Economics by Stephen Slavin solutions manual and test bank 11e 0078021804

Slavin - Economics - 11e, solutions manual and test bank 0078021804

Slavin - Economics - 11e, TEST BANK 0078021804

Economics by Stephen Slavin- 11e, TEST BANK 0078021804

ch2 Key

1.	The United States economy ______________ operates on its production possibility curve.  A. Always B. Sometimes C. Never

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-08 Define and explain productive efficiency. Slavin - Chapter 02 #1

2.	Which statement is true?  A. Entrepreneurial ability is in short supply in the U.S. B. Land, labor and capital may be considered passive resources. C. The concept of opportunity cost is irrelevant when there is scarcity. D. None of these statements are true.

AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-03 Name the four economic resources and explain how they are used by the entrepreneur. Slavin - Chapter 02 #2

3.	In the United States' economy  A. there is no need to economize. B. we rarely have to economize. C. only the rich have to economize. D. nearly everyone has to economize.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-01 Define economics. Slavin - Chapter 02 #3

4.	The term "the affluent society" was coined by  A. Michael Harrington. B. John Kenneth Galbraith. C. Karl Marx. D. Adam Smith.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Define economics. Slavin - Chapter 02 #4

5.	Each of the following is an example of an economic resource except  A. land. B. money. C. capital. D. labor.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Name the four economic resources and explain how they are used by the entrepreneur. Slavin - Chapter 02 #5

6.	The United States' economy would be operating at full employment with labor unemployment rate of ___ percent and a capacity utilization rate of _____ percent.  A. 5; 95 B. 5; 85 C. 10; 95 D. 10; 85

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-05 Describe and distinguish among the concepts of full employment; full production; and underemployment. Slavin - Chapter 02 #6

7.

Which statement is true?  A. On the production possibilities frontier there is zero unemployment. B. On the production possibilities frontier 95 percent of the labor force is employed. C. To get out of a recession, we must produce at some point beyond our production possibilities frontier. D. To have economic growth, we must push the production possibilities frontier inward.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #7

8.	In order to raise the rate of economic growth we would need to  A. increase the level of capital. B. reduce the level of labor. C. spend more on military goods. D. spend more on consumer goods.

AACSB: Analytic Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-09 Identify and explain the factors that enable an economy to grow. Slavin - Chapter 02 #8

9.	The main reason the United States' standard of living is higher than that of India and China is that we have more  A. land. B. labor. C. capital. D. money.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Name the four economic resources and explain how they are used by the entrepreneur. Slavin - Chapter 02 #9

10.	Which statement is true?  A. it is easier to attain full employment than full production. B. employment discrimination no longer exists in the U.S. labor market. C. The United States is usually operating on the production possibilities frontier. D. None of these statements are true.

AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-05 Describe and distinguish among the concepts of full employment; full production; and underemployment. Slavin - Chapter 02 #10

11.	The main effect of employment discrimination is  A. Unemployment. B. Underemployment. C. Greater efficiency. D. Greater production.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 3 Hard Learning Objective: 02-05 Describe and distinguish among the concepts of full employment; full production; and underemployment. Slavin - Chapter 02 #11

12.	The United States temporarily operated outside the production possibilities frontier in  A. 1933. B. 1943. C. 1973. D. 1982.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #12

13.	Which statement is true?  A. The economic problem is limited to poverty. B. Scarcity is no longer an economic problem in the United States. C. If we all had more money there would be less scarcity. D. None of these statements are true.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-02 Identify the central fact of economics and explain how it relates to the economic problem. Slavin - Chapter 02 #13

14.	Which statement is true?  A. The United States is usually inside our production possibilities curve. B. The United States is usually outside our production possibilities curve. C. The United States is usually on our production possibilities curve. D. None of the statements are true.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-08 Define and explain productive efficiency. Slavin - Chapter 02 #14

15.	Which movement between two points represents economic growth?  A. J to K B. K to L C. L to M D. M to N

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #15

16.	Assuming the inner curve is the United States' current production possibilities frontier, the United States' economy usually operates at _____.  A. Point P B. Point O C. Point N D. Point L

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #16

17.	Assuming the inner curve is the United States' current production possibilities frontier, points J, N and K represent  A. an inefficient use of resources. B. an output that is not possible to produce. C. points of unemployed resources. D. points of fully employed resources.

