Chapter 2 - Practice Problems

A useful and effective economic model
Click the card to flip 👆
1 / 33
Terms in this set (33)
A useful and effective economic model
produces predictions and implications that can be used in real life.
The Production Possibilities Frontier has a ___________ slope.
negative
The Production Possibilities Frontier is usually drawn with what shape?
Negatively sloped, bowed outward away from the origin
The negative slope of the Production Possibilities Frontier illustrates what economic concept?
Opportunity cost
Billy is an economics student, and can use a practice exam to test his knowledge. After one hour of studying, he scores 50% on the exam. After two hours, he scores 75%. After three hours, he scores 85%. After four hours, he scores 90%. What economic concept is most clearly illustrated here?
Diminishing marginal returns
John has three options with the next hour of his time. In order, he prefers to watch TV, play ultimate frisbee, and go for a walk. John chooses to watch TV for the one hour. What is the opportunity cost John watching TV?
Playing ultimate frisbee
Asking if an economy is producing the goods that people value most is a question of
allocative efficiency.
Asking if an economy is producing the most goods possible with existing resources is a question of
technical efficiency.
All points on the Production Possibilities Frontier are
technically efficient.
A technological change has lowered the cost of reducing pollution. As a result, the allocatively efficient amount of pollution will:
decrease, but there may still be some pollution.
What is true about economic models?Models are considered useful if they accurately predict real-world results.Consider a standard graph with x on the horizontal axis and y on the vertical axis. The ordered pair (3,5) means thatwe are describing a point located at x=3, y=5.The negative slope of the PPF is most closely related to which economic concept?Opportunity costIn economics, the cost of making a decision isthe opportunity cost of the decision.Technical efficiency means the economyis producing as many goods as possible with its given resources.Suppose a firm uses labor as its only input and can produce two goods, x on the horizontal axis and y on the vertical axis. If workers take a training course and become faster at making good x, what happens to the firm's PPF?The PPF will get shallower at all points.Suppose a firm uses labor as its only input and can produce two goods, x and y. If a new law is passed that requires the firm to use all workers for fewer hours in a day, what will happen to the firm's PPF?The PPF will shift inward.Suppose a doughnut shop has a fixed kitchen size with a fixed amount of ovens. When a worker is added, 200 more doughnuts per hour can be made. When a second worker is added, production only increases by 150 doughnuts per hour. This is due tothe law of diminishing marginal returns.A production possibilities frontier model shows what we ___________ but not what we ___________.can produce; should produceSuppose a firm uses labor as its only input and can produce two goods, x and y. The firm's PPF is drawn with x on the horizontal axis and y on the vertical axis. If workers complete a training exercise and become faster at making good y, what happens to the firm's PPF?The PPF will get steeper at all points.Billy economics student and can use a practice exam to test his knowledge. After one hour of studying, he scores 50% on the exam. After two hours, he scores 75%. After three hours, he scores 85%. After four hours, he scores 90%. What economic concept is most clearly illustrated here?diminishing marginal returnsWhat is most likely to happen to costs as an economy moves along a normal production possibilities frontier producing more consumption goods?Costs of consumption goods rise.Consider a standard graph with x on the horizontal axis and y on the vertical axis. What does the ordered pair (2,7) mean?We are describing a point located at x=2, y=7.Consider the function y=3x + 6, where y is on the vertical axis and x is on the horizontal axis. What is the vertical intercept of this function? Provide your answer as a whole number.6Consider the function y=3x +6, where y is on the vertical axis and x is on the horizontal axis. What is the slope of this of this function? Provide your answer as whole number.3You study 8 hours for a test and are considering studying for a 9th hour. Which of the following statements is true?The marginal return on the 9th hour is probably less than the marginal return of the 8th hour.Assume a production possibilities frontier with wheat on one axis and smartphones on the other. How will this graph change if lower interest rates mean that capital is more available?the PPF will shift outwardIf production possibilities frontier is a straight line, what must be true?Opportunity costs are constant.If the economy is operating at point B, producing 16 cars and 12 computers per period, a decision to move to point E and produce 18 computers and 8 cars means what?That there will be a loss of 8 cars per period.A movement from producing 12 cars and 16 computers per period to point B with 16 cars and 12 computers means what?That there will be a loss of 4 computers and a gain of 4 cars per period.If Fred can produce 200 pounds of cabbage and no potatoes, or no cabbages and 100 pounds of potatoes, and if he faces a linear production possibilities frontier for his farm, what is the cost of an additional pound of potatoes?2 pounds of cabbageJoseph has already studied calculus for 5 hours now and thinks he can earn a "B" on his upcoming exam. If he studies for 5 more hours, he can raise his grade but only to a "B+." What economic concept does this demonstrate?diminishing marginal returnsWhich of the following might result in diminishing marginal returns?A restaurant added more workers in its existing kitchen.