ECO 231

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X. What is the opportunity cost of producing a tenth Viking hat (i.e., going from a production level of nine Viking hats to a production level of 10 Viking hats)? A) 0.5 units of fish B) 2 units of fish C) 0.5 Viking hats D) 2 Viking hats

A) 0.5 units of fish

Markets align self-interest with the social interest as long as the government doesn't interfere. A) True B) False

A) False

A period marked by falling wages, falling national output, and rising unemployment is called a recession. A) True B) False

A) True

Monetary and fiscal policy: A) can make matters worse if poorly used. B) are useless. C) can prevent all recessions. D) are all-powerful.

A) can make matters worse if poorly used.

A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. marginal benefit from the second dozen doughnuts is: A) greater than $3 B) greater than $6 C) greater than $9 D) less than $3

A) greater than $3

When people spend more money without an increase in the supply of goods, prices: A) must rise. B) must fall. C) may rise or fall.

A) must rise.

When private interests in markets are not aligned with the social interest: A) the free market functions in the best interest of society. B) regulatory action may improve upon the free market outcome. C) the relevant market should be banned. D) the relevant production process should be outsourced.

B) regulatory action may improve upon the free market outcome.

Adam Smith sought to explain the concept of aligning self-interest with the promotion of society's overall interest by: A) using an analysis of wealth as productivity. B) suggesting markets are led by an invisible hand. C) arguing that markets were ineffective institutions. D) suggesting that government increase regulations.

B) suggesting markets are led by an invisible hand.

An automobile gets 40 miles per gallon, and a gallon of fuel costs $4.00. What is the marginal fuel cost for a typical mile of driving with this vehicle?A) $0.05B) $0.10 C) $0.15 D) $0.20

B) $0.10

Table: Production Possibilities for Kenya and Sri Lanka Beans (millions of tons) Kenya 100 Sri Lanka 150 Tea (millions of tons) 200 450 6. (Table: Production Possibilities for Kenya and Sri Lanka) According to the table on production possibilities for Kenya and Sri Lanka, which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.) A) 0.5 bean for one tea < Trade price < two teas for one bean B) 0.5 bean for one tea < Trade price < three beans for one tea C) two teas for one bean < Trade price < three teas for one bean D) 0.3 bean for one tea < Trade price < two beans for one tea

B) 0.5 bean for one tea < Trade price < three beans for one tea

During the Great Depression the national unemployment rate rose above 20 percent. A) True B) False

B) False

Economists believe that people will not respond to nonmonetary incentives, like love or status. A) True B) False

B) False

Economists think that no one is ever self-interested. A) True B) False

B) False

Greater emphasis on self-sufficiency and trading less with foreign countries would increase incomes and living standards in the United States.A) TrueB) False

B) False

If two countries are initially at the same level of development, the institution of well-functioning markets can allow one country to develop faster than the other.A) TrueB) False

B) False

People are rational and sometimes respond in unpredictable ways to incentives. A) True B) False

B) False

Jesse is good at math and excellent at making friends and Addae is equally good at both. Mathematically and socially challenged Jordan wants to hire tutors to help in each area. Who should tutor Jordan in which area to maximize Jordan's college experience? A) Jesse and Addae should tutor Jordan in both math and social skills. B) Jesse should teach math and Addae should teach how to make friends. C) Jesse and Addae should both teach how to make friends. D) Jesse should teach how to make friends and Addae should teach math.

B) Jesse should teach math and Addae should teach how to make friends.

During the middle ages, expensive castle-based warfare was the dominant method of conflict. Warfare was also the main function of government. Which reason best explains why few universities were built during this time? A) The lack of professors meant there was no incentive to create universities. B) The opportunity cost of building universities was fewer castles. C) There were no benefits to attending college at the time. D) Local rulers did not care about long-term growth.

B) The opportunity cost of building universities was fewer castles.

Adam Smith's metaphor of the "invisible hand" refers to the notion that: A) greed is always good when externally motivated. B) behavior based on self-interest can lead to an overall benefit to society. C) market incentive can lead to negative side effects. D) markets always align self-interest with social interest.

