Production possibility frontier and opportunity cost


1) A production possibility frontier demonstrate

a. maximum combination of inputs which could be used to produce output in a typical economy.
b. the maximum revenue which could be generated from the sale of output produced by limited resources in an economy.
c. the minimum quantities of commodities which could be produced from limited but fully-employed resources in an economy.
d. the maximum quantities of commodities which could be produced from limited but fully-employed resources in an economy.
e. the quantities of factors of production available to produce goods and services in an economy.

2) An economics lecturer decides to give up her job at University of South Africa, where she earns R70 000 per year. She is offered another full-time job for R 75000 per year or could work for herself from home as a private consultant. What is the opportunity cost of working from home?

a. Zero
b. R70 000
c. R75 000
d. R145 000
e. R70 000 in addition to the cost of her monthly home loan repayments

3) Opportunity cost is best defined as

a. the out-of-pocket money costs incurred when a decision is made.
b. the value of the best alternative sacrificed when a choice is made.
c. the value of all the alternatives given up when a choice is made.
d. the value of time lost when a choice is made.
e. Both b and c above.

4) In economics, the how or production question refers to

a. problem of allocating scarce resources among competing users.
b. the ways in which factors of production might be combined to produce output.
c. the way in which a firm decides on its profit-maximising rate of output.
d. the problem of how output is distributed among individuals and groups in society.
e. the way in which state sets output targets in a command economy.

5) The basic questions of what to produce and for whom to produce are essentially interdependent because

a. a particular level of output might be produced by many various combinations of inputs.
b. various patterns of factor use generate various patterns of income distribution.
c. income and wealth are concentrated in the hands of the economically powerful.
d. markets could not be relied upon to allocate resources efficiently.
e. different patterns of distribution generate various patterns of demand and hence various patterns of resource allocation.

6) If the production possibility boundary for the two-good economy is a negatively sloped straight line, one could conclude that

a. opportunity costs are increasing as production of one good rises.
b. opportunity costs are falling as production of one good rises.
c. an increase in the production of one good would involve no sacrifice of the other good.
d. resources are able to produce either product equally well.
e. resources are not perfect substitutes in alternative uses.

7) Consider a production possibility frontier showing maximum combinations of guns and roses which can be produced from a given set of resources. If this frontier has a conventional concave shape, then opportunity cost of producing one more ton of roses could be zero only if

a. the maximum feasible output of roses is already being produced.
b. the maximum feasible output of guns is already being produced.
c. we are operating at a point inside the frontier.
d. we are operating at a point above and to the right of the frontier.
e. we are producing equal quantities of guns and roses.

8) If households have the  greater desire to purchase fresh pasta, more resources would ultimately be allocated to production of fresh pasta in the market economy because

a. fresh pasta has a good nutritional content.
b. consumer groups would inform pasta manufacturers of the change in demand.
c. the price of fresh pasta would be driven up, thereby making fresh pasta production more profitable.
d. economic planners would respond to the change in demand by raising output quotas of fresh pasta producers.
e. the prices paid for factors of production used in the fresh pasta industry would tend to fall.

9) Which of the following would not cause the shift in the demand curve for tea?

a. A decrease in the price of milk, a complement
b. An increase in the price of tea
c. An increase in the price of coffee, a substitute
d. An increase in the number of people drinking tea
e. An increase in the income of households

10) In the market for cream, which of the following events will increase demand, ceteris paribus?

a. Increased health fears regarding the consumption of too much fat (creamcontains fat)
b. A fall in the income of consumers
c. An increase in the price of scones, a complement
d. A drop in the price of yoghurt, a substitute
e. A decrease in the price of waffles, a complement

11) If there is an increase in the price of DVDs, a substitute in production for CDs, then

a. the supply of CDs would increase.
b. the demand for CDs would fall.
c. the supply of CDs would decrease.
d. there will be a movement along the supply curve for CDs.
e. None of the above would result.

12) If there is a relative rise in the price of broccoli, a substitute in agricultural production for beans, then

a. the supply curve for broccoli would shift to the left.
b. the supply of beans would increase.
c. the demand for broccoli would increase.
d. the supply curve for beans would shift to the left.
e. there would be no effect on the production of beans.

13) There is the increase in a number of adverts highlighting the dangers of consuming artificial sweeteners (as opposed to sugar). Which of the following is likely to occur in the market for sugar, as a result of this?

a. An increase in both price and equilibrium quantity traded
b. A decrease in price and an increase in equilibrium quantity traded
c. A decrease in both price and equilibrium quantity traded
d. An increase in price and a fall in equilibrium quantity traded
e. None of the above is likely to result.

14) If the price of powdered milk, a substitute for fresh milk, falls then

a. the supply curve of fresh milk would shift to the right.
b. the demand curve for fresh milk would shift to the right.
c. the equilibrium quantity and price of fresh milk would not change.
d. the quantity of fresh milk demanded would increase.
e. the demand curve for fresh milk would shift to the left.

15) Which of the following would definitely result in the fall in equilibrium price?

a. An increase in both demand and supply
b. A decrease in both demand and supply
c. An increase in demand together with the decrease in supply
d. A decrease in demand together with the increase in supply
e. A decrease in supply only

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Microeconomics: Production possibility frontier and opportunity cost
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