QUESTION 1
1. Possible reasons the production possibility frontier would be concave include which of the following?
a. diminishing returns
b. specialized inputs
c. different factor intensities
d. All of the above.

QUESTION 2
1. Consider two goods, x and y, each produced using two inputs, labor l and capital k. Which of the following statements is correct?
a. If production functions exhibit diminishing returns to scale, the production possibility frontier will be concave.
b. If inputs are homogeneous and production functions exhibit constant returns to scale, the production possibility frontier will be concave if goods x and y use inputs in different proportions.
c. If inputs are homogeneous and production functions exhibit constant returns to scale, the production possibility frontier will be a straight line if goods x and y use inputs in the same proportions.
d. All of the above.

QUESTION 3
1. Suppose that the production of both x and y depends only on labor input and that the production functions for these goods are: x = f(lx) = lx and y = f(ly) = ly. Production of each of these goods exhibits:
a. diminishing return to scale
b. constant return to scale
c. increasing return to scale
d. undetermined

QUESTION 4
1. Consider a simple two-good (closed) economy, the production possibility frontier for the economy, and the set of indifference curves representing individuals’ preferences for these goods. Quantities of good x produced and consumed are plotted on the horizontal axis. Quantities of good y produced and consumed are plotted on the vertical axis. Equilibrium is reached at x*, y* with a price ratio of px*/py*. Which of the following statements is correct?
a. If individuals’ preferences were to shift toward good y, then px/py would increase and a new equilibrium would be established by a clockwise move along the production possibility curve. More x and less y would be produced and consumed to meet these changed preferences.
b. If individuals’ preferences were to shift toward good x, then px/py would increase and a new equilibrium would be established by a clockwise move along the production possibility curve. More x and less y would be produced and consumed to meet these changed preferences.
c. If individuals’ preferences were to shift toward good x, then px/py would decrease and a new equilibrium would be established by a clockwise move along the production possibility curve. More x and less y would be produced and consumed to meet these changed preferences.
d. If individuals’ preferences were to shift toward good y, then px/py would increase and a new equilibrium would be established by a counter-clockwise move along the production possibility curve. More y and less x would be produced and consumed to meet these changed preferences.

QUESTION 5
1. Consider the production possibility frontier for a simple two-good (closed) economy. Quantities of good x produced are plotted on the horizontal axis. Quantities of good y produced are plotted on the vertical axis. Suppose that the production of both x and y depends only on labor input and that the production functions for these goods are: x = f(lx) = lx and y = f(ly) = ly. Total labor supply is limited by: lx + ly = 100. This production possibility frontier is: (HINTS: You may want to derive the production possibility frontier equation. See Example 13.1.)
a. convex shaped
b. concave shaped
c. a straight line
d. undetermined

QUESTION 6
1. Consider the production possibility frontier for a simple two-good (closed) economy. Quantities of good x produced are plotted on the horizontal axis. Quantities of good y produced are plotted on the vertical axis. Suppose that the production of both x and y depends only on labor input and that the production functions for these goods are: x = f(lx) = lx and y = f(ly) = ly. Total labor supply is limited by: lx + ly = 100. The rate of product transformation (RPT) between the two goods, at x = 50 and y = 50, is equal to [RPT]. (NOTE: Write your answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. HINTS: First derive the production possibility frontier equation. See Example 13.1.)

QUESTION 7
1. Consider the production possibility frontier for a simple two-good (closed) economy. Quantities of good x produced are plotted on the horizontal axis. Quantities of good y produced are plotted on the vertical axis. Suppose that the production of both x and y depends only on labor input and that the production functions for these goods are: x = f(lx) = lx and y = f(ly) = ly. Total labor supply is limited by: lx + ly = 100. The typical individual’s utility function is given by U(x,y) = x·y. The equilibrium quantity of good x produced/consumed is and the equilibrium quantity of good y produced/consumed is . (NOTE: Write your answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. HINTS: First derive the production possibility frontier equation. See Example 13.2.)

QUESTION 8
1. Consider the production possibility frontier for a simple two-good (closed) economy. Quantities of good x produced are plotted on the horizontal axis. Quantities of good y produced are plotted on the vertical axis. Suppose that the production of both x and y depends only on labor input and that the production functions for these goods are: x = f(lx) = lx and y = f(ly) = ly. Total labor supply is limited by: lx + ly = 100. The typical individual’s utility function is given by U(x,y) = x·y. The equilibrium price ratio px*/py* is equal to [r]. (NOTE: Write your answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. HINTS: First derive the production possibility frontier equation. See Example 13.2.)

QUESTION 9
1. Consider a simple two-good economy, initially closed to trade. Assume this economy starts allowing international trade. Refer to Figure 1. After trade, this economy imports units of good , where g is either x or y. (NOTE: Write your first answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. Write your second answer in lower case letter.)

QUESTION 10
1. Consider a simple two-good economy, initially closed to trade. Refer to Figure 1. Production of both goods x and y use two inputs: labor l and capital k. Further assume that production of good x is relatively capital intensive. In this case, allowing international trade will cause the ratio of capital k to labor l to and the relative price of capital to , where a and b are each either increase or decrease. (NOTE: Write both your first answer and your second answer in lower case letters. HINTS: First, figure out from which point to which point this economy moves on its PPF, following the opening to international trade. Second, go back to the Edgeworth Box production diagram this PPF is constructed from. Information about factor intensity will allow you to sketch the general shape of the contract curve in this Edgeworth Box diagram. This in turn will allow you to determine what effect the movement along the PPF has on the ratio of k to l, and, consequently, on the relative price of capital. In Chapter 13, See section titled General Equilibrium Modeling and Factor Prices.)

QUESTION 1 1. Possible reasons the production possibility frontier...