B) behavior based on self-interest can lead to an overall benefit to society.

When two people voluntarily trade with each other: A) one person will be better off and the other person will be worse off. B) both of them will be better off. C) both of them will be worse off. D) whether they will be better off or worse off depends on how they negotiate with each other.

B) both of them will be better off.

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X and tells us that the opportunity cost of catching (producing) an additional unit of fish in Iceland is: A) increasing in fish production. B) constant in fish production. C) decreasing in fish production. D) unable to be determined from the information

B) constant in fish production.

Specialization and trade can _____ the per-unit cost of production because _____ . A) decrease; it allows for more small-scale production. B) decrease; it creates economies of scale associated with large-scale production C) increase; it requires more expensive, specialized equipment D) increase; more expensive labor is needed.

B) decrease; it creates economies of scale associated with large-scale production

When the opportunity cost of a choice increases: A) individuals are more likely to choose that same option. B) individuals are less likely to choose that same option. C) the marginal benefits of that choice increase, as well. D) the marginal benefits of that choice decrease.

B) individuals are less likely to choose that same option.

Suppose you have ordered a value meal at a local fast-food restaurant. The cashier asks if you would like to "super-size" your meal. In order to make an efficient decision, you should compare: A) the total cost of the larger, "super-sized" meal versus the total benefits received. B) the additional cost of the larger meal versus the additional benefits received. C) the total cost of the larger meal versus the additional cost to the restaurant. D) the benefits of the smaller meal versus the additional benefits obtained from consuming the "super-sized" meal.

B) the additional cost of the larger meal versus the additional benefits received.

When Angel has a comparative advantage over Blake in cooking, it means that: A) the opportunity cost of cooking is higher for Angel than Blake. B) the opportunity cost of cooking is lower for Angel than Blake. C) Angel can cook faster than Blake can. D) Blake can cook faster than Angel can.

B) the opportunity cost of cooking is lower for Angel than Blake.

What factor is responsible for ending malaria in the United States? A) inflation B) wealth C) the gold standard D) yardstick competition

B) wealth

Suppose that you study hard, master the principles of economics, and earn a good grade in your economics class. This is an example of a good institution because: A) your school is selective; not everyone can get in. B) your self-interest in getting good grades aligns with the social interest of having people who understand economics. C) everybody gets good grades. D) sometimes the invisible hand is absent, not just invisible.

B) your self-interest in getting good grades aligns with the social interest of having people who understand economics.

The United States and the European Union are groups of semi-independent states that have come together under an agreement whereby resources can travel freely across borders and a common currency is in use. Which of the following statements best explains how this allows for the achievement of economies of scale? A) Each state or country can now target larger markets and can thus earn more export revenue. B) States and countries no longer have to worry about borders impeding trade. C) Each state or country can adopt large-scale production techniques that allow lower per-unit costs of production. D) The removal of trade borders and a common currency enhances trade between member states.

C) Each state or country can adopt large-scale production techniques that allow lower per-unit costs of production.

Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that: A) France should specialize in producing phones and import computers from Sweden. B) France should specialize in producing computers and import phones from Sweden. C) France should produce both phones and computers, and import nothing from Sweden. D) France should import both phones and computers from Sweden.

C) France should produce both phones and computers, and import nothing from Sweden.

Jack and Jill work at a bakery. In one hour, Jack can decorate either 5 ice-cream cakes or 2 wedding cakes. In one hour, Jill can decorate either 4 ice-cream cakes or 1 wedding cake. According to this scenario, which of the following outcomes will benefit both Jack and Jill the most? A) Both Jack and Jill specialize in decorating ice-cream cakes. B) Both Jack and Jill specialize in decorating wedding cakes. C) Jill specializes in decorating ice-cream cakes and Jack specializes in decorating wedding cakes. D) Jill specializes in decorating wedding cakes and Jack specializes in decorating ice-cream cakes.

C) Jill specializes in decorating ice-cream cakes and Jack specializes in decorating wedding cakes.

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and choosing to attend the game is: A) zero, since the ticket was free. B) priceless, if the person really loves football. C) at least $950, the lost market value of selling the ticket, and the time to go. D) zero, if the person would rather go to the game than do anything else

C) at least $950, the lost market value of selling the ticket, and the time to go.

