TEST BANK FOR INTERNATIONAL
ECONOMICS THEORY AND POLICY 10TH
EDITION KRUGMAN OBSTFELD MELITZ
|QUESTIONS AND CORRECT ANSWERS 2024
,File: Chapter 02 The Production Possibility Model, Trade, and Globalization
True/False
[Question]
1. The production possibility model can be used to demonstrate the concept of opportunity cost.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 02-01
Topic: The Production Possibility Model
Feedback: The production possibility model shows all the possible production combinations and
also demonstrates the trade-offs involved in moving from one combination to another.
[Question]
2. Production possibility curves are upward-sloping because increased production of one good
implies reduced production of other goods.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 02-01
Topic: The Production Possibility Model
Feedback: Production possibility curves are downward-sloping. The rest of the statement is
correct.
[Question]
3. An economy that operates inside its production possibility curve is less efficient than it would
be if it were operating on its production possibility curve.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 02-01
Topic: The Production Possibility Model
Feedback: The production possibility curve represents the most output we can get with a given
level of inputs. Operating inside that curve would mean that we can produce more with the given
inputs and, as long as we prefer more to less, represents a less efficient point than a point on the
production possibility curve.
[Question]
4. If the principle of increasing marginal opportunity cost holds, the opportunity cost of
producing each additional unit of a good should fall as production of that good rises.
Ans: False
,AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 02-01
Topic: The Production Possibility Model
Feedback: See the definition of the principle of increasing marginal opportunity cost in the text.
[Question]
5. Productive efficiency is not achieved at any point inside the production possibility curve.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 02-02
Topic: Comparative Advantage
Feedback: Since it is always possible to reallocate resources at any point inside the production
possibility curve in a way that increases output, these points do not represent productive
efficiency.
[Question]
6. If a country has a comparative advantage in the production of a good, its resources are better
suited to the production of that good than are the resources of other countries.
Ans: True
AACSB: Reflective Thinking
, Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 02-02
Topic: Comparative Advantage
Feedback: See the definition of comparative advantage in the text.
[Question]
7. Two nations with differing comparative advantages will be able to consume more if they
specialize and trade with each other than if they did not specialize or trade with each other.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 02-03
Topic: Trade and Comparative Advantage
Feedback: Trade shifts production of each good to the country or countries with the lowest
opportunity costs. As a consequence, total production rises and hence so does total consumption,
allowing each country to consume more than if it did not trade.
[Question]
8. Two nations with differing comparative advantages will be able to consume more if each
produces the good for which the opportunity cost is highest and trades for the good for which
opportunity cost is lowest.
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