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Foundations of Business 7th Edition
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by William M. Pride, All chapter 1 - 47
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End of Chapter Questions
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Quiz Yourself
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1. Scarcity implies that the allocation decision chosen by society can
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a) not make more of any one good. ty ty ty ty ty ty
b) always make more of any good. ty ty ty ty ty
c) typically make more of one good but at the expense of making less
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of another. ty ty
d) always make more of all goods simultaneously. ty ty ty ty ty ty
Explanation: Scarcity implies that choices involve trade-
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offs.
AACSB: Reflective Thinking ty ty
Accessibility: Keyboard Navigation
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Blooms: Understand
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Difficulty: 02 Medium ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Economics and Opportunity Cost
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2. A production possibilities frontier is a simple model of
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a) allocating scarce inputs to the production of alternative outputs. ty ty ty ty ty ty ty ty
a) price and production/consumption in a market.
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b) the cost of producing goods. ty ty ty ty
c) the number of inputs required to produce varying levels of output.
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Explanation: The production possibilities frontier shows the quantity of two goods
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that can be produced. It implies that scarcity requires that choices be made as to
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how to use resources.
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AACSB: Reflective Thinking ty ty
Accessibility: Keyboard Navigation
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Blooms: Understand
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Difficulty: 02 Medium ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
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,3. The underlying reason that there are unattainable points on a production
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possibilities frontier is that there
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a. is government. ty
b. are always choices that must be made.
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c. are scarce resources within a fixed level of technology.
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d. is unemployment of resources.
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Explanation: The points outside the production possibilities frontier are unattainable.
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This means that currently available resources and technology are insufficient to
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produce amounts greater than those illustrated on the frontier. On a graph, everything
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beyond the frontier is unattainable.
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AACSB: Reflective Thinking ty ty
Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
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4. The underlying reason production possibilities frontiers are likely to be bowed
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out (rather than linear) is because
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a. choices have consequences. ty ty
b. there are always opportunity costs. ty ty ty ty
c. some resources and people can be better used producing one good
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rather than another.
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d. there is always some level of unemployment. ty ty ty ty ty ty
Explanation: If the production possibilities frontier is not a line but is bowed out away
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from the origin, then opportunity cost is increasing. The reason for this is that as we
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add more resources to the production of, for example, pizza, we are using fewer
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resources to produce soda. Compounding that problem, at each stage as we take the
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resources away from soda and put them into pizza, we are moving workers who are
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worse at pizza production and better at soda production than those moved in the
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previous stage. This means that the increase in pizza production is diminishing and the
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loss in soda production is increasing. An economist would call this an example of
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increasing opportunity cost. If the production possibilities frontier is a straight line
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that is not bowed out away from the origin, then opportunity cost is constant.
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AACSB: Knowledge Application ty ty
Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-02
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Topic: Attributes of the Production Possibilities Frontier
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, 5. Suppose you were modeling the impact of the introduction of computer
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automation into manufacturing on a production possibilities frontier (PPF) with two
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manufactured goods on their respective axes. It would be more likely that the result
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would be
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a) generalized growth with the PPF moving both up and to the right. ty ty ty ty ty ty ty ty ty ty ty
b) specialized growth with the PPF moving both up and to the right. ty ty ty ty ty ty ty ty ty ty ty
c) generalized growth with the PPF just moving up and not to the right. ty ty ty ty ty ty ty ty ty ty ty ty
d) specialized growth with the PPF just moving up and not to the right.
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Explanation: Computer automation is a general improvement in technology so it
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would improve all manufacturing. As a result, it would result in generalized growth
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and move the PPF both up and to the right.
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AACSB: Knowledge Application
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Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-03
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Topic: Economic Growth
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6. The optimization assumption suggests that people make
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a. irrational decisions. ty
b. unpredictable decisions. ty
c. decisions to make themselves as well off as possible. ty ty ty ty ty ty ty ty
d. decisions without thinking very hard. ty ty ty ty
Explanation: The optimization assumption suggests that the person in question is
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trying to maximize some objective. Consumers are assumed to be making decisions
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that maximize their happiness subject to a scarce amount of money.
