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ECN 104 Lecture Notes - Lecture 2: Opportunity Cost, Income Distribution, Productive Efficiency

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School
Ryerson University
Department
Economics
Course
ECN 104
Professor
German Pupato

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Document Summary

A model is a simplified representation of reality that is used to better understand real life situations. The production possibility frontier is a model that represents the production possibilities available to an individual. Points that lie outside of the production possibility frontier are not feasible. Points that lie inside the production possibility frontier are feasible, but not efficient. Points that lie along the production possibility frontier are both feasible and efficient. The simplest version of this production possibility frontier model assumes that the frontier is linear and thus has a constant slope. That implies that the opportunity cost of producing another unit of the good measured on one axis stays the same as you move along the production possibility frontier. A more realistic production possibility is one that is bowed out from the origin: this implies that as the country produces more and more of one of the goods, the opportunity cost of producing this good increases.

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Related Questions

A bowed out PPF reflects which of the following ideas?

i.increasing opportunity cost

ii. resources are not equally productive in all activities

iii. prices of goods increase over time

   

I only
   

I and iii
   

ii and iii
   

I and ii

1 point

QUESTION 2

With no international trade, a country ________ consume at a point outside of its PPF; with international trade, a country ________ consume at a point outside of its PPF.

   

can; cannot
   

cannot; can
   

cannot; cannot
   

can; can

1 point

QUESTION 3

If the production possibilities frontier between two goods is a straight line, then the

   

the line does not qualify as a production possibilities frontier because the unattainable production points are too close to the inefficient production points.
   

opportunity cost is not a ratio.
   

increasing opportunity costs.
   

resources are equally productive in both goods.

1 point

QUESTION 4

As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?

   

It might increase, decrease, or remain constant depending on how much people value the additional units of the good.
   

It decreases.
   

It increases.
   

It remains constant.

1 point

QUESTION 5

"Comparative advantage" is defined as a situation in which one person can produce

   

more of a good than another person.
   

a good for a lower dollar cost than another person.
   

a good for a lower opportunity cost than another person.
   

more of all goods than another person.

1 point

QUESTION 6

When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost

   

increases.
   

decreases.
   

might increase, decrease, or remain constant depending on how much people value the additional units of the good.
   

remains constant.

1 point

QUESTION 7

A bowed out production possibility frontier shows that the

   

opportunity cost relationship is linear.
   

the opportunity cost of a good is constant as more of the good is produced.
   

the opportunity cost of a good increase as more of the good is produced.
   

the opportunity cost of a good decrease as more of the good is produced.

1 point

QUESTION 8

Which of the following statements is correct?

   

The production possibilities frontier shows that there are no limits to production.
   

Any point on or within the PPF is production efficient.
   

If capital is idle, the economy is producing at its full potential.
   

A tradeoff is a limit that forces an exchange or a substitution of one thing for something else.

1 point

QUESTION 9

A major earthquake occurs in the central part of the United States. What impact would this have on the nation's production possibilities frontier and why?

   

A tradeoff would occur to replace the resources and goods destroyed.
   

It would shift inward because some of the nation's resources, such as capital and labor, would be destroyed.
   

It would shift outward because unemployment would be reduced.
   

Nothing would happen because the nation would still have the same capabilities.

1 point

QUESTION 10

When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods

   

must increase.
   

must decrease.
   

must remain the same.
   

must change but they might increase or decrease.

1 point

QUESTION 11

Moving along a country's PPF, a reasonable opportunity costs increase is that

   

unemployment increases as a country produce more and more of one good.
   

unemployment decreases as a country produces more and more of one good.
   

some resources are better suited for producing one good rather than the other.
   

technology declines as a country produce more and more of one good.

1 point

QUESTION 12

A reason the production possibilities frontier exists is

   

scarcity of resources and unlimited technology.
   

unemployment.
   

scarcity of resources.
   

unlimited resources and technology.

1 point

QUESTION 13

Moving from one point to another on a production possibilities frontier implies

   

increasing the production of one good and decreasing the production of another.
   

increasing the production of both goods.
   

decreasing the production of both goods.
   

holding the production levels of both goods constant.

1 point

QUESTION 14

Specialization and trade make a country better off because with trade the country can consume at a point

   

outside its production possibilities frontier.
   

on its trading partner's production possibilities frontier.
   

inside its production possibilities frontier.
   

on its production possibilities frontier.