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #17

18.	Assuming the inner curve is the United States' current production possibilities frontier, which of the following points would eventually lead to the greatest level of economic growth?  A. Point J B. Point N C. Point K D. Point P

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #18

19.	A movement from point J to point M would represent  A. an increase in consumer goods, but not capital goods. B. an increase in capital goods, but not consumer goods. C. an increase in both capital goods and consumer goods. D. no increase in either capital goods or consumer goods.

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #19

20.	A movement from point N to point L would represent  A. an increase in both consumer goods and capital goods. B. a decrease in both consumer goods and capital goods. C. an increase in consumer goods, but a decrease in capital goods. D. an increase in capital goods, but a decrease in consumer goods.

AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #20

21.	The opportunity cost of a movement from point N to J would  A. be the lost production of some capital goods. B. be the lost production of some consumer goods. C. be slower economic growth in the future. D. not involve any sacrifice of either capital or consumer goods.

AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #21

22.	If a nation is currently operating at a point inside its production possibilities curve, it  A. can increase the output of one good without decreasing the output of the other good. B. has fully employed resources. C. has no inefficiently employed resources. D. is operating at full potential.

AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #22

23.	Which of the following is not demonstrated by a production possibility curve?  A. scarcity B. opportunity cost C. necessity for choice due to scarcity D. price

AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #23

24.	People are forced to economize because of  A. competition. B. pressure to conform. C. scarcity. D. the absence of money.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Identify the central fact of economics and explain how it relates to the economic problem. Slavin - Chapter 02 #24

25.	The United States' basic economic problem would be solved if  A. everyone were given $500,000. B. the population stopped growing. C. all sickness and disease were wiped out. D. our wants could be satisfied with available resources.

AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-02 Identify the central fact of economics and explain how it relates to the economic problem. Slavin - Chapter 02 #25

26.	If the economy is operating at a 7 percent unemployment rate we are operating  A. inside the production possibilities curve. B. on the production possibilities curve. C. outside the production possibilities curve.

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #26

27.	In 1939 the U.S. economy was operating at point ________.  A. A B. B C. C D. D

AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #27

28.	In 1944 the U.S. economy was temporarily operating at point _________.  A. A B. B C. C D. D

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #28

29.	We can increase the United States' rate of economic growth by  A. devoting more output to capital goods. B. devoting more output to improving our technology. C. devoting more output to improving the quality of our labor force. D. all of the choices are true.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-09 Identify and explain the factors that enable an economy to grow. Slavin - Chapter 02 #29

30.

If an assumption is made that a society is operating on its production possibilities curve, an outward shift of the curve implies  A. economic growth has occurred. B. the society is making more efficient use of its available resources. C. consumer demand has increased. D. the present value of capital resources has increased.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-09 Identify and explain the factors that enable an economy to grow. Slavin - Chapter 02 #30

31.	Resources include  A. land, labor and money. B. entrepreneurship and capital. C. capital and money. D. corporations and partnerships.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Name the four economic resources and explain how they are used by the entrepreneur. Slavin - Chapter 02 #31

32.	The study of economics  A. is a very narrow endeavor. B. is a way of analyzing decision-making processes caused by scarcity. C. focuses on how a business should function. D. is concerned with proving that capitalism is better than socialism.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Define economics. Slavin - Chapter 02 #32

33.	Economic growth can be shown by ____________________ production possibilities curve.  A. an outward shift of the B. an inward shift of the C. a movement from one point to another along the D. a movement to a point inside the

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #33

34.

