MicroEcon 102 Chapter 2

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

The importance of an economic model is that it allows us to: A. build an accurate mathematical model of the economy. B. build a complex and accurate model of the economy. C. focus on the effects of only one change at a time. D. avoid opportunity costs.

The production possibility frontier for Dylan has one endpoint on the vertical axis at 40 feet of fencing and one endpoint on the horizontal axis at 20 perennials. The production possibility frontier for Nate has one endpoint on the vertical axis at 60 feet of fencing and one endpoint on the horizontal axis at 40 perennials. The assumption of constant opportunity costs means that both Dylan's PPF and Nate's PPF will be straight lines, so you can draw them by connecting the two endpoints. To find out which person has the comparative advantage in which activity, you need to calculate the opportunity costs. For Dylan, 1 foot of fencing means sacrificing 0.5 perennial, and 1 perennial means sacrificing 2 feet of fencing. For Nate, 1 foot of fencing means sacrificing 2/3 perennials, and 1 perennial means sacrificing 1.5 feet of fencing. Since the opportunity cost of fencing is the lowest when Dylan builds fences, Dylan has the comparative advantage in fencing and so should produce only 40 feet of fencing. Nate has the comparative advantage in perennials and so should produce only 40 perennials. Refer back to Chapter 2; Section: Models in Economics: Some Important Examples for a review of these concepts.

Dylan and Nate have their own landscaping business, Growing Green. They are known for building sturdy fences and planting beautiful perennials. In one day, Dylan can build 40 feet of fencing or plant 20 perennials. Nate can build 60 feet of fencing or plant 40 perennials.&nbsp. Part 1: Use the line drawing tool to draw a production possibility frontier for Dylan. Hint: Assume constant opportunity costs. Label this PPF-Dylan. Part 2: Use the line drawing tool to draw a production possibility frontier for Nate. Hint: Assume constant opportunity costs. Label this PPF-Nate. Part 3: How much would each person produce if they were to completely specialize in the goods for which they had a comparative advantage? Plot points to identify the appropriate production quantities on the PPF for both Dylan and Nate. For Dylan, label the point A. For Nate, label the point B.

A. they base their conclusions on models that make different assumptions.

Economists who are asked to choose between two government policies may disagree because: A. they base their conclusions on models that make different assumptions. B. as a matter of course, economists often take opposing points of view so that all sides of a question may be discussed. C. they make the same value judgments about the desirability of the policies. D. economists are trained ignore facts and focus on theory.

A. is using its resources inefficiently.

Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. If Tealand is producing 10 million scones and 10 million cups of tea (point A), we know that the economy: A. is using its resources inefficiently. B. has found new resources. C. is fully employing its resources. D. is using its resources efficiently.

A. efficient in production but not necessarily in allocation.

If an economy is producing at a point on its production possibilities frontier, it is: A. efficient in production but not necessarily in allocation. B. efficient in allocation but not necessarily in production. C. efficient in production and allocation. D. not necessarily efficient in production or allocation.

C. Laurence; both programs and sunglasses.

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. Given this information and supposing Laurence and Carrie Anne have constant opportunity costs, we know that _____ has an absolute advantage in _____. A. Laurence; programs but not in sunglasses. B. Carrie Anne; programs but not in sunglasses. C. Laurence; both programs and sunglasses. D. Carrie Anne; both programs and sunglasses.

B. the United States has a comparative advantage in the production of automobiles.

In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that: A. Japan has a comparative advantage in the production of both goods. B. the United States has a comparative advantage in the production of automobiles. C. the United States has an absolute advantage in the production of steel. D. Japan has a comparative advantage in the production of automobiles.

To draw the linear production possibilities frontier that illustrates the trade-off between the two goods in Micron you need to locate the end points of the line. You should place the first endpoint ON the horizontal axis at the quantity of 40 mangos. The second endpoint is located on the vertical axis at 20, meaning that Micron can produce 20 tons of papayas if produces no mangos. Connecting the two points with a straight line gives you the linear production possibilities frontier. To illustrate a combination of goods that would not be feasible for Micron to produce with its resources and technology you would place point X at any combination of the two goods in the area to the right of, or above, the production possibilities frontier. Micron cannot produce such a combination given its resources and technology. Any point on or below (to the left of) the production possibilities frontier line represents a feasible combination of the two goods; however any point below or to the left of the line represents a combination that is not efficient while any point on the production possibilities frontier line represents an efficient and feasible combination of the two goods. To review these concepts go to Chapter 2; Section: Trade-offs: The Production Possibility Frontier.

