Econ 101 Final-MC Practice Questions ch 1 and 2
Absolute advantage derives from which of the following? A) the lowest cost production B) the most suitable climate C) the least expensive labor force D) the best educated labor force
A
Adam Smith said, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor." Which of the following concepts best illustrates what Smith wanted to convey in this statement? A) comparative advantage B) incentives matter C) scarcity D) production possibilities frontier
A
David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true? A) David and Cameron must have different preferences for the car. B) This trade did not create value because Cameron is buying a car that David considers worthless. C) Cameron is the only one made better off by the trade. D) David is made better off by the trade, but Cameron is made worse off.
A
If labor in China is less productive than labor in the United States in all areas of production, then: A) both the United States and China can benefit from trade. B) neither nation can benefit from trade. C) China can benefit from trade but not the United States. D) the United States can benefit from trade but not China
A
In an effort to clean the air, many communities impose restrictions on the burning of garbage. This policy causes more garbage to be buried underground, potentially increasing groundwater contamination. What concept does this example represent? A) trade-offs B) marginal pollution C) sunk costs D) public provision
A
Increased trade has led to: A) increased globalization of world economies. B) a more equal distribution of wealth across countries. C) a decline in human cooperation. D) more specialization and less globalization.
A
Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that: A) France should specialize in producing phones and import computers from Sweden. B) France should specialize in producing computers and import phones from Sweden. C) France should produce both phones and computers, and import nothing from Sweden. D) France should import both phones and computers from Sweden.
A
Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE? A) The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student. B) The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student. C) The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student. D) The opportunity cost of painting a house is zero for Alex Rodriguez and is negative for the high school student.
A
The benefits of economies of scale and increased competition to an economy include: I. lower unit costs. II. lower consumer prices. III. lower output levels. A) I and II only B) II and III only C) I and III only D) I, II, and III
A
The main reason why specialization can raise productivity is that: A) knowledge in human brains is limited. B) some persons have more knowledge than others. C) it is always good to know less than more. D) it is impossible to learn anything well.
A
The opportunity cost of producing a particular good refers to: A) how much of something else must be given up to produce one additional unit of the good. B) how much of a good can be produced with the existing technology and resources. C) the total cost of production, including wages, for all units of the good. D) the marginal cost of production in order to produce one additional unit of the good.
A
The production possibilities frontier shows: A) the combinations of outputs a country can produce given its resources and productivity. B) the combinations of inputs that a country has given its outputs and productivity. C) the combinations of outputs and resources that a country possesses given its productivity. D) the maximum level of a country's productivity given its resources and outputs.
A
Traders should specialize in the good in which: A) they have the lowest opportunity cost. B) they have an absolute advantage. C) their trading partner has the lowest opportunity cost. D) they do not have an absolute advantage.
A
What you give up to obtain an item is called your: A) opportunity cost. B) explicit cost. C) true cost. D) direct cost.
A
Which of the following best characterizes the relationship between the parties to a trade and the gains from trade? A) Gains from trade are fueled by differences in preferences and differences in opportunity costs of production. B) Gains from trade are fueled by differences in preferences only. C) Gains from trade are fueled by differences in opportunity costs of production only. D) Gains from trade are greatest when there are no differences between the two parties to trade.
A
Which of the following statements reflects Adam Smith's important insight into marketplace behavior? A) Society benefits when people and firms pursue their own self interests. B) Markets are usually an inefficient way of organizing economic activity. C) Greedy, self-interested behavior needs to be constrained to ensure strong economic growth. D) Trade restrictions on imported goods increase domestic employment.
A
the opportunity of a choice is: A) the value of the next best alternative. B) the net value of the opportunities gained. C) the difference between the benefits and costs of the choice. D) sometimes positive or negative.
A
A very small portion of people who use microwaves know how they work. This is an example of: A) a production possibility frontier. B) specialization. C) absolute advantage. D) opportunity cost.
B
Adam Smith sought to explain the concept of aligning self-interest with the promotion of society's overall interest by: A) using an analysis of wealth as productivity. B) suggesting markets are led by an Invisible Hand. C) arguing that markets were ineffective institutions. D) admitting his own inability to explain how such alignment takes place.
B
Adam Smith's metaphor of the "invisible hand" refers to the notion that: A) greed is always good when externally motivated. B) behavior based on self-interest can lead to an overall benefit to society. C) market incentive can lead to negative side effects. D) markets always align self-interest with social interest.
