ECON 2022 Test 1
When there is a shortage of a product:
the price will typically rise.
If you wish to understand a person's behavior, look at:
the trade-offs that people face.
opportunity cost
the value of possibilities lost when a choice is made
In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is:
the value of studying economics.
The opportunity cost of a choice is:
the value of the next best opportunity foregone.
Farmers in New Zealand wake at 5 AM to work hard in their fields growing kiwi because:
the value to them of their time and other resources is less than the value of the kiwi to kiwi consumers.
Alice sets aside $30 each week to spend on entertainment. She usually picks one activity and spends all of her money on it. The nearby table lists Alice's favorite activities and how much she spends on each. Bowling - 15/game Movies - 10/movie Dining - 30/dinner Mini golf - 15/game This week Alice decides to go out to dinner with friends. What is the opportunity cost of dinner in terms games of miniature golf?
two games of miniature golf
The opportunity cost of a choice is the _____ of the opportunities lost.
value
If individuals acting in their own interest produce outcomes that _____, but which nevertheless have desirable properties, this is a demonstration of the invisible hand.
were not part of their intention
Institutions align self-interest with the social interest:
when markets work well.
Trade creates value by moving goods from people who value the goods less to people:
who value the goods more.
Suppose that in Mexico it takes four labor hours to produce one shirt and 12 labor hours to produce one computer. Suppose that in the United States it takes four labor hours to produce one shirt and three labor hours to produce one computer. If both countries have 60 labor hours available, completely specialize according to comparative advantage, and trade 7.5 shirts for 7.5 computers, which of the following gives total consumption in the United States after trade?
7.5 shirts and 12.5 computers
Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?
A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
What is the difference between a change in the demand and a change in quantity demanded?
A change in demand shifts the entire curve, a change in quantity demanded means price changed.
Which of the following is an example of self-interest NOT being aligned with social interest?
A firm does not have to pay for its pollution emissions.
Which of the following is an example of self-interest that is aligned with social interest?
A movie star earns millions of dollars for starring in a film.
(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?
Aus -- -2/6 (Textiles/nickle) = 1/3 1/3
The opportunity _____ of a choice is the value of the opportunities lost.
Cost
David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?
David and Cameron must have different preferences for the car.
Suppose the 100 people in society J all know the same 10 facts, but the 100 people in society K specialize, so that there are two facts that they all know, but each person also knows eight unique facts. Which of the following is TRUE?
Each person in society J knows the same number of facts as each person in society K, but K has more knowledge in aggregate.
Which of the following is NOT a trade-off related to Emily's choice to drive above the speed limit?
Emily increases her potential for getting places in a timely manner.
Who responds to incentives?
Everyone
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:
France should specialize in producing phones and import computers from Sweden.
The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. What probably happened in the housing market?
Housing prices fell.
Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in: I. wages in both countries. II. total output in both countries. III. living standards in both countries.
I, II, and III
Which of the following is NOT an example of thinking on the margin?
Joyce decides not to have a hamburger for lunch.
What is thinking on the margin?
Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.
Most choices are _____:Should we do a little bit more or a little bit less of some activity?
Marginal
n order to maximize productivity and total output in society, who should know everything that is known about brain surgery?
Only the small number people who perform brain surgery.
Suppose that in Mexico it takes four labor hours to produce one shirt and 10 labor hours to produce one computer. Suppose that in the United States it takes three labor hours to produce one shirt and x labor hours to produce one computer. What values of x will give Mexico the absolute advantage in the production of computers?
Only values for x that are greater than 10 will do this.
Economies of scale are the _____ in cost that arise when goods are mass-produced.
Reductions
Which of the following helps explain why specialization increases productivity?
Specialization allows producers to learn more about how to produce something than can be learned by someone who does not specialize.
Which of the following helps explain why trade and specialization increases productivity?
Specialization gives producers an incentive to invest in equipment that reduces the average costs of production.
Becky loves watching her favorite television shows once they are available for streaming on the Internet. In order from her most to least favorite, Becky's show preferences are Community, Parks and Recreation, The Office, and 30 Rock. If Becky has time for only two shows, she chooses to watch Community and Parks and Recreation. In this case, what is her opportunity cost?
The Office and 30 Rock
Table: iPhone and iPod Production One iPhone One iPod Canadian labor units 3 ---- 4 United States labor units 2----- 2 (Table: iPhone and iPod Production) According to the table on iPhone and iPod production, which of the following is TRUE?
The United States has an absolute advantage in producing both iPhones and iPods.
Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE?
The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student.
Which choice explains how the OPEC crisis of 1973 affected oil prices?
The supply of oil was reduced, leading to a rise in oil prices.
In the real world, what will happen to workers' wages in the sector with decreased demand as a result of trade?
