Macro 2

Which are the two markets represented in the circular-flow diagram?

The market for goods and services and the market for factors.

The two flows represented in the circular-flow diagram are:

the flow of money and the flow of goods and services.

Economists usually make the assumption that production is subject to increasing opportunity costs because:

all resources are not equally suited to producing every good.

The economy's factors of production are not equally suitable for producing different types of goods. This principle generates:

the law of increasing opportunity cost.

If the production possibility frontier were a straight line sloping down from left to right, this would suggest that:

the opportunity costs of the products are constant.

Which of the following is a normative statement?

We would all be better off if we could reduce our dependence on oil imports.

A simplified representation that is used to study a real situation is called:

a model.

(Figure: Consumer and Capital Goods) The movement from Curve 1 to Curve 2 indicates:

economic growth.

The importance of an economic model is that it allows us to:

focus on the effects of only one change at a time.

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

(Scenario: Countries A and B) If Country B specializes in steel and produces 300 units of steel, how much wheat can it produce?

100 units

(Scenario: Countries A and B) If each country devotes half of its resources towards the production of wheat, and half towards the production of steel, then their total production of wheat would be ________and their total production of steel would be ________.

450; 325

(Table: Production Possibilities Schedule II) If the economy is producing at alternative X, the opportunity cost of producing at Y instead of X is ________ units of consumer goods per period.

6

(Scenario: Countries A and B) Given this information, Country ________ has a comparative advantage in the production of wheat and Country ________ has a comparative advantage in the production of steel.

A; B

(Scenario: Countries A and B) If Countries A and B both specialize and trade:

Country A and Country B will gain if they specialize in their comparatively advantaged good.

Of the following statements, which reflect(s) a normative view?

I. The U.S. needs to increase the minimum wage to $10 per hour. Statement I reflects a normative view.

(Figure: Guns and Butter) This production possibility frontier is:

bowed out from the origin because of increasing opportunity costs.

The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production.

buy; sell

(Table: Coffee and Salmon Production Possibilities II) This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Brazil has a comparative advantage in producing:

coffee only.

With trade, a country may:

consume outside its production possibility frontier.

Positive economics:

describes how the world does work.

(Figure: Guns and Butter) On this figure, points A, B, E, and F:

indicate combinations of guns and butter that society can produce using all of its factors efficiently.

Consider a possible production possibility frontier for Iraq. If in 2008 Iraq's resources are not being fully utilized, Iraq will be somewhere ________ of its production possibility frontier.

inside

(Figure: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter:

involves a loss of 8 units of guns per period.

When moving along a production possibility frontier, the opportunity cost to society of getting more of one good:

is measured by the amount of the other good that must be given up.

(Figure: Consumer and Capital Goods) Point Z:

is unattainable, all other things unchanged.

(Table: Coffee and Salmon Production Possibilities II) This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Alaska has an absolute advantage in producing:

neither coffee nor salmon.

(Table: Production Possibilities Schedule II) The production of 14 units of consumer goods and 1 unit of capital goods per period would:

result in no unused resources.

The circular-flow diagram illustrates how firms ________ goods and services and ________ factors of production.

sell; buy

Technological improvements will:

shift the production possibility frontier outward.