Economic growth is difficult for poor countries because  A. governments must fund capital production and research out of tax revenues. B. resources must be taken away from consumer goods to pay for capital goods. C. those wealthy enough to invest in domestic industries may choose to invest abroad instead. D. All of the choices are true.

AACSB: Analytic Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-09 Identify and explain the factors that enable an economy to grow. Slavin - Chapter 02 #34

35.	The United States economy is generally operating _________ the production possibilities curve.  A. inside B. outside C. on

AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-08 Define and explain productive efficiency. Slavin - Chapter 02 #35

36.

Economic growth occurs when  A. a large part of a country's population is poor. B. a society sacrifices an amount of one good for more of another along its production possibility frontier. C. a society acquires additional resources or when its technology advances. D. there is unemployment of labor but other resources are used efficiently.

AACSB: Analytic Blooms: Analyze Difficulty: 2 Medium Learning Objective: 02-09 Identify and explain the factors that enable an economy to grow. Slavin - Chapter 02 #36

37.

If you own a building and you decide to use that building to open a restaurant,  A. there are no sunk costs involved in this decision. B. there is no opportunity cost of using this building for a restaurant because you own it. C. the only cost relevant to this decision is the price you paid for the building. D. there is an opportunity cost of using this building for a restaurant because it could have been used in other ways.

AACSB: Analytic Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-04 Explain and apply the concept of opportunity cost. Slavin - Chapter 02 #37

38.

Which of the following is an example of opportunity cost?  A. The income that could have been earned by working full-time instead of going to college. B. The decline in the grades of a student athlete that occurs because she decides to spend more time practicing sports than on her academic work. C. The value of other things you could have done with the same time and money it cost you to go to the movies. D. All of the choices are examples of opportunity cost.

AACSB: Analytic Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-04 Explain and apply the concept of opportunity cost. Slavin - Chapter 02 #38

39.	The opportunity cost for a student of attending college for a year is measured by  A. the benefit received by the student. B. the tuition paid for the year. C. the value of the most valued opportunity foregone by attending college. D. the total money outlays associated with attending college.

AACSB: Analytic Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-04 Explain and apply the concept of opportunity cost. Slavin - Chapter 02 #39

40.	The economic problem is essentially one of deciding how to make the best use of  A. limited resources to satisfy limited wants. B. unlimited resources to satisfy limited wants. C. limited resources to satisfy unlimited wants. D. unlimited resources to satisfy unlimited wants.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Identify the central fact of economics and explain how it relates to the economic problem. Slavin - Chapter 02 #40

41.	Jeff's entertainment budget is divided between $8 movie tickets and $40 hockey tickets. The opportunity cost to Jeff of going to an extra hockey game is  A. four fewer $10 pizzas. B. five movies. C. 20 DVD rentals (costing $2 each). D. all of the choices are true.

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-04 Explain and apply the concept of opportunity cost. Slavin - Chapter 02 #41

42.	An inward shift in the entire production possibilities frontier  A. represents economic growth. B. means that the economy can produce more of both goods. C. takes place if there is an expansion in the labor force. D. means that previous levels of production are now unobtainable.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 3 Hard Learning Objective: 02-09 Identify and explain the factors that enable an economy to grow. Slavin - Chapter 02 #42

43.	Entrepreneurship is  A. the financial capital necessary to launch a new business. B. the talent to develop new products and processes and to organize production to make goods and services available. C. unskilled labor. D. the capital resources used to produce goods and services.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-05 Describe and distinguish among the concepts of full employment; full production; and underemployment. Slavin - Chapter 02 #43

44.

Which of the following statements about the concept of opportunity cost is true?  A. The opportunity cost of a decision only includes monetary outlays. B. The opportunity cost of a decision is the next best foregone alternative. C. All decisions have zero opportunity cost. D. The opportunity cost of a college education is measured by the payments for tuition and books.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-04 Explain and apply the concept of opportunity cost. Slavin - Chapter 02 #44

45.