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AACSB: Reflective Thinking
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Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Thinking Economically
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Foundations of Business 7th Edition
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by William M. Pride, All chapter 1 - 47
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,Chapter 1 ty
End of Chapter Questions
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Quiz Yourself
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1. Scarcity implies that the allocation decision chosen by society can
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a) not make more of any one good. ty ty ty ty ty ty
b) always make more of any good. ty ty ty ty ty
c) typically make more of one good but at the expense of making less
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of another. ty ty
d) always make more of all goods simultaneously. ty ty ty ty ty ty
Explanation: Scarcity implies that choices involve trade-
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offs.
AACSB: Reflective Thinking ty ty
Accessibility: Keyboard Navigation
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Blooms: Understand
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Difficulty: 02 Medium ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Economics and Opportunity Cost
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2. A production possibilities frontier is a simple model of
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a) allocating scarce inputs to the production of alternative outputs. ty ty ty ty ty ty ty ty
a) price and production/consumption in a market.
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b) the cost of producing goods. ty ty ty ty
c) the number of inputs required to produce varying levels of output.
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Explanation: The production possibilities frontier shows the quantity of two goods
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that can be produced. It implies that scarcity requires that choices be made as to
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how to use resources.
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AACSB: Reflective Thinking ty ty
Accessibility: Keyboard Navigation
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Blooms: Understand
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Difficulty: 02 Medium ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
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,3. The underlying reason that there are unattainable points on a production
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possibilities frontier is that there
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a. is government. ty
b. are always choices that must be made.
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c. are scarce resources within a fixed level of technology.
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d. is unemployment of resources.
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Explanation: The points outside the production possibilities frontier are unattainable.
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This means that currently available resources and technology are insufficient to
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produce amounts greater than those illustrated on the frontier. On a graph, everything
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beyond the frontier is unattainable.
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AACSB: Reflective Thinking ty ty
Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
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4. The underlying reason production possibilities frontiers are likely to be bowed
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out (rather than linear) is because
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a. choices have consequences. ty ty
b. there are always opportunity costs. ty ty ty ty
c. some resources and people can be better used producing one good
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rather than another.
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d. there is always some level of unemployment. ty ty ty ty ty ty
Explanation: If the production possibilities frontier is not a line but is bowed out away
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from the origin, then opportunity cost is increasing. The reason for this is that as we
ty ty ty ty ty ty ty ty ty ty ty ty ty ty ty ty
add more resources to the production of, for example, pizza, we are using fewer
ty ty ty ty ty ty ty ty ty ty ty ty ty ty
resources to produce soda. Compounding that problem, at each stage as we take the
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resources away from soda and put them into pizza, we are moving workers who are
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worse at pizza production and better at soda production than those moved in the
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previous stage. This means that the increase in pizza production is diminishing and the
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loss in soda production is increasing. An economist would call this an example of
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increasing opportunity cost. If the production possibilities frontier is a straight line
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that is not bowed out away from the origin, then opportunity cost is constant.
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AACSB: Knowledge Application ty ty
Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-02
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Topic: Attributes of the Production Possibilities Frontier
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, 5. Suppose you were modeling the impact of the introduction of computer
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automation into manufacturing on a production possibilities frontier (PPF) with two
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manufactured goods on their respective axes. It would be more likely that the result
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would be
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a) generalized growth with the PPF moving both up and to the right. ty ty ty ty ty ty ty ty ty ty ty
b) specialized growth with the PPF moving both up and to the right. ty ty ty ty ty ty ty ty ty ty ty
c) generalized growth with the PPF just moving up and not to the right. ty ty ty ty ty ty ty ty ty ty ty ty
d) specialized growth with the PPF just moving up and not to the right.
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Explanation: Computer automation is a general improvement in technology so it
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would improve all manufacturing. As a result, it would result in generalized growth
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and move the PPF both up and to the right.
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AACSB: Knowledge Application
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Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-03
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Topic: Economic Growth
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6. The optimization assumption suggests that people make
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a. irrational decisions. ty
b. unpredictable decisions. ty
c. decisions to make themselves as well off as possible. ty ty ty ty ty ty ty ty
d. decisions without thinking very hard. ty ty ty ty
Explanation: The optimization assumption suggests that the person in question is
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trying to maximize some objective. Consumers are assumed to be making decisions
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that maximize their happiness subject to a scarce amount of money.
ty ty ty ty ty ty ty ty ty ty ty
AACSB: Reflective Thinking
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Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy ty ty
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Thinking Economically
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