CH 2 IN MACRO QUESTIONS

TRUE/FALSE If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other

False

TRUE/FALSE The basis for trade is comparative advantage, not absolute advantage

True

With respect to consumption, individuals and countries... a. can, through trade, consume beyond their production possibilities frontiers b. are constrained to consume on or inside their production possibilities frontiers c. can consume beyond their production possibilities frontiers only during periods of economic prosperity d. can, by choosing not to save for the future, consume beyond their production possibilities frontiers

a. can, through trade, consume beyond their production possibilities frontiers

Copyrights are a "tax" on readers in the sense that... a. copyrights limit of the supply of related creative work which results in higher prices b. the government explicitly adds a sales tax on creative works to cover the copyright c. the government collects the tax progressively to promote fairness in the tax code d. securing a new copyright requires the payment of a fee to the government by the artist

a. copyright limits of the supply of related creative work which results in higher prices

Which of the following are the two key groups of participants in the circular flow of income? a. households and firms b. domestic residents and foreign residents c. government and financial institutions d. savers and borrowers

a. households and firms

What is the outcome of enforcing contracts and property rights in a market system? a. increased economic activity b. no effect on economic activity c. an unpredictable but definite effect on economic activity d. decreased economic activity

a. increased economic activity

Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. Is it likely that the production possibilities frontier in this situation would be a straight line? a. The production possibilities frontier would likely be a straight line because resources are likely equally well suited to produce both consumption and capital goods b. The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods c. The production possibilities frontier would likely be a straight line because not all resources are equally well suited to produce both consumption and capital goods d. The production possibilities frontier would likely be bowed out because resources are likely equally well suited to produce both consumption and capital goods

b. The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods

If a market system functions well, which if the following is necessary for the enforcement of contracts and property rights? a. powerful political connections b. an independent court system c. action by government to prevent the exercise of certain property rights d. all of the above

b. an independent court system

What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy? a. The country is maximizing its opportunity cost b. The country has eliminated scarcity c. The country is operating on its production possibilities frontier d. All of the above occur if a country uses all available resources

c. The country is operating on its production possibilities frontier

In a simple circular-flow model, there are flows of ______ and flows of ______ a. factors of production; goods and services b. funds received from the sale of factors of production; spending on final goods and services c. both a. and b. are correct d. None of the above; there are no flows in the circular flow of income

c. both a. and b. are correct

If copyrights are a "tax" on readers, governments provide a legal framework to enforce them because... a. the government likes to tax the people any chance it gets b. the government needs to solve its debt problem by enacting new taxes c. copyrights provide needed protection for authors and creators of movies or other artistic works d. the government collects a large amount of revenue from the tax

c. copyrights provide needed protection for authors and creators of movies or other artistic works

If a country has a comparative advantage in the production of a good then that country... a. should allow another country to specialize in the production of that good b. also has an absolute advantage in the production of that good c. has a lower opportunity cost in the production of that good d. All of the above are true

c. has a lower opportunity cost in the production of that good

Which of the following events would create economic growth, that is, shift the production possibilities frontier outward? a. An increase in the available natural resources b. An increase in the available labor c. An increase in technology that affects the production of both goods d. All of the above

d. All of the above

What is the role of an entrepreneur? a. to bring together the factors of production- labor, capital, and natural resources b. to operate a business that produces a good or service c. to take risks d. all of the above

d. all of the above

Whether carried out by an individual or a country, production beyond the production possibilities frontier... a. is possible only through trade b. happens as a result of forced saving c. can occur by acquiring more productive resources d. is not physically possible

d. is not physically possible

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the _______ the payoff to devoting additional resources to that activity. a. more instant b. more proportional c. greater d. smaller

d. smaller

Even if you are better at unloading the dishwasher than your spouse, you shouldn't always be the one to unload it because... a. absolute advantage is what matters for specialization not comparative advantage b. your spouse will act as a "free rider" if you do all the work c. your opportunity cost of unloading the dishwasher is nonexistent d. you may be even better at some other household task and must consider the opportunity cost

d. you may be even better at some other household task and must consider the opportunity cost

What does increasing marginal opportunity costs mean? a. The economy is unable to produce increasing quantities of goods and services b. Increasing the production of a good requires decreases in the production of another good c. Increasing the production of a good requires smaller and smaller decreases in the production of another good d. Production is not occurring on the production possibilities frontier e. Increasing the production of a good requires larger and lager decreases in the production of another good

e. Increasing the production of a good requires larger and larger decreases in the production of another good

What is the circular-flow diagram and what does it illustrate? a. The circular-flow diagram shows how households and firms are linked through product markets b. The circular-flow diagram shows the maximum attainable combinations of two products that may be produced with available resources and current technology c. The circular-flow diagram shows how firms are linked through product and factor markets d. The circular-flow diagram shows the government's role in markets through taxes and transfer payments e. The circular-flow diagram shows how households and firms are linked through product and factor markets

e. The circular-flow diagram shows how households and firms are linked through product and factor markets

What are the implications of increasing marginal opportunity costs for the shape of the production possibilities frontier? a. The production possibilities frontier will have a positive slope b. The production possibilities frontier will be bowed inward c. The production possibilities frontier will have a negative slope d. The production possibilities frontier will be a straight line e. The production possibilities frontier will be bowed outward

e. The production possibilities frontier will be bowed outward

Absolute advantage is the ability of an individual, a firm, or a country to... a. reach a higher production possibilities frontier by lowering opportunity costs b. consume more goods or services than others at lower costs c. produce more of a good or service than competitors using the same amount of resources d. produce a good or service at a lower opportunity cost than other producers

produce more of a good or service than competitors using the same amount of resources