Economics Homework 1

In the circular-flow diagram, Select one: a. income payments flow from firms to households, and sales revenue flows from households to firms. b. resources flow from firms to households, and goods and services flow from households to firms. c. inputs and outputs flow in the same direction as the flow of dollars, from firms to households. d. taxes flow from households to firms, and transfer payments flow from firms to households.

A

A model can be accurately described as a Select one: a. simplification of reality. b. theoretical abstraction with very little value. c. realistic and carefully constructed theory. d. device that is useful only to the people who created it.

a

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy Select one: a. rises. b. may fall, rise, or stay the same. c. stays the same. d. falls.

a

A marginal change is a Select one: a. change that involves little, if anything, that is important. b. small, incremental adjustment. c. large, significant adjustment. d. change for the worse, and so it is usually a short-term change.

b

An economic theory about international trade that is based on the assumption that there are only two countries trading two goods Select one: a. can be useful only in situations involving two countries and two goods. b. can be useful in helping economists understand the complex world of international trade involving many countries and many goods. c. can be useful in the classroom, but is useless in the real world. d. is useless, since the real world has many countries trading many goods.

b

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that Select one: a. improvements in efficiency sometimes come at the expense of equality. b. people face tradeoffs. c. rational people think at the margin. d. people respond to incentives.

b

DeShawn has spent $600 purchasing and repairing an old fishing boat, which he expects to sell for $900 once the repairs are complete. DeShawn discovers that, in addition to the $600 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $900 to potential buyers. He can sell the boat as it is now for $400. What should he do? Select one: a. It does not matter which action he takes; the outcome is the same either way. b. He should complete the repairs and sell the boat for $900. c. He should sell the boat as it is now for $400. d. He should keep the boat since it would not be rational to spend $1,000 on repairs and then sell the boat for $900.

b

Economists make assumptions to Select one: a. create policy alternatives that are incomplete or subject to criticism. b. make a complex world easier to understand. c. provide issues for political discussion. d. make it easier to teach economic concepts and analysis.

b

The principle of comparative advantage does not provide answers to certain questions. One of those questions is Select one: a. Is it absolute advantage or comparative advantage that really matters? b. How are the gains from trade shared among the parties to a trade? c. Is it possible for specialization and trade to increase total output of traded goods? d. Do specialization and trade benefit more than one party to a trade?

b

When can two countries gain from trading two goods? Select one: a. when the first country can only produce the first good and the second country can only produce the second good b. Two countries could gain from trading two goods under all of the above conditions. c. when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost d. when the first country is better at producing both goods and the second country is worse at producing both goods

b

An example of an externality is the impact of Select one: a. increases in health care costs on the health of individuals in society. b. bad weather on the income of farmers. c. pollution from a factory on the health of people in the vicinity of the factory. d. the personal income tax on a person's ability to purchase goods and services.

c

Approximately what percentage of the world's economies experience scarcity? Select one: a. 85% b. 40% c. 100% d. 10%

c

The overriding reason why households and societies face many decisions is that Select one: a. incomes fluctuate with business cycles. b. people, by nature, tend to disagree. c. resources are scarce. d. goods and services are not scarce.

c

Which of the following statements about comparative advantage is not true? Select one: a. Economists use the principle of comparative advantage to emphasize the potential benefits of free trade. b. A country may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good. c. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. d. The principle of comparative advantage applies to countries as well as to individuals.

c

Economic models Select one: a. are simplifications of reality, and in this respect economic models are very different from other scientific models. b. are constructed to mirror reality as closely as possible, and in this respect economic models are no different from other scientific models. c. are constructed to mirror reality as closely as possible, and in this respect economic models are very different from other scientific models. d. are simplifications of reality, and in this respect economic models are no different from other scientific models.

d

Economists use some familiar terms in specialized ways Select one: a. because it was too difficult to come up with new terms. b. because every respectable field of study has its own language. c. to make the subject sound more complex than it is. d. to provide a new and useful way of thinking about the world.

d

In economics, the cost of something is Select one: a. the dollar amount of obtaining it. b. often impossible to quantify, even in principle. c. always measured in units of time given up to get it. d. what you give up to get it.

d

Prices usually reflect Select one: a. only the value of a good to society. b. only the cost to society of making a good. c. neither the value of a good to society nor the cost to society of making the good. d. both the value of a good to society and the cost to society of making the good

d

Trade between countries tends to Select one: a. increase competition and reduce specialization. b. reduce both competition and specialization. c. reduce competition and increase specialization. d. increase both competition and specialization.

d