True-false test

1. The problem of scarce resources does not exist in highly developed countries.

2. The only reason for shortage of economic resources in any economy is inefficient use of those resources.
3. Each economy, regardless the degree of use of economic resources, faces the substitution rule, e.g. necessity of
resigning a part of production of one good to increase production of another one.
4. Points lying on the production possibilities curve indicate full employment of production factors.
5. If an economy does not use all of its production factors, combinations of goods produced in that economy lie
below the production possibilities curve.
6. Introduction of new technologies of production may shift the production possibilities curve up (to the right).
7. At full employment of production factors an economy may produce more of one good not reducing output of

the other.
8. In a full-employment (of production factors) economy increase in output of one good always arises an
opportunity cost.
9. Despite the degree of use of economic resources, each economy has to decrease output of one good to increase
output of the other.
10. If there exists unemployment in a given economy, this means that the economy does not produce efficiently (it

does not achieve any point lying on the production possibilities curve).

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 Choice test

1. Problem of limited resources refers to:

a. countries with limited stock of economic resources
b. countries with low income per capita (per person)
c. all countries
d. none answer is true.

2. Which of the following is not a production factor?

a. truck
b. driver that operates the truck
c. engine oil for the truck
d. wage for a driver.

3. Shift of the production possibilities curve up may be a result of:

a. drop in unemployment
b. improvement of production technology
c. more efficient use of land
d. all of the above are true.

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4. Production possibilities curve:
a. presents alternative combinations of two goods that society produces within a given period of time at underemployment
of production factors
b. separates attainable and unattainable combinations of goods at a given stock of resources and within a given time
c. may shift down if the economy fails to fully use its economic resources
d. all of the above answers are true.

5. Which of the following factors may induce the shift of the production possibilities curve down?
a. reduction of labour force
b. increase in unemployment
c. drop in unemployment
d. none of the above is true.

6. Let’s assume that the economy does not fully uses its economic resources. If now it starts to utilize them efficiently
(fully), this means that:
a. the production possibilities curve for this economy will shift up
b. there will be no opportunity cost
c. the production possibilities curve for this economy will shift down
d. the economy will be able to achieve any point on the curve.

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 Exercises

1. The table presents annual production possibilities of an economy.

Combinations of goods Good X Good Y
A 30 0
B 27 2
C 21 4
D 12 6
E 0 8
a. construct the graph presenting production capacities of the economy
b. if the economy finds itself at point C, what is an opportunity cost of producing 2 additional units of good Y?
c. plot a point F below the curve. Assume the economy is at that point now. How could you interpret the situation?
d. plot a point G above the curve. Assume the economy is at that point now. How could you interpret the situation?
e. What should happen to enable the economy to attain point G?

2. Economy produces two goods: X and Y. Production possibilities of the economy are presented in table 1:
Combinations of goods Good X Good Y
A 0 10
B 1 9
C 2 7
D 3 4
E 4 0
Due to introduction of new production technology, the economy gained new production capacities, shown in table 2:

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 Combinations of goods Good X Good Y
A’ 0 14
B’ 2 12
C’ 4 9
D’ 6 5
E’ 8 2
a. draw the production possibilities curve for the economy on the base of table 1.
b. what happens to the curve as a result of introducing the new technology (use data from table 2)?