The statement "By the time our grandchildren are born, scarcity will not be a problem" is  A. possible only if technology advances at a great pace. B. true, because we will learn to limit our wants in the future. C. true, because by that time everyone's basic needs will be met. D. false, because people always want more than there is available.

AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-02 Identify the central fact of economics and explain how it relates to the economic problem. Slavin - Chapter 02 #45

46.

The opportunity cost of producing one additional truck is  A. the profit that could have been earned from selling that truck. B. the amount of other goods that could not be produced because productive resources were used instead to produce that truck. C. the price of the truck. D. all of the choices are true.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Explain and apply the concept of opportunity cost. Slavin - Chapter 02 #46

47.	The reason that opportunity costs arise is that  A. people have unlimited wants. B. there are no alternative decisions that could be made. C. an economy relies on money to facilitate exchange of goods and services. D. resources are scarce.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-04 Explain and apply the concept of opportunity cost. Slavin - Chapter 02 #47

48.

A small economy produces only pizzas and jeans. If an economy is operating inside its production possibility frontier, which of the following statements is true?  A. it will be possible to produce more pizzas without decreasing the production of jeans. B. the economy will be operating at a point on its production possibilities curve. C. the economy will be operating at a point outside its production possibilities curve. D. it will not be possible to produce more jeans or pizzas.

AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #48

49.

If an economy is operating on its production possibility frontier, which of the following statements is true?  A. Products are produced using inefficient production technology. B. The capacity utilization rate is less than full production. C. The economy's labor force is fully employed. D. A fall in the price of an input will enable the economy to produce outside the production possibility frontier.

AACSB: Reflective Thinking Blooms: Understand Difficulty: 3 Hard Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #49

50.	Which of the following is not a factor of production?  A. Land B. Money C. Capital D. Labor

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Name the four economic resources and explain how they are used by the entrepreneur. Slavin - Chapter 02 #50

51.	The existence of unemployment can be illustrated on a production possibilities curve by a(n)  A. point below or inside the surface of the curve. B. inward shift of the curve. C. movement along the curve. D. outward shift of the curve.

AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-05 Describe and distinguish among the concepts of full employment; full production; and underemployment. Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #51

52.	Which of the following will shift an economy's production possibilities curve outward?  A. An improvement in technology B. An increase in the unemployment rate C. A decrease in land, labor or capital D. A decrease in the unemployment rate

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-09 Identify and explain the factors that enable an economy to grow. Slavin - Chapter 02 #52

53.

The production possibilities curve illustrates the basic principle that  A. an economy's capacity to produce increases in proportion to its population size. B. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. C. an economy will automatically seek that level of output at which all of its resources are employed. D. the production of more of any one good will in time require smaller and smaller sacrifices of other goods.

AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #53

54.

A point along a production possibilities curve shows  A. that in order to acquire more of one good, none of the alternative good must be given up. B. that in order to acquire more of one good, some of the alternative good must be given up. C. that any amount of goods could be produced by society if people worked harder. D. various combinations of guns and butter that can be produced under conditions of 6 percent unemployment.

AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #54

55.

The production possibilities curve tells us that if full employment exists and a nation wishes to permanently increase its production of military goods, it must  A. also increase its production of nonmilitary goods. B. reduce its output of nonmilitary goods. C. suffer inflation. D. suffer unemployment.

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #55

56.	If the economy was operating at point O (where the two axes come together), we would have an unemployment rate of ______ percent.  A. 5 B. 50 C. 95 D. 100

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #56

57.	If we were at point ____ it would be possible to produce more heart transplants and more round-the-world trips.  A. P B. Q C. R D. S

AACSB: Analytic Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #57

58.	If we are currently at point T, we can get to point S in the long run  A. through economic growth over a period of years. B. immediately by using resources more efficiently. C. immediately by reducing the unemployment rate. D. immediately through technological development.