B
The ability of one producer to produce one good or service using fewer inputs than another producer is: A) comparative advantage. B) absolute advantage. C) opportunity cost. D) competition.
B
Angela and Ed are married. Angela can do $40 worth of household chores per hour, and Ed can do $15 worth of household chores per hour. In the labor market, Ed can earn $30/hour and Angela can earn $40/hour. The theory of comparative advantage suggests that: A) Ed should specialize in household production and Angela should specialize in market work. B) Angela should specialize in household production and Ed should specialize in market work. C) Angela should specialize in both household production and market work. D) Ed should specialize in both household production and market work.
B
Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true? A) Anita has the comparative advantage in the production of cakes. B) John has the comparative advantage in the production of cakes. C) John has the absolute advantage in the production of cookies. D) Anita has the comparative advantage in the production of both cakes and cookies.
B
As trade becomes more widespread, specialization ______, which in turn ______ productivity. A) decreases; decreases B) increases; increases C) decreases; increases D) increases; decreases
B
Division of knowledge refers to: A) dividing tasks into different subtasks and having one person perform all these subtasks. B) people learning different tasks for which they each have a comparative advantage. C) assigning one person to learn all the different ways to perform the same task. D) limiting what each person knows about another person.
B
Economists think that people are self-interested: A) only when monetary incentives are present. B) because they respond to incentives in predictable ways. C) only rarely in response to incentives. D) unless they are being altruistic.
B
Jim has an old (working) television that he would like to get rid of now that he has purchased a new high-definition, flat-screen television. The old television is no longer worth anything to him now that he has his new flat-screen TV. Veronica on the other hand has an even older television that has just broken down. She would pay up to $50 for any working TV. Which of the following statements is NOT true? A) If Jim trades Veronica his old television for $50, total value in society increases by $50. B) If Jim trades Veronica his old television for $50, both are better off but total value in society does not increase. C) If a middleman facilitates the $50 trade between Jim and Veronica, but takes a $10 finders' fee, Jim and Veronica will still both be better off. D) If Jim and Veronica do not trade, both are worse off than if they did trade.
B
Specialization and trade: A) increase the costs of production because of decreased output. B) decrease the per-unit costs of production because of economies of scale associated with large-scale production. C) create diseconomies of scale, raising the per-unit costs of production. D) only work within countries, not across countries.
B
Suppose that there are three methods of financing the transportation of prisoners from Point A to Point B: I. The boat's captain is paid $100 by the government for every live prisoner that is loaded on board at Point A. II. The boat's captain is paid $100 by the government for every live prisoner that is unloaded at Point B. III. The boat's captain is paid $800 by the government for every live prisoner that is loaded on board at Point A. Which financing method will result in the greatest number of prisoners surviving the trip? A) I B) II C) III D) All methods affect prisoner survival equally.
B
Suppose the United States is more productive than China at producing both T-shirts and cell phones. The theory of comparative advantage suggests that consumption in both countries will: A) increase if the United States produces both goods. B) increase if each country produces the good for which it has the lowest opportunity cost. C) not change if China produces either T-shirts or cell phones. D) remain the same since nothing can be done to increase production in the two countries.
B
The real cost of producing a good is: A) the dollar cost of inputs used to make the item. B) the opportunity cost of producing the good. C) the resources that were used to make the good. D) the dollar amount it costs to sell the good.
B
What is meant by the term marginal revolution? A) the public disdain at the institution of marginal tax rates B) the transformation in economic thought that occurred with the discovery of marginal thinking C) the institution of the death penalty for drug dealers D) the effect of policies on crime
B
Which of the following statements is TRUE? I. It is virtually impossible for a country to be the low-cost producer of all goods and services. II. The benefits of trade depend on absolute advantage, not comparative advantage. III. A country could have a comparative advantage in producing everything. A) I and II only B) I only C) II only D) III only
B
The main incentive for business activity is: A) government subsidies. B) technological advancement. C) profit. D) employment.
C
Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of: A) normative analysis. B) transformational thought. C) marginal thinking. D) None of the answers is correct.
C
In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of: A) pedagogical economics—the continuous assessment of student performance in an effort to maximize student efficiency. B) hidden costs—the costs borne by taxpayers in the form of wasteful school spending. C) incentives—the rewards and penalties that motivate behavior. D) screening theory—the identification of individuals or groups based on various performance measures.
