Question

1. Marginal cost is the opportunity cost

   		of a good or service divided by the number of units produced.
   		of a good or service that exceeds its benefit.
   		that your activity imposes on someone else.
   		that arises from producing one more unit of a good or service.

2. The law of demand implies that demand curves

   		shift leftward whenever the price rises.
   		slope down.
   		shift rightward whenever the price rises.
   		slope up.

3. If the United States can increase its production of automobiles without decreasing its production of any other good, the United States must have been producing at a point

   		on its PPF.
   		within its PPF.
   		beyond its PPF.
   		None of the above is correct because increasing the production of one good without decreasing the production of another good is impossible.

4. Which of the following is true?

   		productive or technical efficiency occurs anywhere on the production possibilities curve
   		opportunity cost can be measured by the slope of the PPC curve (frontier)
   		allocative efficiency occurs at a specific point (i.e. a specific mix of production) on the production possibilities curve (frontier) that is valued above all alternatives.
   		all of the answers are correct
   		none of the answers are correct

5. We measure the marginal ________ of a good by what a ________ for another unit of the good.

   		cost; person is willing to pay
   		cost; person's preferences are
   		benefit; person must pay
   		benefit; person is willing to pay

6. Each point on the production possibilities frontier achieves allocative efficiency.

   True

   False

7. If a country must decrease current consumption to increase the amount of capital goods it produces today, then it

   		must be producing outside the production possibilities frontier and will continue to do so in the future.
   		must be using resources inefficiently today, but will be more efficient in the future.
   		must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods.
   		must not have private ownership of property and will have to follow planning authorities decisions today and in the future.

8. One of the opportunity costs of economic growth is

   		the gain in future consumption.
   		reduced current consumption.
   		technological change.
   		capital accumulation.

Answer 1

(1) (D)

Marginal cost is that cost arising out of producing one more unit.

(2) (B)

As per law of demand, when price rises (falls), quantity demanded falls (rises) and the demand curve is downward sloping.

(3) (B)

Any point within the PPF is not fully utilizing its resources, so output of one good can be increased (using idle resources) without decreasing the output of the other good.

(4) (D)

All the three options are correct.

NOTE: As per Answering Policy, 1st 4 questions are answered.