Macroeconomics Test 1

not allowing the quantity of money to increase so rapidly.

Germany could have avoided the high inflation that it experienced in the 1920s by

national defense and consumer goods.

Guns and butter are used to represent the classic societal tradeoff between spending on

resources are specialized; that is, some are better at producing particular goods rather than other goods.

Production possibilities frontiers are usually bowed outward. This is because

N

Refer to Figure 2-3. At which point is this economy producing its maximum possible quantity of pans?

K, N

Refer to Figure 2-3. Efficient production is represented by which point(s)?

J, L

Refer to Figure 2-3. This economy cannot produce at which point(s)?

K, M, N

Refer to Figure 2-3. This economy has the ability to produce at which point(s)?

M

Refer to Figure 2-3. Unemployment could cause this economy to produce at which point(s)?

an improvement in printer production technology.

Refer to Figure 2-9, Panel (a) and Panel (b). A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by

6 computers.

Refer to Figure 2-9, Panel (a). In order to gain 2 printers by moving from point C to point D, society must sacrifice

12 computers.

Refer to Figure 2-9, Panel (a). The opportunity cost of one computer is highest when the economy produces

"China is a market economy with socialist characteristics."

What does Jacob Clifford say about the economy of China in the video "Why is Communist China doing so well"?

When the rate of tradeoff between the two goods being produced is constant.

When is a production possibilities frontier a straight line?

a tradeoff because of reduced incomes to the firms' owners and workers.

When society requires that firms reduce pollution, there is

the impact of minimum-wage laws on employment in the fast food industry

Which of the following areas of study typifies microeconomics as opposed to macroeconomics?

an electric company

Which of the following firms is likely to have the greatest market power?

The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

Which of the following is not correct?

Comparative advantage is determined by deciding which person or group of persons can produce a given quantity of a good using the fewest resources.

Which of the following sentences about comparative advantage is false? Correct Answer

Public officials such as state governors should lead by example. Prices of life-savings medications must be regulated by the government to ensure equity.

Which of the following sentences is/are example(s) of normative statement(s)?

Economics has now reached an experimental stage and, like in any other science, all economic theories can now be tested using controlled experiments.

Which of the following statements about economics is false?

None of the given options are correct.

Which of the following statements best characterizes a basic difference between market economies and centrally-planned economies?

Jennifer works as a marriage counselor and her clients pay her on a per-hour basis for her services.

Which of the following transactions does not take place in the markets for the factors of production in the circular-flow diagram?

A secretary smokes a cigarette in a crowded break room.

Which of these activities will most likely impose an external cost?

Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?

small, incremental adjustment.

A marginal change is a

what it will cost him more to make than to buy.

Adam Smith asserted that a person should never attempt to make at home

it is impossible to produce more of one good without producing less of the other.

An economy's production of two goods is efficient if

toothbrushes and a comparative advantage in the production of toothbrushes.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate.

5/6 hairbrushes.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. According to the theory of comparative advantage, Zimbabwe and Portugal would not be able to gain from trade if Zimbabwe's opportunity cost of one toothbrush changed to

4 toothbrushes and 2 hairbrushes.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Assume that Zimbabwe and Portugal each has 60 machine minutes available. Originally, each country divided its time equally between the production of toothbrushes and hairbrushes. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output increased by Correct!

hairbrushes and a comparative advantage in the production of hairbrushes.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Portugal has an absolute advantage in the production of

3 hairbrushes

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Refer to Table 3-3. Suppose Zimbabwe decides to increase its production of toothbrushes by 10. What is the opportunity cost of this decision?

10/3 toothbrushes and Portugal's opportunity cost of one hairbrush is 6/5 toothbrushes.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Refer to Table 3-3. Zimbabwe's opportunity cost of one hairbrush is

externalities and market power.

Causes of market failure include

the enjoyment she would have received had she watched the video.

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is

False

Economic models can help us understand reality only when they include all details of the economy.

focus their thinking on the essence of the problem at hand.

Economists make assumptions in order to

2.8 kg of potatoes.

Imagine that a gardener produces both carrots and potatoes in her garden. If she must give up 14 kg of potatoes to get 5 kg of carrots, then her opportunity cost of 1 kg of carrot is

the $50,000 salary that you will be able to earn after having completed your graduate program

Imagine that after graduating from college you get a job working at a bank earning $45,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost?

increased by 6.25 percent between 1998 and 2008.

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

what you give up to get it.

In economics, the cost of something is

True

In economics, the term "scarcity" means that there is less of a good available than people wish to have.

False

In the circular-flow diagram, factors of production are the goods and services produced by firms.

money

In the circular-flow diagram, which of the following is not a factor of production?

False

Inflation increases the value of money.

1.13

It takes Betty 9 h to bake a cake and 8 h to knit a sweater. What is her opportunity cost of 1 cake in terms of knitted sweaters? (Enter the number only and express it in decimal form by rounding to the second decimal place.)

are more efficient.

One advantage market economies have over centrally-planned economies is that market economies

Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.

One way to characterize the difference between positive statements and normative statements is as follows:

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

People are willing to pay more for a diamond than for a bottle of water because

One economist advises against increases in sales taxes because she thinks such increases are unfair to low-income people; another economist disputes the idea that increases in sales taxes are unfair to low-income people.

Sometimes economists disagree because their values differ. Which of the following instances best reflects this source of disagreement?

True

The invisible hand ensures that economic prosperity is distributed equally.

the country's ability to produce goods and services.

The primary determinant of a country's standard of living is

both the value of a good to society and the cost of making it.

Your cousin asks you why prices determined by the market are better than prices determined by the government. Because you have taken this "Principles of Economics" class, you explain that market-determined prices are better because they generally reflect

According to an economist, a rational decisionmaker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.