C
Suppose your teacher finishes class 30 minutes early on the day before an exam. She indicates that you may leave, or stay on for an optional study period which will last for the remaining 30 minutes of the scheduled class time. You should: A) always choose to stay for the study period, since you have already paid for the class time. B) only choose to stay if you like the instructor, since the value obtained is higher than if you disliked the instructor. C) only choose to stay if the benefits gained from the extra study session exceed the cost of another 30 minutes in class. D) only choose to stay for the study session if you do not plan to study on your own for the exam.
C
Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is: A) $11,400. B) $8,900. C) $48,900. D) $51,400.
C
The United States and the European Union are groups of semi-independent states that have come together under an agreement whereby resources can travel freely across borders and a common currency is in use. Which of the following statements best explains how this allows for the achievement of economies of scale? A) Each state or country can now target larger markets and can thus earn more export revenue. B) States and countries no longer have to worry about borders impeding trade. C) Each state or country can adopt large-scale production techniques that allow lower per unit costs of production. D) The removal of trade borders and a common currency enhances trade between member states.
C
The concept of comparative advantage implies that: A) there are winners and losers when people trade without specializing. B) people have to be self-sufficient. C) people can benefit from specializing and trading with each other. D) only those people who are productive benefit from trade.
C
The opportunity cost of winning a free ticket to the Super Bowl worth $950 and attending the game is: A) zero, since the ticket was free. B) priceless, if the person really loves football. C) at least $950, the lost market value of selling the ticket and the time to go. D) zero, if the person would rather go to the game than do anything else.
C
The production possibility frontier shows: A) how society can produce more of one good without giving up the production of another good. B) what people can consume given different combinations of goods produced. C) the combinations of output that an economy can produce given its productivity and inputs. D) the types of goods and services that society should produce to satisfy social interest.
C
When deciding whether or not to undertake an activity, economists compare: A) the total cost of the activity against the total benefit received. B) the total benefit of the activity against the total cost of production. C) the additional cost of the activity against the additional benefits received. D) the average cost of the activity versus the total benefits received.
C
Which of the following best describes the principle of comparative advantage? A) Some people can produce the same good better than other producers can. B) Someone has the ability to produce the same good using fewer inputs than another producer. C) Someone has the ability to produce the same good for the lowest opportunity cost. D) To produce more of one good, people have to produce less of another good.
C
Which of the following is NOT true regarding the production possibilities frontier (PPF)? A) The PPF shows the combination of goods that a country can produce given its current productivity and supply of resources. B) The PPF illustrates the trade-offs that exist in the production of goods. C) The PPF shows that gains from trade are maximized when countries produce those goods for which they have the absolute advantage in production. D) The PPF illustrates the fundamental ideas of scarcity and opportunity cost.
C
Who wrote, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy"? A) Richard Nixon B) Dr. Spock C) Adam Smith D) David Ricardo
C
Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates? A) The opportunity cost of attending college rises during economic booms, leading to higher college enrollment rates. B) The opportunity cost of attending college rises during recessions, leading to higher college enrollment rates. C) The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates. D) The opportunity cost of attending college falls during economic booms, leading to higher college enrollment rates.
C
A person has a comparative advantage in activity X when that person's: A) opportunity cost of performing that activity is very high. B) ability to perform that activity exceeds that of all other people. C) government negotiates a favorable trade agreement. D) opportunity cost is lower than other trading partners.
D
According to the textbook, the reason why Martha Stewart does not do her own ironing is that: A) she has never learned how to iron. B) running her business enterprises just do not leave her enough time. C) she does not have any real interest in ironing. D) it costs her more to do her own ironing than to pay someone to iron.
D
Division of knowledge, as discussed in the text, increases economic prosperity because: I. Each person can develop extensive knowledge about a single activity. II. The human brain's capacity to know everything about all productive activities is limited. III. Specialized knowledge increases productivity, which increases total output. A) I and II only B) I and III only C) II and III only D) I, II, and III
D
Economic growth in the modern era is primarily due to the creation of new: A) inventions. B) money. C) nations. D) knowledge.
D
Economics: A) teaches us how to make the world a better place. B) increases our understanding of historical events. C) can help you better manage your finances. D) All of the answers are correct.
