Introduction to Microeconomics Test 6

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Introduction to Microeconomics Test 6

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Question 1
1 / -0

Any point beyond PPF is _______.

A
attainable

B
unattainable

C
attainable with increase in production facilities

D
none of the above

Solution

The points beyond the PPF curve are unattainable combinations. These points cannot be achieved by existing resources. Thus, any point beyond PPF curve can be attained by increasing supply of resources or factor inputs or by technological innovation with respect to both the goods.
Question 2
1 / -0

If production possibility curve is a straight vertical line it means _______.

A
unlimited production of both the goods

B
no production at all

C
fixed production of one goods and unrestricted production of other

D
none of the above

Solution

If production possibility curve is a straight vertical line it means that the production of one good is fixed whereas the production of the other good is unrestricted. Thus it goes on increasing. this means that the resources are unlimited for one of the goods and are resources are fixed for one good.
Question 3
1 / -0

____________ is not a positive statement.

A
Marginal rate of tax should be lowered to discourage tax avoidance

B
Export of onions has created shortage of onion in the country

C
Over the last two-decade rate of population growth has fallen

D
Growing unemployment is the cause of rapid increase in crimes in metro cities

Solution

Positive statements study the facts of life i.e. it deals with 'things as they are'. It deals with what are the economic problems and how are they actually solved. It explains the cause and effect relationship and avoids giving suggestions.
Option A is giving suggestions but options B, C, D is stating a fact and it not suggesting anything. Thus option A is not a positive statement.
Question 4
1 / -0

Which of these statement is true about production possibility curve (PPC/PPF)?

A
It shows various combinations of two goods which yield same level of satisfaction

B
It shows various combination of two goods which, an economy can produce with a given amount resources

C
It shows various combination of two goods which an economy can produce with a given budget

D
It shows various combination of tivo goods which an economy can produce with a given time

Solution

Production Possibility Frontier (PPF) or Production Possibility Curve (PPC) depicts various production possibilities that represent the maximum possible combination of two goods that can be produced given the resources and technology.
Question 5
1 / -0

If production possibility frontier is linear it implies ______.

A
constant opportunity cost

B
economy is stagnant

C
underemployment of factor of production

D
with the increase in production, opportunity cost also increases

Solution

If production possibility curve is a straight vertical line/linear it means that MRT is constant that is same amount of a commodity is sacrificed to gain an additional unit of another commodity. This means that the opportunity cost is constant. It is possible only when we assume that all the resources are equally efficient in production of all goods.
Question 6
1 / -0

______________ involve value judgement.

A
Normative economics.

B
Positive economics.

C
Political economics.

D
Economic alliance.

Solution

Normative economic theory deals with what ought to be and how the economic problems should be solved. It discusses what desirable things are and how they should be realized and what are undesirable things and should be avoided. It gives decisions regarding value judgements.
Question 7
1 / -0

If an economy is working at a point left to PPF curve it shows that ______.

A
the economy is working at less than the full employment level

B
the economy is at full employment level

C
the economy is country is faced with excess production

D
there is glut of imports

Solution

If an economy is working at a point left to PPF curve it shows that the economy is working at less than the full employment level. The PPC shifts towards the left, when there is a technological degradation and/or decrease in resources with respect to both the goods. For example, destruction of resources in an earthquake will reduce the productive capacity and as a result, PPF shifts towards the left.
Question 8
1 / -0

What does the slope of PPF indicates ?

A
The opportunity cost of one goods in terms of other one

B
The ratio of their market price

C
Ratio of their cost of production

D
The rate of their growth
Solution
- The slope of PPF indicates the relative marginal cost of two goods that is the opportunity cost of one good in terms of another.
- PPF shows all the maximum possible combination of two goods, which can be produced with the given level of resources and technology.
- In such a case, more of one good can be produced by taking resources away from the production of another good.
- Thus the slope indicates the inverse relationship between the change in quantity one commodity to the change of quantity of another commodity.
Question 9
1 / -0

If production possibility curve is a straight horizontal line it means _______.

A
unlimited production of both the goods

B
no production at all

C
fixed production of one goods and unrestricted production of other

D
none of the above

Solution

If production possibility curve is a straight horizontal line it means that the production of one good is fixed whereas the production of the other good is unrestricted. Thus it goes on increasing. this means that the resources are unlimited for one of the goods and are resources are fixed for one good.
Question 10
1 / -0

Curvature of a PPF is due to _______.

A
increase in opportunity cost

B
decrease in opportunity cost

C
fall in demand

D
fall in supply

Solution

Curvature of a PPF is due to increasing opportunity cost. That is more and more units of one commodity are sacrificed to gain an additional unit of another commodity. That is the reason that PPF bends outward and is concave shaped.

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Introduction to Microeconomics Test 6

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Question 1

attainable

unattainable

attainable with increase in production facilities

none of the above

Solution

Question 2

unlimited production of both the goods

no production at all

fixed production of one goods and unrestricted production of other

none of the above

Solution

Question 3

Marginal rate of tax should be lowered to discourage tax avoidance

Export of onions has created shortage of onion in the country

Over the last two-decade rate of population growth has fallen

Growing unemployment is the cause of rapid increase in crimes in metro cities

Solution

Question 4

It shows various combinations of two goods which yield same level of satisfaction

It shows various combination of two goods which, an economy can produce with a given amount resources

It shows various combination of two goods which an economy can produce with a given budget

It shows various combination of tivo goods which an economy can produce with a given time

Solution

Question 5

constant opportunity cost

economy is stagnant

underemployment of factor of production

with the increase in production, opportunity cost also increases

Solution

Question 6

Normative economics.

Positive economics.

Political economics.

Economic alliance.

Solution

Question 7

the economy is working at less than the full employment level

the economy is at full employment level

the economy is country is faced with excess production

there is glut of imports

Solution

Question 8

The opportunity cost of one goods in terms of other one

The ratio of their market price

Ratio of their cost of production

The rate of their growth

Solution

Question 9

unlimited production of both the goods

no production at all

fixed production of one goods and unrestricted production of other

none of the above

Solution

Question 10

increase in opportunity cost

decrease in opportunity cost

fall in demand

fall in supply

Solution

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