Micro Econ Chapter 2

A circular-flow diagram is a model that a. helps to explain how participants in the economy interact with one another. b. helps to explain how the economy is organized. c. incorporates the markets for the factors of production. d. All of the above are correct.

d

A type of graph that can be used to display the relationship between two variables is a. a pie chart. b. a bar graph. c. a time-series graph. d. the coordinate system.

d

Economists make use of assumptions, some of which are unrealistic, for the purpose of a. teaching economics to people who have never before studied economics. b. advancing their political agendas. c. developing models when the scientific method cannot be used. d. focusing their thinking.

d

Factors of production are a. the mathematical calculations firms make in determining their optimal production levels. b. social and political conditions that affect production. c. the physical relationships between economic inputs and outputs. d. inputs into the production process.

d

Refer to Figure 2-10. The slope of the curve between points A and B is a. 5/2 b. 2/5 c. -2/5 d. -5/2

d

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines. Which of the following statements is true? a. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 30. b. Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry. c. In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies. d. The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food.

d

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the a. amount of the other good that must be given up. b. market price of the additional amount produced. c. amount of resources that must be devoted to its production. d. number of dollars that must be spent to produce it.

a

Refer to Figure 2-9. Cups of coffee per day and the hours that someone can go without sleep appear to have a. a positive correlation. b. a negative correlation. c. a random correlation. d. no correlation.

a

Refer to Figure 2-8. Production is efficient if the economy is producing a. 30 barrels and 6 bathtubs. b. 20 barrels and 8 bathtubs. c. 25 barrels and 12 bathtubs. d. 15 barrels and 12 bathtubs.

a

A production possibilities frontier shifts outward when a. the economy experiences economic growth. b. the desires of the economy's citizens change. c. at least one of the basic principles of economics is violated. d. opportunity costs are lessened.

a

Factors of production are a. used to produce goods and services. b. also called output. c. abundant in most economies. d. assumed to be owned by firms in the circular-flow diagram.

a

If an economy is producing efficiently, then a. there is no way to produce more of one good without producing less of another good. b. it is possible to produce more of both goods without increasing the quantities of inputs that are being used. c. it is possible to produce more of one good without producing less of the other. d. it is not possible to produce more of any good at any cost.

a

In the markets for the factors of production, a. households are sellers and firms are buyers. b. households are buyers and firms are sellers. c. households and firms are both buyers. d. households and firms are both sellers.

a

Production is efficient if the economy is producing at a point a. on the production possibilities frontier. b. outside the production possibilities frontier. c. on or inside the production possibilities frontier. d. inside the production possibilities frontier.

a

Refer to Figure 2-10. The movement from point B to point C is a(n) a. shift of the curve. b. movement along the curve. c. indication that the price of roses has changed. d. indication that the costs incurred by firms that produce roses have changed.

a

Refer to Figure 2-5. Which of the following events would explain the shift of the production possibilities frontier from A to B? a. The economy experienced a technological advance in the production of batteries. b. The economy's citizens developed an enhanced taste for batteries. c. More capital became available in the economy. d. More labor became available in the economy.

a

Refer to Figure 2-8. If this economy moved from point C to point E, a. it still would not be producing efficiently. b. there would be no gain in either bathtubs or barrels. c. it would be producing more barrels and more bathtubs than at point C. d. It is not possible for this economy to move from point C to point E without additional resources.

a

Which of the following is an example of a positive statement? a. Prices rise when the government prints too much money. b. If welfare payments increase, the world will be a better place. c. Inflation is more harmful to the economy than is unemployment. d. When public policies are evaluated, the benefits to the economy of improved equity should be considered more important than the costs of reduced efficiency.

a

A production possibilities frontier can shift outward if a. government increases the amount of money in the economy. b. there is a technological improvement. c. resources are shifted from the production of one good to the production of the other good. d. the economy abandons inefficient production methods in favor of efficient production methods.

b

A production possibilities frontier that is a straight line shows a. a truer picture of the real world than does a bowed-out production possibilities frontier. b. that resources can be shifted easily and seamlessly from the production of one good to the production of a different good. c. that the opportunity cost of one good in terms of another good depends on the quantities of the two goods that the economy is producing. d. All of the above are correct.

b

In economics, capital refers to a. the finances necessary for firms to produce their products. b. buildings and machines used in the production process. c. the money households use to purchase firms' output. d. goods, but not to services.

b

In the early 19th century, the Russian government sent doctors to southern Russian villages to provide assistance during a cholera epidemic. The villagers noticed that wherever doctors appeared, people died. Therefore, many doctors were chased away from villages, and some were even killed. This reaction to the correlation between doctors and deaths is most likely a problem of a. omitted variables. b. reverse causality. c. government propaganda. d. medical incompetence.

b

Refer to Figure 2-10. The curves shown are a. supply curves. b. demand curves. c. preference curves. d. income-consumption curves.

