CLEP Macroeconomics chapter practice4 questions

03 Scarcity, Opportunity Cost, and the Production Possibilities Frontier

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Which of the following statements best explains why scarcity is present in every economy, no matter how wealthy that economy becomes?

Scarcity is the gap between finite resources and the competing uses people value, and no amount of added wealth closes it. A mistakes the supply of money for the supply of real resources; printing more money creates no new labor or capital. B, D, and E describe how resources get allocated, through taxation, trade, or the distribution of income, but none of them explains why allocation is necessary at all.
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C. Resources are limited relative to people's wants.

Scarcity is the gap between finite resources and the competing uses people value, and no amount of added wealth closes it. A mistakes the supply of money for the supply of real resources; printing more money creates no new labor or capital. B, D, and E describe how resources get allocated, through taxation, trade, or the distribution of income, but none of them explains why allocation is necessary at all.

Question 2

Question 2 of 4

A bakery can produce either 30 cakes or 90 loaves of bread with one day's resources. The opportunity cost of one cake is

One cake uses resources that would otherwise turn out (90)/(30)=3 loaves, so the cost of a cake is stated in loaves. A inverts the ratio into cakes per loaf, and B has the arithmetic right but names the good gained rather than the good given up. D subtracts 90-30, and E reports the bread maximum instead of the exchange rate between the two goods.
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C. 3 loaves

One cake uses resources that would otherwise turn out (90)/(30)=3 loaves, so the cost of a cake is stated in loaves. A inverts the ratio into cakes per loaf, and B has the arithmetic right but names the good gained rather than the good given up. D subtracts 90-30, and E reports the bread maximum instead of the exchange rate between the two goods.

Question 3

Question 3 of 4

A combination of two goods lies strictly inside a production possibilities frontier. Which of the following does that indicate?

An interior combination leaves room to produce more of one good without producing less of the other, which is the signature of idle or misallocated resources. Choice B describes an exterior combination, A and D concern preferences and growth rather than efficiency, and C belongs to a comparison between countries.
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E. Unemployed or inefficiently used resources

An interior combination leaves room to produce more of one good without producing less of the other, which is the signature of idle or misallocated resources. Choice B describes an exterior combination, A and D concern preferences and growth rather than efficiency, and C belongs to a comparison between countries.

Question 4

Question 4 of 4

A production possibilities frontier drawn bowed outward from the origin indicates

Curvature comes from resources that are not equally suited to both goods, so each extra unit of one good costs more of the other than the unit before it. B describes the straight-line frontier that constant costs would produce, and D names the resource condition behind that straight line. C confuses moving along the frontier with losing output, since one good rises as the other falls, and E describes a point rather than the shape of the curve.
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A. increasing opportunity cost as one good expands

Curvature comes from resources that are not equally suited to both goods, so each extra unit of one good costs more of the other than the unit before it. B describes the straight-line frontier that constant costs would produce, and D names the resource condition behind that straight line. C confuses moving along the frontier with losing output, since one good rises as the other falls, and E describes a point rather than the shape of the curve.

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