Their wages will fall.
Suppose the 100 people in society J all know the same 10 facts, but the 100 people in society K specialize, so that there are two facts that they all know, but each person also knows eight unique facts. Which of the following is TRUE?
There are 1,000 total facts known in society J. There are 100 total facts known in society J. There are 55 total facts known in society J. Correct: There are 10 total facts known in society J.
Suppose the 100 people in society J all know the same 10 facts, but the 100 people in society K specialize, so that there are two facts that they all know, but each person also knows eight unique facts. Which of the following is TRUE?
There are 792 more facts known in society K than in society J.
Suppose the 100 people in society J all know the same 10 facts, but the 100 people in society K specialize, so that there are two facts that they all know, but each person also knows eight unique facts. Which of the following is TRUE?
There are 802 total facts known in society K.
Which of the following is NOT a trade-off for making prescription drugs safer?
There are fewer drug-related illnesses and deaths once the drugs come out on the market.
What will happen to workers' wages in sector A, which has experienced increased demand due to trade?
They will rise.
Specialization and trade can _____ the per-unit cost of production because _____ .
decrease; it creates economies of scale associated with large-scale production
Markets ________ align self-interest with the social interest.
do not always
inflation
is an increase in the general level of prices
A producer has an absolute advantage in the production of a good if:
it uses fewer resources than other producers.
The opportunity cost of attending college increases as _____ increase(s).
job opportunities for high school graduates
You can die because an unsafe drug is approved, but you can also die because a safe drug has not yet been approved. This is drug _____.
lag
The absolute value of the elasticity of demand for a "necessity" good with few close substitutes is:
less than 1.
Lower production costs result in:
lower equilibrium price.
Division of knowledge refers to:
people learning different tasks in which they specialize.
We can be sure that voluntary exchanges tend to be mutually beneficial because:
people would not voluntarily engage in exchanges that made them worse off.
If a country is producing on its stable PPF, to produce more of one good, it must:
produce less of the other.
The main incentive for business activity is:
profit
incentives
rewards and penalties that motivate behavior
(Figure: PPF Mexico & United States) Use the above figure in which both Mexico and the United States each have 24 units of labor. Mexico has a comparative advantage in ______ and the United States has a comparative advantage in ______. computers; computers shirts; computers computers; shirts shirts; shirts
shirts; computers
(Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one computer are:
six shirts for Mexico and one shirt for the United States.
A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.
supply; fall; quantity demanded to increase
Which of the following is NOT an incentive governing whether one abides by the speed limit?
the ability of the driver to obtain a mortgage
The production possibilities frontier shows:
the combinations of outputs a country can produce given its resources and productivity.
Economic growth in the modern era is primarily due to:
the discovery of new knowledge.
The better Martha Stewart is at running her business:
the higher her opportunity cost of ironing her own shirts.
If Oliver sells a guitar to Tobey and both men feel that they benefited from the transaction:
the price that they agreed on for the guitar must fall somewhere between how much Oliver values the guitar and how much Tobey values the guitar.
Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:
$48,900
Suppose that in Mexico it takes three labor hours to produce one shirt and nine labor hours to produce one computer. Suppose that in the United States it takes two labor hours to produce one shirt and five labor hours to produce one computer. In terms of computers, what is the opportunity cost of a shirt produced in Mexico?
0.33
Figure: PPF Mexico & United States (Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one shirt are: a. 1/6 of a computer for Mexico and one computer for United States. b. 1/6 of computer for both Mexico and the United States. c. one computer for Mexico and 1/6 of a computer for the United States. d. one computer for both Mexico and the United States.
1/6 of a computer for Mexico and one computer for United States.
If two nations are trading and each produces the goods for which it has the lowest opportunity cost, then the two nations are specializing according to _____ advantage.
comparative
The following table contains the information necessary to construct two Production Possibility Frontiers: one for a small country, and one for a large country. For simplicity both countries can only use their resources to produce wheat and smart phones. Country Smart Phones Wheat Small 20 70 Large 45 90 Part 1: Use the infinite line tool to plot the production possibility frontier for the small country and label it as Small PPF. Part 2: Use the infinite line tool to plot the production possibility frontier for the large country and label it as Large PPF. Part 3: Use the point tool to identify each country's comparative advantage. For simplicity assume that each country will specialize in the production of only one of the two goods and place a point on the endpoint/axis of that country's specialization and label each of these points appropriately. Part 4: Use the infinite line tool to demonstrate the best terms of trade that each country could hope to get from trading with the other one. To show this, assume for the purposes of this problem that each country will specialize completely and that the other country will not demand more than its trading partner will be willing to trade. Then begin with one end of the infinite line tool at the point of specialization and show the best trading ratio each country can expect to receive. Note that this will also define how much the country could consume if trading with those terms were to actually become possible. Be sure to label everything appropriately.
