Macroeconomics Test 1 Chapter 2

All of the following are considered intellectual property except: A) books B) films C) software D) shares of stock

D) shares of stock

Lack of enforcement of property rights leads to...

Less incentives to produce and less economic growth

What would cause a move from a point on a PPF curve to inside the PPF curve? a. a reduction in the patent protection period to no more than 2 years b. a war that destroys a substantial portion of a nation's capital stock c. the lack of secure and enforceable property rights system

a and c only

A "bowed" shape for a PPF means...

all inputs are not equally suited to producing both goods

An increase in technology for one good (on x axis) will...

only shift the PPF along the horizontal (x axis). This will not affect the maximum output of the good on the vertical axis but can lead to an increase in the output of both goods

If point is above curve...

unattainable with given resources

Adam Smith

"Wealth of Nations," agents act in a self-interested and rational ways to maximize income, utility, profits, etc. "invisible hand"

Five Factors of Production

1) Natural Resources 2) Labor 3) Physical Capital 4) Human Capital 5) Entrepreneurship

For a market economy to be successful we need 2 things...

1) Private property and protection for the exclusive use of property 2) enforcement of contracts and private property rights. This requires a well functioning set of laws and courts

The idea underlying Adam Smith's "invisible hand" is that people tend to behave in ways that go unnoticed in society -True -False

False

To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage. These facts suggest that a positive relationship exists between safety and gas mileage. -True -False

False

If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is with an advance in technology -True -False

False

In the circular flow model, households supply resources such as labor services in the product market. -True -False

False (factor market)

MEMORIZE THE CIRCULAR FLOW DIAGRAM

I MEAN IT!!!!!

Key insight of circular flow diagram...

Income = Spending = Production = Output = GDP

Which of the following countries does not come close to the free market benchmark? A) Cuba B) Japan C) France D) the U.S.

A) Cuba

Which of the following is an example of spending on factors of production in the circular flow model? A) The "Lucky Ducky" casino buys a new craps table for the casino floor. B) Yvette pays $50 to join a softball league. C) Tuan purchases a cappuccino at the student union. D) Laurence rents a car to drive to a wedding in San Diego.

A) The "Lucky Ducky" casino buys a new craps table for the casino floor.

Which of the following would shift a nation's PPF inward? A) a law requiring workers to retire at age 50 B) an increase in the unemployment rate C) producing more capital equipment D) discovering a cheap way to convert sunshine into electricity

A) a law requiring workers to retire at age 50

A successful market economy requires well defined property rights and... A) an independent court system to adjudicate disputes based on the law B) detailed government regulations C) balanced supplies of all factors of production D) a safety net to ensure that those who cannot participate in the market economy can earn an income

A) an independent court system to adjudicate disputes based on the law

Which of the following statements about an entrepreneur is true? A) develops the vision for the firm and funds the producing unit B) purchases other factors of production in the output market C) does not face personal risk D) sells his entrepreneurial services in the output market

A) develops the vision for the firm and funds the producing unit

The primary purpose of patents and copyrights is to.. A) encourage the expenditure of funds on research and development to create new products. B) provide owners with large profit forever C) protect firms from being taken advantage of by competing firms D) protect domestic firms from foreign competition

A) encourage the expenditure of funds on research and development to create new products.

The primary purpose of patents and copyrights is to.. A) encourage the expenditure of funds on research and development to create new products. B) provide owners with large profit forever. C) protect domestic firms from foreign competition. D) protect firms from being taken advantage of by competing firms.

A) encourage the expenditure of funds on research and development to create new products.

The principle of ______ is that the economic cost of using a factor of production is the alternative us of that is given up. A) opportunity cost B) entrepreneurship C) marginal cost D) normative economics

A) opportunity cost

When you purchase a new surfboard you do so in the... A) product market B) input market C) resource market D) factor market

A) product market

Firms... A) sell goods in the product market B) have no influence on the circular flow in a market economy C) purchase resources in the product market D) sell resources in the factor market

A) sell goods in the product market

A critical function of the government in facilitating the operation of a market economy is... A) setting up and enforcing private property rights B) ensuring an equal distribution of income to all citizens C) producing goods and services for low income households D) controlling the market prices of food items

A) setting up and enforcing private property rights

Which of the following are represented by the same flow in the circular flow model? A) the flow of costs and the flow of revenue B) the flow of goods and the flow of factors of production C) the flow of income earned from the sale of resources and the flow of expenditures on goods and services D) the flow of income received by households and the flow of tax revenues paid by firms

A) the flow of costs and the flow of revenue

Constant opportunity cost is caused by...

