Micro Exam 1

The result of free trade between nations is that:

goods can be produced in the location where their opportunity cost is the lowest.

Adam Smith used the idea of the invisible hand to refer to the ability of market economies to:

harness the power of individual self-interest for the good of society as a whole.

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization

An increase in the price of a good will cause:

a movement up along a given demand curve.

As an economy moves from point to point along its production possibility frontier, what is changing?

the allocation of resources within the economy

If consumers expect that the price of coffee will be higher in the future

the demand for coffee will decrease and the demand curve will shift to the left

If the quantity demanded of cocoa beans is greater than the quantity supplied of cocoa beans, then:

the equilibrium price of cocoa beans will rise in the market.

If market failures exist, the market can become efficient when:

the government intervenes to improve society's welfare.

A model that helps economists think about the tradeoffs that every economy faces is called:

the production possibility curve.

If the price of e-book textbooks decreases from $60 to $55, then:

the quantity demanded of e-books will increase.

What is measured along the horizontal axis in a graph of the production possibility frontier?

the quantity of one good produced

A price above the equilibrium price will:

the result of quantity supplied being greater than quantity demanded

Which of the following could account for the fact that ice cream prices have recently increased and that consumption of ice cream has declined?

the supply of ice cream has decreased

A competitive market is one in which:

there are many buyers and sellers of the same good or service.

Suppose that the country of Ologolia has a linear production possibility frontier in the production of boats and smartphones. It can produce three smartphones per hour of labor time or four boats per hour of labor time. What is the opportunity cost of producing one boat in Ologolia?

0.75 smartphone

Suppose that Macronesia is producing at point A on its production possibility curve and this represents 4 fish and 9 coconuts. If Macronesia moves to another point on its production possibility curve such that it now produces 5 fish and 6 coconuts, the opportunity cost of the extra fish is:

3 coconuts.

Which one of the following statements is not true of a market economy?

A central planning authority makes decisions about production and consumption.

Assume that both auto and jet fuel prices increase significantly due to a war in the Middle East, the impact on Federal Express will be?

A leftward shift in the Federal Express supply curve.

An increase in supply is illustrated as:

A shift to the right of the supply curve

Which of the following statements is true?

All countries can gain from trade if they all specialize in production according to comparative advantage.

Ashlee can pick 20 pears if she produces no peaches or 10 peaches if she produces no pears. Jessica can pick 10 pears if she produces no peaches or 8 peaches if she produces no pears. Assume that both have straight-line production functions.

Ashlee has an absolute advantage in producing both peaches and pears

If fast food dining is considered an inferior good, then as incomes fall we would expect that a decrease in incomes due to a recession would cause:

a shift to the right of the demand curve for Taco Bell.

Suppose that both Mexico and Canada produce both steel and beef. If Canada has a lower opportunity cost than Mexico in producing steel and Mexico has a lower opportunity cost than Canada in producing beef then:

Canada has a comparative advantage in producing steel.

Suppose you discovered that the equilibrium price of mp3 players was falling and the equilibrium quantity was also falling. Which of the following is the most likely cause of this result?

Demand for mp3 players is falling.

Suppose you hear an economist make an assertion that, between the two countries, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea expressed in the assertion?

France can produce chocolate at a lower opportunity cost than Italy can.

If Honduras can produce 60,000 tractors and 20,000 bushels of corn and Belize can produce 40,000 tractors and 10,000 bushels of corn, which nation should produce tractors and which nation should produce corn?

Honduras should produce corn and Belize should produce tractors.

There is a growing concern global warming is changing people's tastes such that people are choosing actions to reduce their individual impact of carbon into the atmosphere. How will this change in tastes affect the demand for bicycles?

It will increase the demand for bicycles, all else equal.

If Microsoft cuts the price of its Zune mp3 player by 30%, how would we show the impact of this action on the demand curve for iPods?

It would shift the current iPod demand curve to the left.