Micron can produce 40 tons of mangos if it produces no papayas or 20 tons of papayas if produces no mangos. Part 1: Use the line drawing tool to draw a linear production possibility frontier that illustrates this trade-off between production of mangos and production of papayas. Label this as PPF. Part 2: Use the point tool to illustrate a combination of mangos and papayas that is not feasible. Label this point X. Part 3: Use the point tool to illustrate a feasible combination of mangos and papayas. Label this point Y.

D. The percentage of Indiana residents with a college degree rises from 25% to 30%.

Suppose Indiana produces only steel and corn, with fixed amounts of land, labor, and capital resources. Which of the following best sets the stage for economic growth? A. The United States imports more and more low-cost steel from Asian countries. B. The Midwest has a devastating drought. C. The unemployment rate in Indiana rises from 5% to 6%. D. The percentage of Indiana residents with a college degree rises from 25% to 30%.

C. the country can make the product while forgoing fewer alternative products than any other country.

To achieve the gains from trade, each nation should specialize in the production of a good or service if: A. the country can make the product using fewer resources than any other country. B. its production possibility frontier is farther from the origin than that of any other country. C. the country can make the product while forgoing fewer alternative products than any other country. D. its production possibility frontier is closer to the origin than that of any other country.

A. a positive economic statement.

Unemployment decreased to its lowest level in 10 years last month. This statement is: A. a positive economic statement. B. a normative economic statement. C. a value judgment. D. an example of an opportunity cost.

B. its production possibility frontier shifts outward.

When a nation's economy grows: A. it has been able to reach full employment. B. its production possibility frontier shifts outward. C. its production possibility frontier shifts inward. D. it has moved to a more consumer-oriented position on its production possibility frontier.

A. Money flows from households to firms as households offer factors of production for sale.

Which of the following is FALSE about the circular-flow diagram? A. Money flows from households to firms as households offer factors of production for sale. B. Firms are the primary suppliers of goods and services. C. Money flows in the direction opposite to goods and services and factors of production. D. Households are the primary demanders of goods and services.

B. The best way to encourage growth in the economy is through government spending.

Which of the following is a normative statement? A. Women's labor force participation rate has increased during the past 100 years. B. The best way to encourage growth in the economy is through government spending. C. Children in the United States are required to go to school until they reach a certain age. D. The federal minimum wage is higher today than it was in 1990.

D. increase the opportunity cost of producing radishes in country A.

(Figure: Bicycles and Radishes I) Look at the figure Bicycles and Radishes I. It shows production possibility frontiers for two countries that produce only radishes and bicycles. The axes of the two graphs are measured in equivalent units. Country A is operating at point M, and country B is operating at point N. Suppose country A discovers a new technology that greatly increases its ability to produce bicycles but has no effect on its ability to produce radishes. This would: A. not affect the opportunity cost of producing radishes in country A. B. lower the opportunity cost of producing radishes in country A. C. increase the opportunity cost of producing radishes in country B. D. increase the opportunity cost of producing radishes in country A.

B. entails a loss of 8 cars per period.

(Figure: Production Possibility Frontier) Look at the figure Production Possibilities Frontier. If the economy is operating at point B, producing 16 cars and 12 computers per period, a decision to move to point E and produce 18 computers: A. makes it clear that this economy has decreasing opportunity costs. B. entails a loss of 8 cars per period. C. indicates that you can have more computers and more cars simultaneously. D. entails a loss of 4 cars per period.

D. the economy has unemployment and/or inefficiently allocates resources.

(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines. Suppose the economy is operating at point G. This implies that: A. the economy can move to a point such as C only if it improves its technology. B. the economy lacks the resources to achieve a combination such as C. C. people in this economy don't really like strawberries or submarines. D. the economy has unemployment and/or inefficiently allocates resources.

C. 15

(Figure: Wine and Wheat) Look at the figure Wine and Wheat. The opportunity cost of moving from producing ONLY wheat to producing ONLY wine is _____ tons of wheat. A. 6 B. 9 C. 15 D. 3

A. coffee only.

(Table: Coffee and Salmon Production Possibilities II) Look at the table Coffee and Salmon Production Possibilities II. This table shows the maximum amounts of coffee and salmon, both measured in pounds, that Brazil and Alaska can produce if they just produce one good. Brazil has a comparative advantage in producing: A. coffee only. B. neither coffee nor salmon C. salmon only. D. both coffee and salmon.

D. 8

(Table: Production Possibilities Schedule I) Look at the table Production Possibilities Schedule I. The opportunity cost of producing the fourth unit of consumer goods is _____ units of capital goods. A. 6 B. 2 C. 4 D. 8