How is the reallocation of resources between industries illustrated ?
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Answer: B. A movement along the production possibility frontier
Explanation
The production possibility frontier shows alternative combinations of two goods an economy can produce. Reallocating resources between industries requires shifting inputs from one sector to another. This trade-off is illustrated by moving along the frontier curve rather than shifting it. Opportunity costs arise because resources are specialized and not equally efficient in all uses. Movements along the frontier demonstrate the principle of increasing opportunity cost. Shifts of the entire frontier require changes in technology or total resource endowments.
Governments analyzing defense versus consumer goods spending rely on frontier trade-off models. Economic transitions from agricultural to industrial production involve movements along the frontier. Scarcity forces societies to choose which industry receives prioritized resource allocations. Option a inward shift represents a destruction of productive resources or technology loss. Option c outward shift represents economic growth and increased resource availability. Option d pivoting illustrates asymmetric technological progress in one specific industry sector.
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Answer: D. The price in the market moves closer to marginal cost
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Q2. What should an outward shift in money demand produce, assuming other things remain constant ?
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Answer: C. A higher quantity of money but lower interest rates
An outward shift in money demand, holding the money supply constant, results in a shortage of money and drives up the equilibrium interest rate.
Q3. An upward shift in marginal cost _____ output while an upward shift in marginal revenue ______ output?
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Answer: B. reduces; increases
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Answer: C. Not change the money supply because banks already have excess reserves they cannot lend
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Answer: B. menu costs of inflation
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Answer: A. 0.67 pesos = $1
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