Mutt can pick 10 bananas if he produces no papayas or 30 papayas if he produces no bananas. Jeff can pick 20 bananas if he produces no papayas or 5 papayas if he produces no bananas. Assume that both have straight-line production functions.

Mutt has a comparative advantage in producing papayas.

Suppose that in Australia, it takes 2 hours of labor to harvest 10 bushels of apples and 4 hours of labor to harvest 10 bushels of tomatoes. Further, suppose that a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of the following statements is true?

Of these two countries, Brazil has a comparative advantage in producing tomatoes.

Economists would most likely agree with which one of the following statements?

People usually exploit opportunities to make themselves better off

Suppose that both Chile and Peru produce both corn and aluminum and do not trade. If Chile has a lower opportunity cost than Peru in producing corn and Peru has a lower opportunity cost than Chile in producing aluminum then:

Peru would be made better off by producing aluminum exclusively and trading with Chile to obtain corn.

What points are unattainable or not feasible on a production possibility curve?

Points above the production possibility curve.

Economists would most likely disagree with which of the following statements?

Resources and inputs used in production are unlimited

Suppose you discovered that the equilibrium price of surfboards was falling and the equilibrium quantity was rising. Which of the following is the most likely cause of this result?

Supply for surfboards is rising.

If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii?

The demand curve for hotel rooms will shift rightward

Federal Express and UPS are two firms that compete in providing overnight delivery services. How is the market for UPS affected by an increase in the rates charged by Federal Express?

The demand for UPS services will increase.

Which of the following would cause a surplus of newsprint?

The demand for newsprint decreases, and the price is not permitted to change.

Suppose the demand for Manolo Blahnik shoes rises, but the supply rises as well. What can you conclude will happen in the market for Manolo Blahnik shoes?

The equilibrium quantity Manolo Blahnik shoes in the market will definitely rise.

Arnold can pick 10 mangos if he produces no papayas or 20 papayas if he produces no mangos. Palmer can pick 30 mangos if he produces no papayas or 5 papayas if he produces no mangos. Assume that both have straight-line production functions.

The opportunity cost of a mango for Arnold is 2 papayas.

If the price of Sharffen Berger Chocolate rises, what will happen in the market for Dagoba Chocolate? (Both are high quality specialty artisan chocolates.)

The price of Dagoba Chocolate should rise.

If beef and leather are complements in production, when the price of beef increases, what happens in the market for leather?

The price of leather decreases.

How would an increase in the price of cotton affect the market for cotton T-shirts at your university bookstore?

The supply curve for cotton T-shirts will shift leftward.

Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly through the use of new technology?

The supply curve for kayaks will shift rightward.

What would be the dominant effect in the market for new homes of an increase in the wages of skilled tradesmen who work in housing construction?

The supply of new homes would shift to the left.

What happens in the market for wheat when dry winter weather causes a poor harvest?

The supply of wheat decreases, and the demand remains unchanged.

What describes the competitive market best?

There are many buyers and sellers of the same good.

The equilibrium price in the marketplace is:

all of the options are true.

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this?

a trade

The purpose of an economic system is to:

allocate scarce resources

If the demand curve shifts to the left, and the supply curve does not change, then the equilibrium price:

and quantity both will decrease.

Economists generally agree that people are most likely to change their behavior when they:

are given incentives to do so

Exchanges taking place in a market system:

are voluntary

The equilibrium price of a good is the price

at which there is no surplus and no shortage of the good

Suppose an economy is capable of producing at point A, a combination of 10 bananas and 40 pounds of fish. If this economy can also produce at point B, a combination of 11 bananas and 45 pounds of fish, we know point A is:

below the production possibility curve.

The condition of scarcity means that:

choices must be made in the allocation of productive resources.

The downward slope of the demand curve indicates that, all else equal:

consumers will buy more of a good when its price decreases.

If tennis rackets and tennis balls are complements, an increase in the price of tennis rackets will cause the equilibrium price of tennis balls to ________ and the equilibrium quantity of tennis balls to _____ .

decrease; decrease

Suppose that the number of students enrolled at Big University decreases. In the local market for college textbooks

demand will decrease.