D
If instead of specialized doctors (neurologists, cardiologists, gastroenterologists, etc.) we had doctors who each knew the same things about all aspects of medicine it would be: A) better because we could just go to one doctor who could handle all our needs. B) better because total medical knowledge in society would increase. C) worse because the human brain is unlimited. D) worse because total medical knowledge in society would decrease.
D
In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore: A) Colombia has a comparative advantage in the production of coffee. B) Mexico has a comparative advantage in the production of coffee. C) in Colombia, the opportunity cost of producing one pound of coffee is two-thirds. D) Colombia has an absolute advantage in the production of coffee.
D
Jesse is good at math and excellent at making friends and Addae is equally good at both. Mathematically and socially challenged Jordan wants to hire tutors to help in each area. Who should tutor Jordan in which area to maximize Jordan's college experience? A) Jesse and Addae should tutor Jordan in both math and social skills. B) Jesse should teach math and Addae should teach how to make friends. C) Jesse and Addae should both teach how to make friends. D) Jesse should teach how to make friends and Addae should teach math.
D
On a production possibilities frontier a trade-off can be illustrated as: A) an outward shift. B) an inward shift. C) a movement from a point inside the frontier to one on the frontier. D) a movement along the frontier itself.
D
Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships? A) Payment (to ship captains) was to be offered for each prisoner that was taken aboard the ships. B) Payment (to ship captains) was made independent of the regulations passed for prisoner welfare. C) Regulations were passed so that prisoners could get better food, water, and medical care. D) Payment (to ship captains) was made dependent on the survival rate of prisoners.
D
Suppose the U.S. government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to: A) pass a law requiring people to save a larger percentage of their income. B) decrease government spending in order to set an example for individuals. C) increase the tax rate on savings in order to encourage more savings. D) develop incentives such as tax breaks on savings in order to encourage more savings
D
The basic postulate of economics indicates that changes in incentives influence the: A) actions of producers but not consumers. B) actions of consumers but not producers. C) choices of individuals only when they buy and sell goods in the marketplace. D) choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.
D
The benefits of trade include: I. higher output due to specialization. II. higher output due to comparative advantage. III. increased welfare when preferences differ. A) I and II only B) II and III only C) I and III only D) I, II, and III
D
The real power of trade lies in people's ability to: A) get things they can't produce. B) get the lowest price possible. C) increase their consumption. D) specialize and increase production.
D
Utilizing comparative advantage can best be exemplified as: A) your lawyer word-processing her own legal briefs. B) the CEO of Microsoft programming his own computer. C) the president of your university teaching a class again. D) a world-renowned chef hiring someone to cook meals for his family.
D
Which of the following arise as benefits from trade? I. economies of scale II. cost reduction from mass production III. the division of knowledge A) I only B) II and III only C) I and III only D) I, II, and III
D
Which of the following is NOT a reason trade increases wealth? A) to take advantage of differences in productivity B) to take advantage of differences in preferences C) to take advantage of differences in knowledge D) to take advantage of differences in security
D
Which of the following is NOT an outcome of trade? A) People with different preferences are made better off. B) Specialization and increased productivity develop. C) A division of knowledge among trading partners develops. D) People in poor countries are made worse off.
D
Why do you think goods are sometimes marked in prices that end in 9s, for example "$29.99" instead of $30, or "$9.99" instead of $10? I. Consumers respond to incentives—they view the products as cheaper and so they buy more. II. Businesses are sneaky and add the extra cent onto taxes on the product. III. It is a sales strategy that makes people think the product is on sale. A) I only B) II only C) III only D) I and III
D
Why does specialization become more profitable on a larger scale? I. Large firms are more profitable than small firms. II. Cost efficiencies become possible when the production scale is significantly large relative to the cost of the machines being used. III. Large-scale production justifies the acquisition of more knowledge on a specific activity. A) I and II only B) I, II, and III C) I and III only D) II and III only
D
Why is specialization so advantageous to trade? I. Through specialization, people and firms can achieve economies of scale. II. Through specialization, people and firms can use specialized machinery and techniques. III. Trade exists only between people and firms that have complete specialization in the goods they are best at producing. A) I only B) I, II, and III C) I and III only D) I and II only
D
You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following "big idea" in economics. A) Institutions matter. B) Incentives matter. C) Economics is fun. D) Trade-offs are everywhere.
D
