Economics Exam #1

Forest has to make trade-offs.

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?

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

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

Jane; absolute

If Jane can produce 3 pairs of shoes per hour, while Bob can produce 2, then ______ has a(n) ______ advantage in producing shoes.

absolute

If a nation can produce a more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers.

comparative advantage

If a nation has the lowest opportunity cost of producing a good, that nation has a(n) ______ in the production of that good.

people would still have to make trade-offs.

If all the world's resources were to magically increase one hundredfold, then:

the costs will be understated.

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:

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

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

comparative advantage.

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

wash clothes; bigger

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.

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Production Possibility Curve (PPC)

A curve which shows various combinations of the amounts of two goods which can be produced within the given resource and technology graphical representation showing all possible options of outputs for two products.

production possibilities curve.

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a:

makes choices based on added benefits and added costs.

A rational person:

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

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

Absolute Advantage

Being able to carry out an economic task in less time than another. Same job in less time. (Less opportunity cost)

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:

Explicit Cost

Direct payment made to others in the course of running a business, such as wage, rent, and materials. (Money)

average cost.

Dividing the total cost of undertaking n units of an activity by n reveals the:

choice in the face of limited resources.

Economics is best defined as the study of:

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

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:

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

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

$70,000

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:

Rational person

Makes choices based on added benefits and added costs.

normative principles tell us how people should behave, and positive principles tell us how people will behave.

One thing that distinguishes normative economic principles from positive economic principles is that:

attainable but inefficient.

Points that lie beneath the production possibilities curve are:

Lewis has a comparative advantage in pies, and Cathy has an absolute advantage in pies.

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?

Lewis should specialize in pies, and Cathy should specialize in cakes.

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?

economic surplus; $3,000

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.

1/3 of a smoothie

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. What is the opportunity cost to Dan of making a sandwich?

Dan has the comparative and absolute advantage in sandwiches.

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?

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

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:

5

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:

Normative

Tells us how people should behave

Positive

Tells us how people will behave

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

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

everyone.

The Scarcity Principle applies to:

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

The Scarcity Principle states that:

a disproportionate share of the world's best research universities.

The United States generally has a comparative advantage in the development of technology because it has:

Comparative Advantage

The ability of an individual or group to carry out a particular economic activity more efficiently than another activity. (Specialized > General)

Scarcity Principle.

The downward slope of the production possibilities curve illustrates the:

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

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

extra benefit associated with an extra unit of the activity.

The marginal benefit of an activity is the:

Implicit Cost

The opportunity cost, cost equal to what a firm must give up in order to use a factor of production for which it already owns. (Time)

Economics

The study of how people make choices under scarcity and the results of these choices for society.

The scarcity Principle

We have boundless wants, but limited resources. Having more of one good usually means having less than another.

Comparative advantage does not require absolute advantage.

Which of the following statements is true?

$2

You save $10 on gas every week because you take the bus to school. You have class 5 days a week. What is your average benefit per day of taking the bus to school?

Yes, because you will save more than $20.

You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10 percent off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15 percent savings. Should you drive downtown to buy the TV?

Last semester's grades were lower than your overall GPA.

Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true?