Two nations can maximize their consumption by:

each nation producing only those goods in which they have a comparative advantage and then trading.

An economy is __________ if it has exploited all opportunities to benefit someone without making anyone else worse off.

efficient

If an economy is operating at a point on its production possibilities frontier, it is

efficient in production and may be efficient in allocation.

An economic system is in __________ when no individual would be better off by making a different choice.

equilibrium

Macroeconomics is the branch of economics studying:

fluctuations in the overall level of business activity

A worker has a comparative advantage in producing a good when that worker:

has a lower opportunity cost of producing the good as compared to other people.

A market supply curve is found by:

horizontally summing all individual supply curves

If the price of a pound of Kenyan coffee decreases from $12 a pound to $10 a pound, we can expect a( n):

increase in the quantity demanded of Kenyan coffee.

If coffee sold at Starbucks is a normal good, then an increase in income will:

increase the demand for Starbucks coffee.

The focal point of economic inquiry is:

individual choice

Standards of living can be made the highest in an economy if:

individuals divide tasks and trade with each other.

If a country specializes according to its own comparative advantage and then trades with other nations:

it can consume at a higher level than the domestic production possibility frontier.

Consider two competing gas stations located on opposite corners: BP and Shell. If BP lowers the price per gallon that it charges customers, and Shell does not reduce its price, the effect on Shell is a:

leftward shift in demand for Shell's gas and a lower price for Shell's gas.

Consider a BP gas station. As a result of an economic recession and decreases in consumer incomes, there will be a:

leftward shift in the station's demand curve and lower gas prices.

An equilibrium outcome is one in which:

no one has as incentive to change his or her decisions or behavior.

After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by

opportunity cost

The law of demand says:

people will demand a smaller quantity of a good, the higher its price, all other things equal.

The upward slope of the supply curve indicates that:

producers supply more of a good when its price increases.

When economists want to describe how much an economy can produce with a given amount of resources, they use a model known as:

production possibilities frontier

Market failure results when the:

pursuit of individual self-interest leads to bad results for society as a whole.

Those points lying beyond the production possibility frontier:

represent outcomes unattainable with the current level of technology and resources.

Improvements in technology will:

shift the production possibility curve out away from the origin.

A breakthrough in the production of computer hard drives allows them to be assembled with cheaper materials and triples their storage capacity. This technological change should (assume all things equal):

shift the supply curve for computer hard drives to the right.

Cocoa beans are an important input in the production of chocolate. We would expect that an increase in the price of cocoa beans should (assume all things equal):

shift the supply of Hershey's chocolate bars to the left.

Gains from trade arise because of:

specialization

Economists typically depict the production possibility frontier as a bowed out curve rather than as a straight line in order to show that:

the opportunity cost of producing a good rises as more is produced.

If the production possibility curve for an economy producing fish and coconuts is a straight line, we can say:

the opportunity cost of producing more fish is constant.

A shortage is the result of when:

the price of a good is held below the equilibrium price.

A surplus in the market place for cocoa beans will occur if:

the price of cocoa beans is above the equilibrium price.

Which of the following is NOT a key element of the supply and demand model?

the production possibilities frontier

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this?

trade

Supply curves are usually _______ sloping. As the price of a good rises, the quantity supplied of the good __________.

upward; rises

An opportunity cost arises:

whenever any choice is made

Assume that there is a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which of the following points represent feasible (attainable) production points?

Points A, B and C are feasible.

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which points represent efficient production points?

Points B and C are efficient.

Suppose that one person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that one person working in Turkey for the same length of time can produce either 15 yards of cloth or 30 baskets. Which of the following statements is then true?

Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets.

Which of the following changes would cause a decrease in the demand for DVD rentals?

a decrease in the price of movie admissions

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization.

Economic theory asserts that people will behave in ways that:

will enhance their own overall well-being

If the supply curve shifts to the left, and the demand curve does not change then the equilibrium price:

will increase, and the quantity will decrease.