AAEC 2305 Exam 1

In general, individuals and nations should specialize in producing goods ______ other individuals or nations.

for which they have a lower opportunity cost compared to

Refer to the table below. The average benefit of 2 units of activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225

$80

If a nation restricts imports, it will

decrease the total value of goods and services produced in that nation

If individuals are rational, they should choose actions that yield the:

largest economic surplus.

Refer to the table below. The marginal benefit of the 5th unit of activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225

$10

Refer to the table below. The marginal cost of the 3rd unit of this activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225

$20

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State NoName U is:

$20,000

Refer to the table below. The average cost of 4 units of this activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225

$25

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State College is:

$35,000

For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat all of the meals, your average cost for a meal is:

$4

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450.What is the opportunity cost of using the coupon for the Miami trip?

$450

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. What is Larry's economic surplus from attending State College instead of his next best alternative?

$5,000

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending Elite U is:

$70,000

Suppose the most you would be willing to pay for a plane ticket home is $250. If you buy one for $175, then your economic surplus is:

$75

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, Joe's opportunity cost of selling a truck is selling:

1 car

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, Ralph's opportunity cost of selling a truck is selling:

1/4 of a car

Frank owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the table below. Hours in East Orchard Number of Apples Per Hour Hours in West Orchard Number of Apples Per Hour 1 40 1 10 2 32 2 10 3 25 3 10 4 20 4 10 What is the opportunity cost to Frank of spending an additional hour picking apples in the East orchard?

10 apples

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, Larry's opportunity cost of selling a truck is selling:

2 cars

Frank owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the table below. Hours in East Orchard Number of Apples Per Hour Hours in West Orchard Number of Apples Per Hour 1 40 1 10 2 32 2 10 3 25 3 10 4 20 4 10 What is the marginal benefit to Frank of the 2nd hour he spends picking in the east orchard?

24 apples

Refer to the table below. According to the Cost-Benefit Principle, how many units of this activity should be carried out? Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225

3

Refer to the table below. Martha's opportunity cost of making of a pie is: Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

3/4 of a cake

Refer to the table below. Martha's opportunity cost of making a cake is: Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

4/3 of a pie

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:

5

Refer to the table below. Julia's opportunity cost of making a pie is: Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

5/6 of a cake

Refer to the table below. Julia's opportunity cost of making a cake is: Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

6/5 of a cake

Frank owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the table below. Hours in East Orchard Number of Apples Per Hour Hours in West Orchard Number of Apples Per Hour 1 40 1 10 2 32 2 10 3 25 3 10 4 20 4 10 If Frank spends 2 hours picking apples in the east orchard and 2 hours picking apples in the west orchard, how many apples in total will Frank be able to pick today?

84

If Al has an absolute advantage over Beth in preparing meals, then

Al can prepare more meals in a given time period than Beth.

Which of the following statements is true? A. Absolute advantage implies comparative advantage. B. Comparative advantage does not require absolute advantage. C. Absolute advantage requires comparative advantage. D. Comparative advantage requires absolute advantage.

B. Comparative advantage does not require absolute advantage.

Which of the following jobs is least likely to be outsourced?

Flipping hamburgers

Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?

Forest has to make trade-offs.

Frank owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the table below. Hours in East Orchard Number of Apples Per Hour Hours in West Orchard Number of Apples Per Hour 1 40 1 10 2 32 2 10 3 25 3 10 4 20 4 10 How should Frank divide his time between the east and the west orchard?

He should spend 3 hours in the east orchard and 1 hour in the west orchard.

Which of the following is NOT a reason why there are gains to specialization?

It increases the amount productive resources in the economy.

Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the whole weekend to write the paper. Josh decides to stay home and work on the paper. According to the Scarcity Principle, the reason Josh doesn't go to the game is that

Josh can't go the game and finish the paper.

Refer to the table below. ______ has the comparative advantage in making pies and ______ the comparative advantage in making cakes. Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

Martha; Julia

Moe has a big exam tomorrow. He considered studying this evening, but decided to hang out with Curly instead. If neither activity involves any explicit costs and Moe always chooses rationally, it must be true that:

Moe gets more benefit from spending time with Curly than from studying

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If you do not use the frequent-flyer coupon to fly to Miami, should you go to Miami?

No, your benefit is less than your cost.