To draw the small country's PPF, position one end of an infinite line at 20 on the Smart Phone axis and the other end of that infinite line at 70 on the Wheat axis. To draw the large country's PPF, position one end of an infinite line at 45 on the Smart Phone axis and the other end of that infinite line at 90 on the Wheat axis. Since the small country is relatively more efficient at wheat production it should specialize in producing wheat and similarly, since the large country has a greater advantage in producing smart phones, it should specialized in producing them. To determine the best terms of trade available to the small country, note that once it has specialized in wheat it will want to trade each unit of wheat for as many smart phones as possible, i.e., it will want its trading line with the large country to be as steep as possible. However, if it is any steeper than the large country’s PPF, the large country would be made worse off by trading with those terms. Terms of trade parallel to the large country’s PPF will be the best the small country can hope to attain.Similarly, after specializing in smart phones the large country will want it's trading line with the small country to be as flat as possible. However, if it is any flatter than the small country's PPF, the small country would be made worse off by trading with those terms. Terms of trade parallel to the small country’s PPF will be the best the large country can hope to attain.To draw these lines, start from each country's point of specialization and use the infinite line tool to draw terms of trade parallel to the other country's PPF.For further review, see The Production Possibility Frontier in Chapter 2: The Power of Trade and Comparative Advantage.
The following table contains the information necessary to construct a Production Possibility Frontier for a small country, that, for simplicity, only use its resources to produce wheat and smart phones. This country has 100 units of labor and needs 5 units of labor to produce a smart phone but only l unit of labor to produce a unit of wheat. --- Opportunity Cost of 1 Smart Phone Opportunity Cost of 1 Wheat Small Country 5 Wheat 1/5 of a Smart Phone Part 1: Use the infinite line tool to plot the production possibility frontier for this small country and label it as the Production Possibility Frontier. Part 2: Use the point tool to identify the following three points: one that efficiently uses all of the country's resources; one that underutilizes resources in this country; and one that is impossible for this country to achieve. Label each of these points appropriately. Hint: When positioning each of these points it will be helpful to uncheck the snapping feature of this diagram.
To draw this country's PPF, position one end of an infinite line at 20 on the Smart Phone axis and the other end of that infinite line at 100 on the Wheat axis. A point on the PPF that utilizes all of the country's resources is labeled efficient; one below, or inside, the PPF represents resources that go unused and should be labeled inefficient; and a point above, or outside, the PPF is unattainable due to a lack of resources and should be labeled impossible. For further review, see The Production Possibility Frontier in Chapter 2: The Power of Trade and Comparative Advantage.
If Kyle voluntarily sells a used guitar to Tona for $800, it must be that:
Tona values the guitar more than Kyle does.
"According to the supply and demand model, all else equal, if the technology used to produce a good improves, supply will increase, causing the price to fall, which causes the quantity demanded to rise as well." This statement is:
True
Rachel has just graduated from college in the United States. Although she has a job offer for $50,000 a year as an editor of a small technology magazine, she is considering taking a year to travel across India. Which of the following will increase Rachel's opportunity cost of traveling through India?
a decrease in the cost of food in India *Correct: a $3,500 increase in her job offer a $3,500 increase in her job offer an increase in the price of living in the United States a decrease in the cost of international airplane tickets
The Department of Energy's Energy Information Service (EIS) predicts the ANWR will produce _____percent of worldwide oil production.
a little less than 1
Adam Smith coined the term "invisible hand" to mean:
a metaphorical hand that leads individuals to promote social interest by pursuing self-interest.
An increase in demand is:
a shift in the demand curve up and to the right.
The ability of one producer to produce one good or service using fewer inputs than another producer is:
absolute advantage.
The quantity supplied is the:
amount of a good that firms are willing and able to sell at a particular price during a given period of time.
When two people have different preferences, trade can be mutually beneficial because:
both can give up something that they value less than what they gain.
A surplus occurs when the quantity supplied is _____ the quantity demanded.
greater than
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. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:
greater than $3
Which of the following is NOT an incentive for earning good grades in high school?
high-paying local jobs that do not require a high school diploma
If demand increases, ceteris paribus, market price will be ______ at the new equilibrium point.
higher
An increase in demand is illustrated by a rightward shift of the demand curve.
higher equilibrium quantity.
If a student studies hard simply to avoid feeling like a failure, this demonstrates that:
incentives matter, because feeling like a failure would be a penalty of not studying hard enough.
As China continues to participate more and more in world markets, we should expect world productivity and output to:
increase because of increased division of knowledge and improved specialization.
Economic growth in China has led to more Chinese people owning cars, which:
increased demand for oil, causing oil prices to rise.