Chapter 2 Quizes

The opportunity cost of producing more of a good increases because of: increasing returns to scale. increasing returns to inputs. diminishing opportunity costs. diminishing returns to inputs.

diminishing returns to inputs

Table) If Germany decided to produce skirts, what is Germany's opportunity cost? Sweaters Skirts Germany 6 12 Greek 4 20 1 sweater 2 sweaters 0.25 sweater 0.5 sweater

0.5 sweater OC= What you scarifice/ what you gain

_____ advantage exists when one country can produce more of a good than another country. Comparative Home country Absolute Unfair

Absolute

_____ refers to the way an economy allocates goods and services to consumers. Capital Production Distribution Absolute advantage

Distribution

A country should always produce the items in which it has an absolute advantage. True False

False

A country should always produce the items in which it has an absolute advantage. False True

False

A combination of goods that lies outside the PPF is: inefficient. possible. impossible. deficient.

Impossible

opertunity cost

OC= What you scarifice/ what you gain OC= Total revenue- Econmic profit

The idea that resources are specialized is the reason for increasing opportunity costs. False True

True

Allocative efficiency ensures that the goods and services demanded by society are produced. False True

True

What are the three basic economic questions each society must answer?

What to produce? How to produce? For whom to produce?

The Scandinavian countries of Europe do not protect property rights. allow a large role for government services. have no barriers to the market. have economies coordinate solely by markets.

allow a large role for government services.

If a nation selects a product mix focused on _____ goods, the production possibilities frontier will expand at a greater rate than if the nation produced mostly _____ goods. consumption; capital capital; consumption labor-intensive; capital-intensive labor-intensive; consumption

capital; consumption

Point d in the diagram represents a production situation that is: a) too expensive. b) unattainable. c) efficient. d) inefficient.

d

To achieve long-run economic growth, an economy must: reduce the workforce by lowering the retirement age. increase the number of government-mandated holidays. decrease investments in infrastructure. expand its capacity to produce.

expand its capacity to produce.

If a country wants to maximize its GDP, it should always export goods in which it has a comparative advantage. import goods in which it has an absolute advantage. import goods in which it has a comparative advantage. export goods in which it has an absolute advantage.

export goods in which it has a comparative advantage.

A(n) _____ can cause the PPF to expand. natural disaster destroying factories and infrastructure improvement in production technology workforce that is shrinking due to an accelerating death rate decrease in the rate of inflation

improvement in production technology

A combination of goods represented by a point on the PPF is considered efficient because the economy is: employing as many workers as possible. producing goods using the fewest inputs possible. not using all of its available inputs. producing the goods that consumers want to buy.

producing goods using the fewest inputs possible.

Short-run economic growth is illustrated on a PPF diagram by movement from inside the PPF toward the PPF. A situation where this would be an appropriate depiction is in an economy: recovering from a recession. with increasing unemployment. going into a recession. that is stagnant.

recovering from a recession

One of the major limits to trade is comparative advantage. opportunity costs. absolute advantage. transaction costs.

transaction costs.

Most trade is based on specialization, according to _____ advantage. absolute location comparative brand recognition

comparative

The typical PPF is: concave (bowed outward). convex (bowed inward). a straight line. a parabola.

concave (bowed outward).

(Figure: Tanks and Health Care) Which point in the figure is obtainable but NOT efficient?

f

When society produces the mix of goods and services that are most desired and produces them at the lowest cost possible inefficiency occurs. production efficiency is achieved. production and allocative efficiency are achieved. allocative efficiency is achieved.

production and allocative efficiency are achieved.

An increase in technology shifts the production possibilities frontier curve inward. shifts the production possibilities frontier curve outward. creates unemployment. decreases inflation.

shifts the production possibilities frontier curve outward.

David Ricardo suggested that goods were exchanged based on the value of those in use. wanted to protect textile markets in England. suggested that increasing wages for workers would increase their consumption and lead to economic growth. suggested that countries would benefit from trade.

suggested that countries would benefit from trade.

A combination of goods that lies inside the PPF is considered inefficient because: all of the economy's resources are being productively utilized. the economy has insufficient resources to produce that level of output. the economy is capable of producing more of both goods. the economy's infrastructure is aging and is being appropriately replaced.

the economy is capable of producing more of both goods.

