Test 1 - Chapters 1-3

Scenario 3-1 The production possibilities frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Ice cream on y-axis // Cake on x-axis Greg's Production Possibilities: goes from (0,8) to (4,0) Catherine's Production Possibilities goes from (0,5) to (2,0) Refer to Scenario 3-1. What is Greg's opportunity cost of producing ice cream? Explain how you derived your answer.

Greg's opportunity cost of producing ice cream is 1/2 of a cake for every 1 quart of ice cream. 1 quart of ice cream = 4/8 or 1/2 of a cake O.C. of ice cream = 1/2 of a cake per qt. of IC

Most economists agree that a large federal budget deficit has what type of effect on the economy?

"A large federal budget deficit has an adverse effect on the economy." (p. 31)

Who would be more likely to study the effects of rent control on housing in New York City, a macroeconomist or a microeconomist?

"A microeconomist might study the effects of rent control on housing in New York City" (p. 27)

Figure 3-2 ​ Brazil's Production Possibilities Frontier ​ Refer to Figure 3-2. If the production possibilities frontier shown is for 24 hours of production, then how long does it take Brazil to make one cashew? 1/10 hour 1/3 hour 3 hours 10 hours

1/10 hour

Table 3-24 Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. ​ Labor Hours needed to Number of Units Produced make 1 unit of in 40 Hours Cheese Bread Cheese Bread England 1 4 40 10 Spain 4 8 10 5 Refer to Table 3-24. At which of the following prices would both England and Spain gain from trade with each other? 16 units of bread for 16 units of cheese 16 units of bread for 24 units of cheese 16 units of bread for 48 units of cheese England and Spain could not both gain from trade with each other at any price.

16 units of bread for 48 units of cheese

Table 3-3 Production Opportunities Labor Hours needed to Number of Units Produced make 1 unit of in 40 Hours Cheese Bread Cheese Bread England 1 4 40 10 France 5 2 8 20 Refer to Table 3-3. Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is 8 units of cheese and 10 units of wine 24 units of cheese and 15 units of wine 40 units of cheese and 20 units of wine 48 units of cheese and 30 units of wine

24 units of cheese and 15 units of wine

Figure 3-2 ​ Brazil's Production Possibilities Frontier ​ Refer to Figure 3-2. The fact that the line slopes downward reflects the fact that for Brazil, it is more costly to produce peanuts than it is to produce cashews. Brazil will produce more peanuts and fewer cashews as time goes by. Brazil faces a tradeoff between producing peanuts and producing cashews. Brazil should specialize in producing cashews.

Brazil faces a tradeoff between producing peanuts and producing cashews.

Table 3-33 Chris and Tony's Production Opportunities Tomatoes Pasta Sauce Chris 10 lbs 300 jars Tony 14 lbs 280 jars Refer to Table 3-33 Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible production per month if both work the same number of 8 hour days. If Chris and Tony both decide to specialize and produce only the good in which they have a comparative advantage, then Chris will produce only sauce and Tony will produce only tomatoes. Chris will produce only tomatoes and Tony will produce only sauce. Both Chris and Tony will produce only sauce. Both Chris and Tony will produce only tomatoes.

Chris will produce only sauce and Tony will produce only tomatoes.

Scenario 3-1 The production possibilities frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Ice cream on y-axis // Cake on x-axis Greg's Production Possibilities: goes from (0,8) to (4,0) Catherine's Production Possibilities goes from (0,5) to (2,0) Refer to Scenario 3-1. Is it possible for Greg and Catherine to gain from trade? Defend your answer.

It is possible for Greg and Catherine to gain from trade. If you find the opportunity costs for ice cream, Greg's is 1/2 a cake per quart of ice cream whereas Catherine's is 2/5 - therefore Catherine has the comparative advantage for ice cream. Finding the OC for cake, Greg 's is 2 quarts of ice cream for every cake and Catherine's is 5/2 - Greg has the comparative advantage for cake. Since both have comparative advantages in the opposite good, they would both benefit from trade.

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate? People face tradeoffs. The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives.

People respond to incentives.

Which of the following is not an example of the opportunity cost of going to school? The money a student could have earned by working if he had not gone to college. The nap a student could have enjoyed if he had not attended class. The party a student could have enjoyed if he had not stayed in to study for his exam. The money a student spends on rent for his apartment while attending school.

The money a student spends on rent for his apartment while attending school.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. The airline should sell a ticket to a standby passenger only if the passenger is willing to pay more than $200. more than $300. more than $500. This cannot be determined from the information given.

This cannot be determined from the information given.

