Question

1- It is possible for an economy to consume at a point outside its production possibilities frontier

Select one:

a. only if it produces at a point outside its production possibilities frontier

b. if all its markets are perfectly competitive

c. if it specializes in and trades products in which it has a comparative advantage

d. never

2-

When quantity demanded of a good is less than the quantity supplied at the prevailing market price,

Select one:

a. the supply curve shifts leftward until the shortage is eliminated

b. a surplus exists and the price of the good tends to fall

c. the market is in equilibrium

d. a shortage exissts and the price of the good tends to rise

e. the demand curve shifts rightward until the surplus is eliminated

3-

In order to achieve productive efficiency, firms, in any market structure, would have to produce where

Select one:

a. marginal cost begins to turn upward.

b. marginal cost rises to intersect marginal revenue.

c. average total cost is minimized.

d. marginal cost rises to intersect the demand curve faced by the firm.

Answer 1

1. Never

A point outside production possibility curve is a unattainable point which means it can never be attained with the available resources and hence an economy can never consume a point outside the curve.

2. A surplus exist and price of the goods tend to fall

A surplus occurs when quantity demanded of a good is less than quantity supplied at the prevailing market price. When quantity supplied is more than quantity demanded then the price of good tends to fall because of excess supply.

3. Average total cost is minimized

Any market achieve productive efficiency when it produces good at lowest possible cost. Therefore in order to achieve efficiency markets would have to produce at a point where average total cost is minimized.