b

Refer to Figure 2-10. The movement from point B to point C could have been caused by a. inflation. b. a change in income. c. a change in the price of roses. d. a change in the cost of producing roses.

b

Refer to Figure 2-8. What is the opportunity cost of moving from point A to point B? a. 8 bathtubs b. 20 barrels c. the gain in well-being that the society experiences as a result of the move d. the loss of well-being that the society experiences as a result of the move

b

Refer to Figure 2-8. Which of the following combinations can this economy not produce? a. 30 barrels and 6 bathtubs b. 25 barrels and 12 bathtubs c. 20 barrels and 8 bathtubs d. 10 barrels and 14 bathtubs

b

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. the nation is producing beyond its capacity, and inflation will occur. b. the nation is not using all available resources or is using inferior technology or both. c. the nation is producing an efficient combination of goods. d. there will be a large opportunity cost if the nation tries to increase production of any good.

b

Which of the following statements about models is correct? a. The more details a model includes, the better the model. b. Models assume away irrelevant details. c. Models cannot be used to explain how the economy functions. d. Models cannot be used to make predictions.

b

Which of the following transactions does not take place in a market for a factor of production? a. Karl provides plumbing services for a plumbing company and receives an hourly wage from the company for his services. b. Juanita works as a marriage counselor and her clients pay her on a per-hour basis for her services. c. Trish owns several shopping malls and receives rent payments from the companies that operate those malls. d. Ben sells advertising for a newspaper and receives a commission from the newspaper company for each advertisement that he sells.

b

15. Here are some production possibilities for an imaginary economy for a given year. If the production possibilities frontier is bowed outward, then in place of "?" we might have a. 330. b. 320. c. 310. d. All of the above are possible.

c

Economists view positive statements as a. affirmative, justifying existing economic policy. b. optimistic, putting the best possible interpretation on things. c. descriptive, making a claim about how the world is. d. prescriptive, making a claim about how the world ought to be.

c

Refer to Figure 2-10. The movement from point A to point B is a(n) a. shift of the curve. b. indication of a change in preferences for roses. c. movement along the curve. d. All of the above are correct.

c

Refer to Figure 2-8. If this economy puts all of its resources into the production of bathtubs it could produce a. 20 barrels and 12 bathtubs. b. no barrels and 14 bathtubs. c. no barrels and 16 bathtubs. d. More information is required in order to make this determination.

c

Refer to Figure 2-9. Taking cause and effect into account, which of the following interpretations would be most reasonable regarding the relationship between coffee and hours without sleep? a. The less coffee a person drinks per day, the more time he can go without sleep. b. There is no relationship between how much coffee per day a person drinks and how long he can go without sleep. c. The more coffee a person drinks per day, the longer he can go without sleep. d. The relationship between cups of coffee per day and time without sleep is too unpredictable to consider.

c

Suppose that someone makes the argument that because empty alcohol containers are found at many accidents, the containers cause accidents. This would be an example of a. sound logic. b. reverse causality. c. omitted variables. d. slope.

c

The amount by which firms' sales revenue exceeds their payment to factors of production is called a. rent. b. capital. c. profit. d. interest.

c

The country of Econoland produces two goods, textbooks and widgets. Last year it produced 200 textbooks and 500 widgets. This year it produced 250 textbooks and 600 widgets. Given no other information, which of the following events could not explain this change? a. Econoland experienced a reduction in unemployment. b. Econoland experienced an improvement in widget-making technology. c. Econoland acquired more resources. d. Any of these events could, in fact, explain the change.

d

The two loops in the circular-flow diagram represent a. (i) the flow of goods and (ii) the flow of services. b. (i) the flow of dollars and (ii) other financial flows. c. (i) inputs into production processes and (ii) outputs from production processes. d. (i) the flows of inputs and outputs and (ii) the flow of dollars.

d

Which of these statements is a normative statement (as opposed to a positive statement)? a. Gasoline prices ought to be lower than they are now. b. The federal government should raise taxes on wealthy people. c. The social security system is a good system and it deserves to be preserved as it is. d. All of the above are normative statements.

d

Which two groups of decisionmakers are included in the simple circular-flow diagram? a. markets and government b. households and government c. firms and government d. households and firms

d

True/False An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world.

f

True/False In a simple circular-flow diagram, firms own the factors of production and use them to produce goods and services.

f

True/False "Society would be better if the welfare system were abolished" is a normative statement, not a positive statement.

t

True/False A production possibilities frontier is a graph that shows the various combinations of outputs the economy can produce given its factors of production and its technology.

t

True/False An economy is being efficient if it is impossible to produce more of one good without producing less of another.

t

True/False If government regulations designed to protect wetlands removed very productive farmland from production, the production possibilities would shift inward.

t

True/False Two variables that are negatively related will move in opposite directions.

t