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #58

59.	We could increase the production of both heart transplants and round-the-world trips if we moved to point T from point  A. P. B. Q. C. R. D. S.

AACSB: Analytic Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #59

60.	If we moved from point T to point R we would be  A. giving up trips for more transplants. B. giving up transplants for more trips. C. gaining both trips and transplants. D. losing both trips and transplants.

AACSB: Analytic Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-06 Describe the concept of the production possibilities curve and how it is used. Slavin - Chapter 02 #60

CHAPTER 2

Resource Utilization

A. After studying this chapter the student should be able to

1. Define economics.

2. Identify the central fact of economics and explain how it relates to the economic problem.

3. Name the four economic resources and explain how they are used by the entrepreneur.

4. Explain and apply the concept of opportunity cost.

5. Describe and distinguish among the concepts of full employment, full production, and underemployment.

6. Describe the concept of the production possibilities curve and how it is used.

7. Identify and explain the three concepts upon which the law of increasing costs is based.

8. Define and explain productive efficiency.

9. Identify and explain the factors that enable an economy to grow.

B. Ideas for use in class

Getting started

1. Many of the terms in this chapter will be familiar to students—but not in their technical economic meaning. For example, scarcity, production (meaning services in addition to goods), and full employment are terms likely to be misinterpreted students. Stress that colloquial understanding is not wrong; instead economists want to use these terms in a more precise manner. For example, full employment does not mean 0% unemployment.

2. Connect the terms labor, land, capital, and entrepreneurship to student experience. These terms are relatively easy to understand, so students likely will be able to provide correct examples. All students will participate if you use a think-pair-share activity in which students first think privately of an example, then share it with a partner. Finally, ask a few students to report their examples.

Students may wonder why economists bother to differentiate production resources into these seemingly obvious categories. Point out that one important task for economists is to determine which of these resources is most scarce so that production bottlenecks can be altered. Ask: Which resource is scarcest on your campus? In the United States? In China? In India? In Mexico?

3. This chapter introduces the first graph in the textbook. Show students why graphs are a helpful device for illustrating economic concepts. Begin by explaining the production possibilities curve in words. Point out that this description may be difficult to follow. Then show the same ideas in a simple table with a few entries. Finally, draw the production possibilities curve. Point out that the graph shows the concept visually and has the added advantage of representing all possible combinations inputs, not just the few that were listed in the table.

Active learning strategies

1. Although most students will be able to read the graphs presented in this chapter, they may not fully understand all the underlying assumptions. Ask students to draw a production possibilities curve from a table of data. Make certain that they are able to select the correct labels and choose a reasonable scale for each axis. Suggest that students use a full piece of paper so that errors are not hidden in a tiny graph.

2. Students can construct a production possibilities curve based on their own experience. For the two outputs use their learning of two subjects. The constraining resource is their time in one week. Spending all ones time on one subject will lead to the most learning in that subject, but none in the other subject.
This application can be used to show the law of increasing costs because the first hour of study will bring about more learning that the next hour of study and so on.

3. There are many examples that illustrate opportunity cost based on student experience, most importantly the decision to attend college. Ask students to brainstorm the cost of attending college. Likely they will focus on out of pocket expenses such as tuition and books. However, for many students the largest cost by far is foregone earnings, both what could have been earned during the time spent in school and the lost opportunity for promotion if the student could work full-time. Consider a follow-up project using the sources cited below.

4. For an historical case study of the “guns versus butter” trade-off, examine the relative position of the U.S. and the former Soviet Union during the Cold War. The U.S. spent an average of 6% of national output on armaments, while the Soviet Union spent 20% of national output on armaments. What was the opportunity cost for each country?

