Chapter 2

scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

d

A tradeoff is illustrated by A. a change in the slope of the PPF. B. A point inside the PPF C. A point outside the PPF D. The negative slope of the PPF

increasing marginal opportunity costs

As the economy moves down the PPF, it experiences

a

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the​ __________ the payoff to devoting additional resources to that activity. A. smaller B. more instant C. more proportional D. greater

e

What does increasing marginal opportunity costs​ mean? A. Increasing the production of a good requires smaller and smaller decreases in the production of another good. B. Production is not occurring on the production possibilities frontier. C. The economy is unable to produce increasing quantities of goods and services. D. Increasing the production of a good requires decreases in the production of another good. E. Increasing the production of a good requires larger and larger decreases in the production of another good.

c

What is the basis for​ trade? A. Efficiency. B. Economic growth. C. Comparative advantage. D. Available resources. E. Absolute advantage.

absolute advantage

the ability of an individual, a firm , or a country to produce more of a good or service than competitors, using the same amount of resources

comparative advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

trade

the act of buying and selling

Production Possibilities Frontier

A curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology

b

With respect to​ consumption, individuals and countries A. are constrained to consume on or inside their production possibilities frontiers. B. ​can, through​ trade, consume beyond their production possibilities frontiers. C. ​can, by choosing not to save for the​ future, consume beyond their production possibilities frontiers. D. can consume beyond their production possibilities frontiers only during periods of economic prosperity.

opportunity cost

the highest valued alternative that must be given up to engage in an activity

entrepreneur

​A(n) ______________is someone who operates a​ business, bringing together the factors of production, labor, ​capital, and natural resources to produce goods and services.

a

A free market exists A. when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. B. when the government places absolutely no restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. Your answer is not correct.C. when the government places significant restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. D. only in fiction. There are no markets or economies which even come close to approaching the status of a free market.

b

After Russia seized what had formerly been the Ukrainian territory of Crimea in February​ 2014, the United States and many other countries imposed economic sanctions that reduced the ability of Russia to engage in international trade. A columnist writing in the New York Times noted​ that, ​"If sanctions push Russia onto a path of greater​ self-reliance, its manufacturing and service industries will surely grow​ faster...." ​Source: Anatole​ Kaletsky, "Reasons to Welcome a Ukraine​ Deal," New York Times​, September​ 18, 2014. If the columnist is correct about the effect of the​ sanctions, then, in the long​ run, the sanctions will A. increase the economic​ well-being of the average Russian because there will more employment to meet the needs of the growing manufacturing sector. B. decrease the economic​ well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners. C. decrease the economic​ well-being of the average Russian because there will be lost markets. D. increase the economic​ well-being of the average Russian because its manufacturing and service industries will surely grow faster.

b

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically, A. the substitution effect is the decrease in quantity demanded because the​ consumers' purchasing power is reduced and the income effect is the decrease in quantity demanded owing to the fact that the product is more expensive relative to other goods. B. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power. C. the substitution effect is the decrease in quantity demanded because there are fewer consumers and the income effect is the decrease in quantity demanded because consumer incomes failed to increase. D. the substitution effect is the decrease in quantity demanded because consumer tastes have changed and the income effect is the decrease in quantity demanded because consumer incomes have fallen.

e

During the 1928 presidential election​ campaign, Herbert​ Hoover, the Republican​ candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good​ policy? Explain. A. This is not a good policy because it does not allow countries to import those goods that are scarce. B. This is not a good policy because it does not necessarily result in countries producing those goods for which they have an absolute advantage. C. This is a good policy because countries would only produce those goods that cannot be made elsewhere. D. This is a good policy because countries would only produce those goods that they can make at lower opportunity cost than other countries. E. This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.

d

If Sam is producing at a point on his production possibilities frontier, then he A) cannot produce any more of either good. B) will be unable to gain from trade. C) is not subject to scarcity. D) can produce more of one good only by producing less of the other.

e

In the​ 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28​ industries, Balassa found that the United States had an absolute advantage LOADING... . In these​ circumstances, would there have been any gain to the United States from importing any of these products from​ Britain? Explain. A. Since the United States had an absolute advantage in all 28​ industries, it had more bargaining power and would have gained from importing all of these products from Britain. B. Even with an absolute​ advantage, the United States would have benefited from importing those products that Britain could have produced at lower total cost. C. Since the United States had an absolute advantage in all 28​ industries, it also had a comparative advantage in each industry and would not have gained anything from importing any of these products from Britain. D. Even with an absolute​ advantage, the United States would have benefited from importing those products for which Britain had the same opportunity cost. E. Even with an absolute​ advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage.

economic growth

The ability of the economy to increase the production of goods and services

d

The chapter mentions that in 1965 married women with children worked an average of 32 hours per week while men worked an average of only 4 hours on housework—a total of 36 hours of housework. More​ recently, the estimated average weekly hours of housework for women declined to 18 while the hours worked by men increased to 10long dash—a total of 28 hours of housework. ​Source: U.S. Bureau of Labor​ Statistics, "American Time Use​ Survey." Does the decrease in the total number of hours of houseworklong dash—from 36 to 28long dash—mean that families are willing to live in messier​ homes? A. ​Yes, because families are too busy now to worry about a clean house. B. ​Yes, because homes are larger now and would require more hours of housework to keep a home clean. C. ​No, because women have just decided to let men do more work. D. ​No, because there are more labor saving devices so less time is required.

a

Using the same amount of​ resources, suppose that Nicaragua can produce twice as much sugar as Columbia.​ Nevertheless, Columbia could still have the comparative advantage in producing sugar if A. it is even less efficient than Nicaragua in the production of goods other than sugar B. it possesses more than double the sugar​-making resources as Nicaragua. C. it negotiates trade agreements that assign it the comparative advantage in sugar D. its currency is more than double the value of​ Nicaragua's currency.

b

We can show economic​ inefficiency: A. with points on and outside the production possibilities frontier. B. with points inside the production possibilities frontier. C. with points outside the production possibilities frontier. D. with points on the production possibilities frontier. E. with points inside and on the production possibilities frontier

workers, capital, natural resources, and entrepreneurial ability

What are some examples of factors of production?