Topic 2 Multiple Choice Questions
Exercises 2.2
1. Consider the PPF diagram below.
Given the PPF illustrated, what is the opportunity cost of moving from B to A?
a) 5 coconuts.
b) 10 fish.
c) 5/10 fish
d) 10/5 coconuts.
The following TWO questions refer the diagram below, which illustrates the PPF for a producer of two goods, x and y.
2. Which of the following statements is TRUE?
I. The marginal cost of producing x is higher at high levels of x than it is at low levels of x.
II. The marginal cost of producing y is higher at high levels of y than it is at low levels of y.
III. The marginal cost of producing both x and y is constant in the level of production.
a) I only.
b) II only.
c) III only.
d) I and II only.
3. If this economy is operating at point A, which of the following statements is TRUE?
I. The opportunity cost of producing more x is zero.
II. The opportunity cost of producing more y is zero.
III. Point A is inefficient.
a) III only.
b) I and II only.
c) I and III only.
d) I, II, and III.
The following TWO questions refer to the PPF diagram below.
4. What is the MARGINAL cost of producing good y?
a) 1/4 of a unit of x.
b) 1/4 of a unit of y.
c) 4 units of x.
d) 4 units of y.
5. What is the cost of producing FOUR units of good y?
a) 16 units of x.
b) 4 units of x.
c) 1/4 of a unit of x.
d) 40 units of x.
6. Consider a PPF drawn with x on the horizontal axis and y on the vertical axis. Which of the following concepts can be used to explain why this production possibility frontier could be flat at relatively lows levels of x and steep at relatively high levels of x?
a) Increasing marginal costs.
b) Scarcity
c) Sunk costs.
d) Trade
7. Which of the following concepts can be used to explain why production possibility frontiers slope downwards.
a) Scarcity
b) Sunk costs.
c) Trade
d) Increasing marginal costs.
Exercises 2.3
1. The following question refers to the table below, which shows the maximum number of goods X and Y that producers A and B can produce in one day.
Which of the following statements in TRUE?
a) Producer A has the comparative advantage in producing X.
b) Producer A has the comparative advantage in producing Y.
c) Producer B has the absolute advantage in producing X and Y.
d) No producer has the comparative advantage in producing either X or Y.
2. Consider the PPF diagram drawn below, for two countries that are free to trade with one another.
Which of the following production combinations is/are INEFFICIENT?
I. Country 1 produces at point C and country 2 produces at point D.
II. Country 1 produces at point E and country 2 produces point at B.
III. Country 1 produces at point E and country 2 produces at point A.
a) II only.
b) I only.
c) I and II only.
d) I, II and III.
3. The diagram below illustrates the PPFs for two countries that produce wine and cheese. With no trade, country 1 produces at point A on its PPF and country 2 produces at point B.
Assume that the two countries now begin to trade with one another. Which of the fo