"The economic wealth of this country was built primarily by some individuals profiting from a transaction, whereas others were harmed by that transaction." This statement indicates that its author uses sound economic thinking—the statement is essentially correct. fails to understand the fallacy of composition. fails to understand that all voluntary trades benefit both parties involved. fails to understand the significance of the production possibilities frontier.

fails to understand that all voluntary trades benefit both parties involved.

The production possibilities frontier (PPF) shows: how many products a society consumes. how much an economy can produce when using all of its inputs efficiently. how many factories are currently active in an economy. how many inputs are consumed in producing the output desired by consumers.

how much an economy can produce when using all of its inputs efficiently.

The concept of human capital is important to economists because improvements to human capital lead to higher standards of living. it shows ways for firms to reduce costs. it compares people with machinery. it helps managers plan for future growth.

improvements to human capital lead to higher standards of living.

The concept of human capital is important to economists because it helps managers plan for future growth. it shows ways for firms to reduce costs. it compares people with machinery. improvements to human capital lead to higher standards of living.

improvements to human capital lead to higher standards of living.

Comparative advantage arises because the division of labor increases efficiency. not all resources are equally effective in the production of goods. the division of labor helps markets function effectively. all resources are equally effective in the production of goods.

not all resources are equally effective in the production of goods.

Full employment on a production possibilities frontier (PPF) is shown by an inefficient use of resources. points outside the PPF. points inside the PPF. points on the PPF.

points on the PPF.

Suppose that Costa Rica is able to produce 50,000 pounds of coffee or 10,000 medical devices per day; Vietnam is able to produce 40,000 pounds of coffee or 5,000 medical devices per day. Which statement is TRUE? Costa Rica has a comparative advantage in coffee production, while Vietnam has a comparative advantage in the production of medical devices. Costa Rica has an absolute advantage in medical device production, while Vietnam has an absolute advantage in coffee production. Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has a comparative advantage in coffee production. Costa Rica has a comparative advantage in the production of both coffee and medical devices.

Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has a comparative advantage in coffee production.

Capital, as a factor of production, includes all manufactured products that are used to produce other goods. False True

True

As used by economists, the term "capital" includes the human talent one is born with. False True

False

As used by economists, the term "capital" includes the human talent one is born with. False True

False

Combinations of output that lie on the PPF are inefficient. True False

False

In an economy producing just beer and autos, producing increasing amounts of autos requires giving up decreasing amounts of beer. True False

False

An economy that finds new inputs or improves technology to use existing inputs in a more productive manner is pushing its PPF outward and can experience long-run economic growth. True False

True

If a society's production possibilities frontier shifts to the right, the society's standard of living will likely increase. True False

True

Which is NOT a basic economic question that societies must answer? For whom are the goods and services being produced? How are the goods and services to be produced? Why are these goods and services being produced? What goods and services are to be produced?

Why are these goods and services being produced?

It takes Juan 1 hour to wash a car and 2 hours to wax it. Maria, on the other hand, takes 1 hour to wash a car and half an hour to wax it. If they divide the work, _______ would specialize in washing since his/her opportunity cost is _________ for that activity. a) Maria; lowest b) Juan; highest c) Juan; lowest d) Maria; highest

c) Juan; lowest

In which market system does the government play the smallest role in regulating businesses? capitalist planned socialist communist

capitalist

Suppose you are trying to understand the effect that an increase in the price of grapes will have on the market for wine. An effective model to determine this effect is one that evaluates the change in the price of grapes on the market quantity of wine assuming: a) buyers' incomes also change. b) buyers' preferences and incomes also change. c) some wines use different grapes. d) no other change takes place.

d

Investment in human capital refers to education, on-the-job training, and professional training activities. increasing the financial capital in the economy. increasing the machinery and equipment that firms use. increasing the number of people working at companies.

education, on-the-job training, and professional training activities.

The basic factors of production are land, capital, labor, and: coal, iron, and steel. oil and gas. entrepreneurial ability. centers of creative excellence.

entrepreneurial ability.