All inputs being equally suited to producing both goods we have a straight line for the PPF

Horatio can produce either a combination of 15 bird houses and 25 wind chimes or a combination of 30 bird houses and 15 wind chimes, what is the oppurtunity cost of producing an additional 10 wind chimes? A) 2 bird houses B) 15 bird houses C) 30 bird houses D) 45 bird houses

B) 15 bird houses

_______ behavioral assumption about humans was that people usually act in a rational, self-interested way. A) Thomas Malthus's B) Adam Smith's C) Karl Marx's D) Ben Bernanke's

B) Adam Smith's

An outward shift of a nation's PPF can occur due to... A) a reduction in unemployment B) an increase in the labor force C) a natural disaster like a hurricane or bad earthquake D) a change in the amounts of one good desired

B) an increase in the labor force

Suppose your expenses for this term are as follows: tuition: $5,000, room and board: $3,000, books and other educational supplies: $500. Further, during the term, you can only work part-time and earn $4,000 instead of your full-time salary of $10,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college? A) 5,500 B) 8,500 C) 11,500 D) 14,500

C) 11,500

Which of the following is a factor of production? A) $25,000 in cash B) 20 shares of Ford stock C) an acre of forested land D) a U.S. Treasury bond

C) an acre of forested land

Which of the following would shift a nation's PPF outward? A) an increase in the minimum wage B) a decrease in the unemployment rate C) discovering a more efficient process to desalinate water D) more restrictive immigration policies

C) discovering a more efficient process to desalinate water

If a vineyard wants to raise funds to purchase a new bottling machine, it does so in the.. A) product market B) output market C) factor market D) alcoholic beverages market

C) factor market

Suppose there is some unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true? A) it will have to give up production and consumption of some other good B) it will have to increase resource supplies C) it can increase output without giving up another good by employing more resources D) it is not possible to achieve this unless technology advances

C) it can increase output without giving up another good by employing more resources

Which of the following is a factor of production? A) $500 in cash B) 20 shares of Microsoft stock C) the janitor at the local elementary school D) a sofa produced by a furniture manufacturer

C) the janitor at the local elementary school

All of the following are examples of spending on goods and services in the circular flow model except.. A) Lenny buys a new digital camera to take pictures at his son's graduation B) Hernan buys a pizza at Papa C's C) Amanda purchases a new electric guitar to pursue her hobby seriously D) Chaitanya buys a new spa pedicure chair for her expanding nail salon business

D) Chaitanya buys a new spa pedicure chair for her expanding nail salon business

A guild is... A) a group of nations who agree not to compete with each other. B) a nation that is a free market benchmark. C) a group of independent producers competing with each other. D) an organization of producers that limits the amount of a good produced.

D) an organization of producers that limits the amount of a good produced.

The ______ production points on a production possibility curve are the points along and inside the production possibility frontier. A) allocatively efficient B) unattainable C) productively efficient D) attainable

D) attainable

In 18th century Europe, government gave guilds legal authority to limit production of goods. This authority obstructed the market mechanism because the guild's actions prevented the forces of _____ from coordinating the self-interested decisions of producers and consumers. A) nature B) absolute advantage C) opportunity cost D) demand and supply

D) demand and supply

When a celebrity has the desire to have his image protected following his death, this is best described as an example of the protection of... A) a trademark B) an invention C) a patent D) intellectual property

D) intellectual property

_____ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good. A) the mixed market system B) comparative advantage C) absolute advantage D) the production possibilities frontier model

D) the production possibilities frontier model

Production Possibilities Frontier

Demonstrates the maximum attainable combination of two products with a given technology and a given level of "factors of production."

A stand of redwood trees is not an example of a factor of production but the harvested and processed redwood is a factor of production. -True -False

False

Any output combination inside a production possibility frontier is associated with unused or underutilized resources. -True -False

True

If a country is producing efficiently and is on the PPF, producing more of one good would result in a movement along the frontier. -True -False

True

If additional units of a good are produced at an increasing opportunity cost, the production possibility frontier would be bowed outward(concave). -True -False

True

If additional units of a good could be produced at a constant opportunity cost, the PPF would be linear. -True -False

True

The payment received by suppliers of entrepreneurial skills is called profit. -True -False

True

Outward shifts in the PPF represent..

economic growth as output increases. Example: general increase in technology or increase in one or more factors of production

If point is on curve...

efficient, resources are fully employed (attainable)

Negative slope of PPF...

implies that an opportunity cost exists

If point is below curve..

inefficient, resources are underemployed (attainable)