5. Students can think that the “guns vs. butter” example is focused on how government spends its money on the military vis-à-vis other programs. Emphasize that you are modeling the economy as a whole. Thus other good examples of trade-offs that can be graphed on a production possibilities curve include: manufactured goods vs. services; private goods and services vs. public sector goods and services; investment goods vs. consumption goods.

6. For an in-class experiment on the production possibilities curve and diminishing returns, see www.marietta.edu/~delemeeg/expernom/Fall2003/blackwell.html and John Neral and Margaret Ray, “Experimental Learning in the Undergraduate Classroom: Two Exercise,” Economic Inquiry, 33 (1995) pp. 170–174.

C. Homework questions and projects

1. Students can analyze the impact on production of a shorter or longer work week. See recent political disputes in Europe on the work week, and articles about the U.S. work week (see, The State of Working America www.stateofworkingamerica.org/).

2. The trade-offs between military and civilian spending are often in the news. For competing estimates of the Iraq war costs, see Lawrence Lindsay’s What a President Should Know…but Most Learn Too Late, and Joseph E. Stiglitz and Linda J. Bilmes The Three Trillion Dollar War: The True Cost of the Iraq Conflict.

3. The benefits and costs of a college education can be studied in several ways:

· Examine opinions and evidence on the returns to college education. See http://chronicle.com/article/Are-Too-Many-Students-Going-to/49039/

· Students can study the relative pay of different professions, including differences by major at http://www.onetonline.org/.

Answers to Multiple-Choice Questions

1. c

2. b

3. b

4. c

5. a

6. b

7. c

8. a

9. b

10. c

11. c

12. a

13. b

14. a

15. c

16. b

17. a

18. d

19. b

20. d

21. b

22. c

23. c

24. b

25. d

26. a

27. b

28. d

29. b

30. d

31. a

32. b

Answers to Fill-In Questions

1. underemployed

2. scarcity

3. unlimited; limited

4. the opportunity cost of producing additional units of this good increases

5. increasing costs

6. the sacrifice of not buying the jacket

7. five percent

8. (1) blue laws; (2) child labor laws; and (3) Americans' preference for daylight weekday work hours.

9. underemployment; less than full production; inefficient allocation of resources.

10. production possibilities frontier or curve

11. within (or inside)

12. (1) improving the level of technology and (2) increasing the amount of resources.

Answers to Problems

1. No—we could produce either more cars or more houses.

2. Yes (by moving towards the production possibilities frontier)

3. No

4.
5. and 6.
7.

8. 2 units of butter, 1 unit of guns

9. (a) 10 DVD players

(b) 20 digital cameras

(c) 50 digital cameras

(d) 10 DVD players

10. Moving from point E toward point A, we give up increasing amounts of digital cameras for each gain of 10 DVD players. The opportunity cost of moving from E to D is 10 digital cameras; from D to C, 20 digital cameras; from C to B, 30 digital cameras and from B to A, 50 digital cameras.

11.

Answers to Questions for Further Thought and Discussion

1. If you were in a position to run our economy, what steps would you take to raise our rate of economic growth?

Increase our savings rate, build more and better capital, have a larger and more skilled labor force, and improve the technology. The federal government could sponsor more basic research, which would boost our technology. Much of our technological advance over the last six decades has come from research funded by the military. A recent application is the Internet. Our labor force could be increased in size and quality by increased immigration. Employers have been clamoring to raise immigration quotas for skilled workers. We could also try to improve our educational system.

2. Under what circumstances can we operate outside our production possibilities curve?

The most common circumstance has been during wartime when workers are more willing to work overtime, work at night and on weekends, and everyone is more willing to put forth that extra effort to help win the war. During times of great prosperity, such as in the last four or five years, we have reduced our unemployment rate well below the full employment rate of 5 percent.

3. Give an example of an opportunity cost for an individual and for a nation.

Individual opportunity cost: If you spend the evening before an exam at a concert, you are giving up 15 points on your exam grade. If you buy a pair of jeans, you would not be able to buy 2 CDs.

