models is correct?

a. For economists, economic models provide insights about the world.

b. Economic models are built with assumptions.

c. Economic models are often composed of equations and diagrams.

d. All of the above are correct.

3. The circular-flow diagram is a

a. visual model of how the economy is organized.

b. visual model of the relationships among money, prices, and businesses.

c. model that shows the effects of government on the economy.

d. mathematical model of how the economy works.

4. Factors of production are

a. the mathematical calculations firms make in determining their optimal production levels.

b. social and political conditions that affect production.

c. the physical relationships between economic inputs and outputs.

d. inputs into the production process.

5. In the simple circular-flow diagram, the participants in the economy are

a. firms and government.

b. households and firms.

c. households and government.

d. elected officials and ordinary citizens.

6. Factors of production are

a. used to produce goods and services.

b. also called output.

c. abundant in most economies.

d. assumed to be owned by firms in the circular-flow diagram.

7. Another name for goods and services produced by firms is

a. factors of production.

b. output.

c. inputs.

d. resources.

8. Which of the following items is not a factor of production?

a. labor

b. land

c. capital

d. money

9. The bowed-out shape of the production possibilities frontier can be explained by the fact that

a. scarcity is a fact of life.

b. economic growth is always occurring.

c. the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.

d. an assumption that is made in constructing a production possibilities frontier is that tradeoffs are unimportant.

Figure 2-3

10. Refer to Figure 2-3. The economy has the ability to produce at which point or points?

a. B, D, E

b. A, B, D, E

c. D, C

d. D

11. Refer to Figure 2-3. Which point represents the situation in which the economy is producing its maximum possible quantity of tubas?

a. A

b. B

c. D

d. E

12. Refer to Figure 2-3. At which point or points can the economy not currently produce?

a. A

b. C

c. A, C

d. A, C, D

13. Refer to Figure 2-3. Efficient production is represented by which point or points?

a. B, E

b. A, B, E

c. D

d. C

14. Refer to Figure 2-3. Inefficient production is represented by which point or points?

a. D

b. D, E

c. A, C

d. A, B

Figure 2-5

15. Refer to Figure 2-5. Which of the following events would explain the shift of the production possibilities frontier from A to B?

a. The economy experienced a technological advance in the production of batteries.

b. The economy’s citizens developed an enhanced taste for batteries.

c. More capital became available in the economy.

d. More labor became available in the economy.

Figure 2-8

16. Refer to Figure 2-8. Production is efficient if the economy is producing

a. 30 barrels and 6 bathtubs.

b. 20 barrels and 8 bathtubs.

c. 25 barrels and 12 bathtubs.

d. 15 barrels and 12 bathtubs.

17. Refer to Figure 2-8. What is the opportunity cost of moving from point A to point B?

a. 8 bathtubs

b. 20 barrels

c. the gain in well-being that the society experiences as a result of the move

d. the loss of well-being that the society experiences as a result of the move

18. Refer to Figure 2-8. If this economy puts all of its resources into the production of bathtubs it could produce

a. 20 barrels and 12 bathtubs.

b. no barrels and 14 bathtubs.

c. no barrels and 16 bathtubs.

d. More information is required in order to make this determination.

19. Refer to Figure 2-8. Which of the following combinations can this economy not produce?

a. 30 barrels and 6 bathtubs

b. 25 barrels and 12 bathtubs

c. 20 barrels and 8 bathtubs

d. 10 barrels and 14 bathtubs

20. Refer to Figure 2-8. If this economy moved from point C to point E,

a. it still would not be producing efficiently.

b. there would be no gain in either bathtubs or barrels.

c. it would be producing more barrels and more bathtubs than at point C.

d. It is not possible for this economy to move from point C to point E without additional resources.

21. Using this outline, draw a circular-flow diagram representing the interactions between households and firms in a simple economy. Explain briefly the various parts of the diagram.