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. Should you use the frequent flyer coupon to go to Miami?

No, your benefit is less than your cost.

Suppose it takes Paul 3 hours to bake a cake and 2 hours to move the lawn, and suppose it takes Tom 2 hours to bake a cake and 1 hour to mow the lawn. Which of the following statements is correct?

Paul has the comparative in baking cakes

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, ______ should specialize in truck sales, and ______ should specialize in car sales.

Ralph; Larry

The downward slope of the production possibilities curve illustrates the

Scarcity Principle

The fact that most people make some decisions based on intuition rather than calculation is

consistent with the cost-benefit model because most people intuitively weigh costs and benefits

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his economic surplus by attending:

State College

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If the Chicago-Atlanta round-trip air fare were $350, should you use the coupon to go to Miami?

Yes, your economic surplus would be $50.

Points that lie beneath the production possibilities curve are

attainable but inefficient

An individual has an absolute advantage in producing pizzas if that individual

can produce more pizzas in a given amount of time than anyone else.

In general, individuals and nations should specialize in producing those goods for which they have a(n)

comparative advantage

Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:

drink a third glass of soda if the extra benefit of doing so is positive.

If a country is producing at point where an increase in the production of one good requires a reduction in the production of another good, then it must be producing at an

efficient point.

The marginal benefit of an activity is the

extra benefit associated with an extra unit of the activity

Larry has a comparative advantage over his classmates in writing term papers if he

has a lower opportunity cost of writing term papers than his classmates

According to the Principle of Increasing Opportunity Cost, in expanding the production of any good, we should start by utilizing the resources that

have the lowest opportunity cost

The fundamental reason firms outsource is that

hiring low-wage workers overseas reduces firms' costs

Economics is best defined as the study of

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

According to the Incentive Principle, people will be less likely to smoke if the government:

increases taxes on cigarettes, effectively raising the price

The benefits of specialization can be used to explain why

individuals and nations benefit from trade

Suppose Colin brews beer and makes cheese. If Colin can increase his production of beer without decreasing his production of cheese, then he is producing at an

inefficient point

The Incentive Principle states that a person:

is more likely to take an action if its benefit increases.

A country is most likely to have a comparative advantage in the production of cars if

it has a relative abundance in the natural resources needed to produce cars

The Cost-Benefit Principle indicates that an action should be taken if

its extra benefit is greater than or equal to its extra cost.

The benefits to specialization are even greater when two trading partners have

large differences in opportunity costs.

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, Joe's opportunity cost of selling a car is ______ than Ralph's, and Joe's opportunity cost of selling a car is ______ than Larry's.

less; greater

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

marginal cost

Points that lie below the production possibilities curve are inefficient because

more of one good could be produced without producing less of the other.

The slope of a production possibilities curve is ______ because ______.

negative; producing more of one good requires producing less of the other

Refer to the table below. According to the table, Martha has the absolute advantage in: Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

neither pies nor cakes

An implication of scarcity is that

people must make trade-offs.

Refer to the table below. According to the table, Julia has the absolute advantage in: Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

pies

Refer to the table above. Based on their comparative advantage, Martha should specialize in _______ while Julia should specialize in _______. Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

pies; cakes

All else equal, the jobs that are the least likely to be outsourced are those that

require face-to-face communication

An increase in an economy's productive resources will lead the production possibilities curve to

shift outward

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______.

that choices must be made; how to make good choices

When a U.S. firm engages in outsourcing, it benefits ______ and harms ______.

the U.S. consumers of the firm's products; the firm's U.S. employees

The economic surplus of an action is

the difference between the benefit and the opportunity cost of taking an action.

The production possibilities curve shows

the maximum production of one good for every possible production level of the other good.

The idea that tradeoffs have to be made when resources are scarce is reflected in the fact that

the production possibilities curve has a negative slope.

When a nation reduces the barriers to international trade

the total value of all goods and serviced produced by the nation rises.

In a two-person, two-good economy, the gains to specialization will be larger when:

there are large differences between the individuals in their opportunity costs of producing the two goods.

Points that lie outside the production possibilities curve are ______, and points that lie inside the production possibilities curve are ______.

unattainable; attainable

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes; bigger

The Scarcity Principle states that

with limited resources, having more of one thing means having less of another.

If you have a comparative advantage in a particular task, then

you give up less to accomplish that task than do others.