The average starting salary of economics majors is just behind that of: A) political science majors. B) marketing majors. C) chemical and nuclear engineering majors. D) education majors.

C) chemical and nuclear engineering majors.

Two major policies used by the government to affect economic conditions are: A) acceleration and recalibration policy. B) recalculation and normalization policy. C) fiscal and monetary policy. D) passive and active policy.

C) fiscal and monetary policy.

Table: Production Possibilities for the United States and Mexico Corn (millions of tons) United States 50 Mexico 40 Potatoes (millions of tons) 10 5 5. (Table: Production Possibilities for the United States and Mexico) Using the table on production possibilities for the United States and Mexico, assume each country specializes in the good for which it has a comparative advantage. Which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.) A) 0.2 potato for one corn < Trade price < five corns for one potato B) 0.125 potato for one corn,< Trade price < eight potatoes for one corn C) five corns for one potato < Trade price < eight corns for one potato D) 0.125 potato for one corn < Trade price < five potatoes for one corn

C) five corns for one potato < Trade price < eight corns for one potato

The Great Depression: A) was the normal response of an economy to changing economic conditions. B) could not have been lessened with appropriate monetary policy. C) generated unemployment rates of more than 20 percent. D) was not an important economic event.

C) generated unemployment rates of more than 20 percent.

Most economists believe that an increase in the supply of money results in: A) an increase in the demand for goods and services. B) higher unemployment in the short run. C) higher inflation in the long run. D) no change for the economy.

C) higher inflation in the long run.

Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of: A) the social interest. B) the invisible hand. C) marginal thinking. D) the power of trade.

C) marginal thinking.

The main incentive for business activity is: A) government subsidies. B) technological advancement. C) profit. D) employment.

C) profit.

Bill Gates dropped out of college and founded Microsoft. His opportunity cost of continuing to attend college was A) tuition, the cost of books, and room and board. B) tuition, the cost of books, and a low-paying job. C) tuition, the cost of books, and the income from his Microsoft pursuits. D) only the income from his Microsoft pursuits.

C) tuition, the cost of books, and the income from his Microsoft pursuits.

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X. What is the opportunity cost of producing a tenth unit of fish (i.e., going from nine units of fish production to 10)? A) 0.5 units of fish B) 2 units of fish C) 0.5 Viking hats D) 2 Viking hats

D) 2 Viking hats

(Figure: Countries A and B) Refer to the figure regarding countries A and B. If each country allocated half of its labor force to the production of each good before trade and were to then each specialize in their comparative advantage and allocate 75 percent of its labor force to the production of that good, world production of Good X would change by _____ and the production of Good Y by _____. A) 40; 50 B) 25; -5 C) 15; -5 D) 50; 40

D) 50; 40

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs? A) An ant suffers a large initial cost to find food. B) Because an ant starves if it does not find food, it has a strong incentive to search. C) Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill. D) Searching for food in one direction means an ant cannot search in another direction.

D) Searching for food in one direction means an ant cannot search in another direction.

Brazil can produce one unit of sugar cane for one unit of labor and one iPod for eight units of labor, and China can produce one unit of sugar cane for two units of labor and one iPod for four units of labor. Which of the following is true? A) Before trade, China's opportunity cost of one unit of sugar cane is two iPods. B) China has an absolute advantage in sugar cane production. C) Both parties benefit if they specialize and trade at terms of one unit of sugar cane for two iPods. D) With trade, Brazil should specialize in sugar cane and China in iPods.

D) With trade, Brazil should specialize in sugar cane and China in iPods.

All booms and busts: A) are part of an economy's normal response to changing economic conditions. B) are avoidable. C) are caused by the weather. D) affect the rate of economic growth.

D) affect the rate of economic growth.

Institutions that support economic growth are the ones that: A) encourage consumption and discourage savings. B) give the government more control over what is produced and how it is produced. C) require companies to act in the social interest. D) provide incentives for entrepreneurs to take risks and innovate.

D) provide incentives for entrepreneurs to take risks and innovate.