Which of the following is the primary cause of inflation? an increase in the quantity of money an increase in government spending an increase in unemployment an increase in productivity

an increase in the quantity of money

In the circular-flow diagram, which of the following items flows from households to firms through the markets for goods and services? goods and services dollars paid to land, labor, and capital dollars spent on goods and services wages, rent, and profit

dollars spent on goods and services

Total output in an economy increases when each person specializes because there is less competition for the same resources. each person spends more time producing that product in which he or she has a comparative advantage. a wider variety of products will be produced within each country due to specialization. government necessarily plays a larger role in the economy due to specialization.

each person spends more time producing that product in which he or she has a comparative advantage.

Figure 3-10 Alice and Betty's Production Possibilities in one 8-hour day. Alice's Production Possibilities Frontier Betty's Production Possibilities Frontier Refer to Figure 3-10. Both Alice and Betty face a constant trade-off between producing pitchers of lemonade and pizzas. can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production. would benefit from specializing in lemonade production. would benefit from specializing in pizza production.

face a constant trade-off between producing pitchers of lemonade and pizzas.

Figure 3-10 Alice and Betty's Production Possibilities in one 8-hour day. Alice's Production Possibilities Frontier Betty's Production Possibilities Frontier Refer to Figure 3-10. Both Alice and Betty face a constant trade-off between producing pitchers of lemonade and pizzas. can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production. would benefit from specializing in lemonade production. would benefit from specializing in pizza production.

face a constant trade-off between producing pitchers of lemonade and pizzas.

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good, has a low opportunity cost of producing that good, relative to the opportunity costs of other producers. has a comparative advantage in the production of that good. has an absolute advantage in the production of that good. should be the only producer of that good.

has an absolute advantage in the production of that good.

In the markets for the factors of production in the circular-flow diagram, households are sellers and firms are buyers. households are buyers and firms are sellers. households and firms are both buyers. households and firms are both sellers.

households are sellers and firms are buyers.

According to the circular-flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates in the markets for factors of production exchanging labor for income. in the markets for factors of production exchanging flowers for revenue. in the markets for goods and services exchanging flowers for wages, rent, and profit. in the markets for goods and services exchanging labor for income.

in the markets for factors of production exchanging labor for income.

Economists use the term ______ to refer to an increase in the overall level of prices in the economy.

inflation - an increase in the overall level of prices in the economy (p. 13)

A person can benefit from specialization and trade by obtaining a good at a price that is lower than his or her opportunity cost of that good. the same as his or her opportunity cost of that good. higher than his or her opportunity cost of that good. different than his or her opportunity cost of that good.

lower than his or her opportunity cost of that good.

Economists make assumptions to provide issues for political discussion. make a complex world easier to understand. make it easier to teach economic concepts and analysis. create policy alternatives that are incomplete or subject to criticism.

make a complex world easier to understand.

Maureen's college raises the cost of room and board per semester. This increase raises Maureen's opportunity cost of attending college even if the amount she would have to pay for room and board if she didn't attend college rose by the same amount. An increase in opportunity cost reduces Maureen's incentive to attend college. even if the amount she would have to pay for room and board if she didn't attend college rose by the same amount. An increase in opportunity cost increases Maureen's incentive to attend college. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Maureen's incentive to attend college. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost increases Maureen's incentive to attend college.

only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Maureen's incentive to attend college.

When economists are trying to help improve the world, they are in the realm of positive economics rather than normative economics. in the realm of macroeconomics rather than microeconomics. scientists. policy advisers.

policy advisers.

Figure 2-20 ​ Relationship Between Years of Education and Annual Income ​ Refer to Figure 2-20.According to the graph, the correlation between years of education and annual income is positive negative inverse normative

positive

Normative statements are prescriptive, whereas positive statements are descriptive. descriptive, whereas positive statements are prescriptive. backward-looking, whereas positive statements are forward-looking. forward-looking, whereas positive statements are backward-looking.

prescriptive, whereas positive statements are descriptive.

Which of the following areas of study typifies microeconomics as opposed to macroeconomics? the impact of minimum-wage laws on employment in the fast food industry the effect of changes in household saving rates on the growth rate of national income the impact of faster money growth on the rate of inflation a comparison of alternative tax policies and their respective impacts on the rate of the nation's economic growth

the impact of minimum-wage laws on employment in the fast food industry

In economics, the cost of something is the dollar amount of obtaining it. always measured in units of time given up to get it. what you give up to get it. often impossible to quantify, even in principle.

what you give up to get it.

Table 3-37 Output of potter in one six-hour session Vases Mugs Sarah 8 32 Charles 10 25 ​ ​Refer to Table 3-37. Sarah and Charles are both potters and each can switch between the production of vases and mugs at a constant rate. The table shows the total number of vases or decorative mugs that each person can produce in a six-hour session of producing pottery. Sarah should specialize in the production of ​mugs and Charles should specialize in the production of vases. ​vases and Charles should specialize in the production of mugs. ​both goods and Charles should specialize in the production of neither good. ​neither good and Charles should specialize in the production of both good.

​mugs and Charles should specialize in the production of vases.