1 point

QUESTION 15

The production possibilities frontier is the

   

the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing.
   

the minimum output that can be produced when resources are used inefficiently.
   

the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.
   

maximum output that can be produced at an opportunity cost of zero.

1 point

QUESTION 16

The opportunity cost of economic growth is ________ and the benefit of economic growth is ________.

   

decreased current consumption; decreased future consumption
   

decreased current consumption; increased future consumption
   

increased current consumption; increased future consumption
   

increased current consumption; decreased future consumption

1 point

QUESTION 17

In terms of a nation's production possibilities frontier, what impact does international trade have?

   

International trade shifts the nation's production possibilities frontier outward.
   

International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported.
   

International trade shifts the nation's production possibilities frontier inward.
   

International trade allows the nation to consume at a point outside its production possibilities frontier.

1 point

QUESTION 18

The production possibilities frontier illustrates the

   

goods and services that people want.
   

limits to people's wants.
   

resources the economy possesses, but not it is the level of technology.
   

maximum combinations of goods and services that can be produced.

1 point

QUESTION 19

As we move along the production possibilities frontier,

   

the possibilities of tradeoffs diminish.
   

the production of one good increases as the production of the other good decreases.
   

more of both goods can be produced.
   

a tradeoff is not possible because nations need all goods.

1 point

QUESTION 20

What is the opportunity cost of economic growth?

   

Eliminate scarcity
   

Land.
   

Capital goods.
   

Consumption of goods.

1 point

QUESTION 21

Which of the following statements is correct?

i.As the economy grows, the opportunity costs of economic growth decrease.

ii. Economic growth has no opportunity cost.

iii. The opportunity cost of economic growth is current consumption forgone.

   

ii only
   

iii only
   

I only
   

I and iii

1 point

QUESTION 22

Does economic growth depend upon which of the following?

i. Increasing the quantity of labor.

ii. Lowering the prices of goods and services.

iii. Advancing technology.

   

ii only.
   

I only.
   

I and iii.
   

iii only.

1 point

QUESTION 23

When drawing a production possibilities frontier, which of the following is held constant?

   

the amount of money in the economy
   

the prices of goods and services
   

the quantity of the goods and services that are produced
   

the available factors of production and the state of technology

1 point

QUESTION 24

To increase its economic growth, a nation should

   

encourage spending on goods and services.
   

increase in current consumption.
   

encourage education because that increases the quality of labor.
   

limit the number of people in college because they produce nothing.

1 point

QUESTION 25

The opportunity cost of one more slice of pizza in terms of sodas is the

   

some pizza slices we have to give up to get one extra soda.
   

the total number of sodas that we have divided by the total number of pizza slices that we have.
   

the total number of pizza slices that we have divided by the total number of sodas that we have.
   

the number of sodas we have to give up to get one extra pizza slice.

1. the marginal cost curve is

A. Downward sloping to reflect the bowed out PPF.

B. Downward sloping as marginal benefits increase.

C. Upward sloping because marginal cost falls as more of a good or service is produced.

D. Upward sloping to reflect the increasing opportunity cost of producing one more unit.

E. U-shaped to reflect the bowed out PPF.

2. Allocative efficiency occurs

A. Anywhere inside or on the production possibilities frontier.

B. When the total cost of production is minimized

C. At all points on the production possibilities frontier.

D. At only one point on the production possibilities frontier.

E. At the points where the production possibilities frontier crosses the horizontal or vertical axis.

3. Auditors working for a large accounting firm are often away from the office. When they are in the office, they are allowed to use any desk that is available. Which method is used to allocate desks?

A. lottery

B. first-come, first-served

C. Command

D. Contest

E. Sharing equally


4. The marginal cost of a good or service

A. Can be calculated from the marginal benefit of that good or service.

B. decreases as more of the good or service is produced.

C. Can be derived from the production possibilities frontier.

D. Graphs as a positively sloped curve, so it cannot be derived from the production possibilities frontier, which is downward sloping.

E. None of the above answers is correct.

5. The maximum amount of other goods and services that people are willing to give up in order to get one more unit of a good is defined as the good's

A. Marginal benefit.

B. Total benefit.

C. Marginal cost

D. Total cost.

E. Price.

3. Suppose that a country is producing at a point inside its production possibilities frontier. Which of the following is true? (a) There will be a large opportunity cost if the country tries to increase its production of any good. (b) The country is producing beyond its capacity, so its current production in infeasible. (c) The country is not using all available resources or is using inferior technology or both. (d) The country is producing an efficient combination of goods.