National opportunity cost: By building a highway, the nation gave up a new aircraft carrier. By providing $10 billion to hire new teachers, there was $10 billion less available for a tax cut.

4. Would it be harder for a nation to attain full employment or full production? Explain.

Full employment is one of several conditions needed to attain full production. The other involves an efficient allocation of our resources. There would be no underemployment of resources, no employment discrimination, no misallocation of resources, and we would use the best available technology.

5. Could a nation’s production possibilities frontier ever shift inward? Discuss whatever might cause such a shift to occur.

A nation’s production possibilities frontier could shift inward if its productive capacity declined—if the quantity or quality of its labor force declined, if the quantity or quality of its capital declined, or if it used a lower level of technology. The populations of several Western European countries have been declining for years, and in the United States, our birth rate has fallen so low that our population would have been falling if several million immigrants had not been moving here each year. During a war or a depression, the stock of capital usually falls. And if an economy could not afford much new investment, it is possible that older, less productive technology might be used. For example, if we could not afford the investment, we would continue to use our older computers, and perhaps even buy older computers from other countries because we could not afford the newer ones. Indeed, we do export some of our older, obsolete capital to less developed countries.

6. What is the opportunity cost you incurred by going to college?

This is one you can answer a lot better than me, but I’ll try. It might be not holding a full time job, not spending several hours a day watching MTV, or it might be not lying on the beach, surfing, partying, or just hanging out. Maybe you’re giving up a career playing major league baseball or being a rock star.

7. Although the United States is one of the world’s wealthiest nations, some of the federal government’s budget decisions are severely constrained by scarcity. Can you think of one such decision that was in the recent economic news?

I’m at too much of a disadvantage to do more than guess at what would be in the recent economic news—possibly giving up a big tax cut to pay down the national debt, or maybe giving up a national health insurance plan to shore up Social Security.

8. Why is scarcity central to economics?

If there were no scarcity of economic resources, we could produce as much as we needed or wanted, and there would be no need to economize.

9. Can you think of any decision you have recently made that incurred opportunity costs?

Anything that involves giving up the next best alternative. For me it was revising this book instead of writing another book.

10. Do you know any entrepreneurs? What do they do?

You would choose business owners and describe how they run their businesses.

11. Why is entrepreneurship central to every business firm?

A firm cannot run by itself. Someone is needed to hire the land and labor, supply or raise the capital, and to make the major decisions. Business firms do not just spring up by themselves. Entrepreneurs recognize business opportunities and are able to take advantage of them by starting companies, running them, and building them into profitable enterprises.

12. Explain the law of increasing costs, using a numerical example.

The law of increasing costs: As the output of one good expands, the opportunity cost of producing additional units of this good will entail larger and larger opportunity costs. If we were producing bushels of wheat and neckties and we were to keep expanding wheat production, we would need to give up increasing numbers of neckties. For example, if we were to increase wheat production by one bushel increments from 1 bushel to 5 bushels, we would have to give up producing 2, 5, 9, 17, and 30 neckties, respectively.

13. Discuss the three concepts upon which the law of increasing cost is based.

(1) The law of diminishing returns: if units of a resource are added to a fixed proportion of other resources, eventually marginal output will decline.

(2) Diseconomies of scale: inefficiencies that crop up as a firm continues to expand

(3) Factor suitability: As output expands, we hire land, labor, and capital that is less and less suitable (because we hire the most suitable factors first).

14. Practical Application: Underemployment of college graduates is a growing problem. If you were appointed to the board of trustees of your college, what measure would you suggest to alleviate this problem for the graduates of your school?

A substantial number of alumni own businesses or work for sizeable companies and should be invited to recruit graduating seniors. Also, intern programs could be set up with these companies.

Recent graduates should be contacted about any available positions in their companies. And then, too, the names of the school’s most prominent graduates could be used in ads placed in trade journals such as The American Banker and Computer World.