Question 1

The production possibility frontier will NOT shift outward due to an:

Accepted Answer

An increase in the unemployment rate means a decrease in the labour force, which would result in a shift inward of the production possibility frontier. The other options would result in an outward shift of the production possibility frontier.

Question 2

Suppose Alberta decides to produce only two goods,oil and football helmets.If Alberta is producing on its production possibility frontier,as oil production increases,the production of football helmets will:

Accepted Answer

As Alberta is producing on its production possibility frontier, increasing oil production will require reallocating resources from football helmet production, causing a decrease in helmet production.

Question 3

If an economy is producing at a point on its production possibilities frontier,it is:

Accepted Answer

Producing on the production possibilities frontier indicates that an economy is using all its resources efficiently, meaning it is efficient in production. However, this does not guarantee that the resources are being allocated in the most beneficial way for society, hence not necessarily efficient in allocation.

Question 4

Economists usually assume that production is subject to increasing opportunity costs because:

Accepted Answer

Increasing opportunity cost arises due to the fact that not all resources are equally suited to produce every good. As we produce more of a particular good, we need to divert resources (such as labor and capital) that are less well-suited to produce that good, thereby increasing the opportunity cost of producing that good.

Question 5

All points inside the production possibility frontier represent:

Accepted Answer

Points inside the production possibility frontier represent inefficient production points because the economy could produce more of at least one good without sacrificing the production of any other good, indicating underutilization of resources.

Question 6

Suppose Poland is producing on its production possibilities frontier,and it decides to increase the production of steel and decrease the production of vodka.The bowed-out production possibility frontier suggests that there will be a(n)_____ opportunity cost of producing more steel.

Accepted Answer

The bowed-out production possibilities frontier suggests that the opportunity cost of producing more of one good increases as we produce more of it. Therefore, if Poland decides to increase the production of steel and decrease the production of vodka, it will incur an increasing opportunity cost of producing more steel.

Question 7

The opportunity cost of production:

Accepted Answer

Opportunity cost of production is what you give up to produce a particular good. It is the cost of the next best alternative forgone. Therefore, option B is the correct choice.

Question 8

Consider a production possibility frontier for Canada.If in 2016 Italy's resources are not being fully utilized,Canada will be somewhere _____ of its production possibility frontier.

Accepted Answer

If Italy's resources are not being fully utilized, it does not have an impact on Canada's production possibility frontier. Canada's production possibility frontier represents the maximum amount of goods and services that can be produced with the limited resources available in Canada. If Canada is not using all of its resources, it will be producing at a point inside the frontier, which means it is not achieving its full potential. Therefore, the best choice is A) Inside.

Question 9

The production possibility frontier will shift outward because of:

Accepted Answer

Better technology that improves worker productivity will shift the production possibility frontier outward because it allows for more output to be produced with the same amount of inputs.

Question 10

If the production possibility frontier is a straight line:

Accepted Answer

A straight-line PPF demonstrates that opportunity costs are constant, which means that the rate at which one good must be sacrificed to produce an additional unit of the other good remains constant. Therefore, a firm faces a constant trade-off between producing the two goods.

Question 11

All points outside the production possibility frontier are:

Accepted Answer

Points outside the production possibility frontier represent combinations of goods that are currently infeasible to produce with the given resources and technology.

Question 12

In terms of the production possibility frontier,the inefficient use of available resources is shown by:

Accepted Answer

Production at a point inside the production possibility frontier indicates that not all available resources are being used efficiently. This could be due to various reasons like inadequate technology, lack of skilled labor, or inefficient allocation of resources.

Question 13

The effect of a natural disaster can be shown by a(n)_____ the production possibility frontier.

Accepted Answer

An inward shift of the production possibility frontier reflects a decrease in the availability of resources or a decrease in technological capability. A natural disaster can result in the destruction of resources and infrastructure, which would limit the economy's capability to produce goods and services, therefore shifting the production possibility frontier inward.

Question 14

The production possibility frontier is bowed out because:

Accepted Answer

The production possibility frontier is bowed out because resources are not equally suited for the production of both goods. This means that some resources are better suited for producing one good over another, leading to a trade-off between the two goods. Therefore, the curve is not a straight line but is bowed outwards.

Question 15

One of the controversies surrounding Canada's energy markets is the trade-off between energy production and clean air.Assuming clean air has value,Canada will be on its production possibility frontier if and only if:

Accepted Answer

Canada will be on its production possibility frontier when resources are being fully utilized, meaning that the trade-off between energy production and clean air is optimized without any waste of resources.

Question 16

Technological improvements will:

Accepted Answer

Technological improvements will increase productivity and efficiency, allowing more output to be produced with the same amount of inputs. This will shift the production possibility frontier outward, meaning that more goods and services can be produced than before. This will create more job opportunities and increase economic growth.

Question 17

All points on the production possibility frontier are:

Accepted Answer

The production possibility frontier represents the maximum output that can be achieved given the existing resources and technology. Therefore, all points on the frontier are efficient, meaning that there is no way to produce more of one good without sacrificing the production of the other.

Question 18

An inward shift in the Canadian economy's production possibility frontier could represent:

Accepted Answer

An inward shift in the production possibility frontier indicates a reduction in an economy's capacity to produce goods and services. Canadian workers moving to the United States would reduce the labor force, thus decreasing production capacity.

Question 19

The effect of an increase in productive inputs such as labour and capital can be shown by a(n):

Accepted Answer

When there is an increase in productive inputs such as labour and capital, the economy can produce more goods and services. This results in an outward shift of the production possibility frontier, indicating that there are now more possibilities for production than before. Thus, option B is the correct choice.

Question 20

A two-dimensional production possibility frontier illustrates the _____ facing an economy that _____ only two goods.

Accepted Answer

A production possibility frontier (PPF) shows the maximum combination of two goods that an economy can produce with its available resources and technology. Since resources are scarce, producing more of one good necessarily means producing less of the other. Therefore, the PPF represents the trade-offs (opportunity costs) that an economy faces when deciding how to allocate its resources between the two goods. The PPF does not directly involve prices or shortages, since those depend on the market conditions and demand-supply interactions.

Quiz 2: Economic Models: Trade-Offs and Trade