Multiple Choice Questions:
1. Which of the following is the most accurate statement about a production possibilities curve?
a. An economy can produce at any point inside or outside its production possibilities curve.
b. An economy can produce only on its production possibilities curve.
c. An economy can produce at any point on or inside its production possibilities curve, but not outside the curve.
d. An economy can produce at any point inside its production possibilities curve, but not on or outside the curve.
2. Which of the following is most likely to shift the production possibilities curve outward?
a. An increase in unemployment
b. A decrease in the stock of physical or human capital
c. A decrease in the labor force
d. A technological advance
3. Which of the following is least likely to shift the production possibilities curve outward?
a. A change in preferences away from one of the goods and toward the other
b. An invention that reduces the amount of natural resources necessary for producing a good
c. The discovery of new natural resources
d. A reduction in people’s preferences for leisure
4. Inefficiency is best illustrated by which of the following?
a. Forgoing civilian goods in order to produce more military goods
b. Limiting economic growth by reducing capital spending
c. Having high levels of unemployment of labor and other resources that could be productively employed
d. Producing outside the production possibilities frontier
e. All of the above

5. Suppose Country A produces few consumption goods and many investment goods while Country B produces few investment goods and many consumption goods. Other things being equal, you would expect
a. Per capita income to grow more rapidly in Country B.
b. Population to grow faster in Country B.
c. The production possibilities curve for Country A to shift out more rapidly than that of Country B.
d. That if both countries started with identical production possibilities curves, in 20 years, people in Country B will be able to produce more consumer goods than people in Country A.
e. That both c and d are true.
6. A virulent disease spreads throughout the population of an economy, causing death and disability. This event can be portrayed as
a. A movement from a point on the production possibilities curve to a point inside the curve.
b. A movement from a point on the production possibilities curve to the northeast.
c. A movement along the production possibilities curve to the southeast.
d. An outward shift of the production possibilities curve.
e. An inward shift of the production possibilities curve.
7. Say that a technological change doubles an economy’s ability to produce good X and triples the economy’s ability to produce good Y. As a result,
a. The economy will tend to produce less X and more Y than before.
b. The opportunity cost of producing units of Y in terms of X forgone will tend to fall.
c. The production possibilities curve will shift out further along the X-axis than along the Y-axis.
d. Both b and c would be true.