Chapter 2 Practice Questions

Refer to the graph above. What is the opportunity cost of moving from point B to point C?

150 aircraft carriers

In the circular-flow diagram above, which arrow shows the flow of income paid to the factors of production?

D

Refer to the graph above. As you move from point A to point B and then to point C on this graph, what happens to the marginal opportunity cost of producing extra automobiles?

It increases

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.

Smaller

Which of the following statements is most consistent with positive economic analysis?

The United States benefits if it specializes in the production of some goods, and then trades some of them to other countries.

Refer to the graphs above. Which of the following could have caused the outward shift of the curve in the graph on the left side?

an increase in technology that affects the production of both aircraft carriers and automobiles

Refer to the graph above. Which of the following combinations is inefficient?

combination F because it is below the curve

Which of the following refers to markets where goods such as computers or services such as medical treatment are offered?

product markets

What are patents and copyrights designed to do?

protect intellectual property rights

A production possibilities frontier will be linear instead of bowed out if

the opportunity cost of producing more of either of the two goods is constant.

Refer to the graph above. Which of the following combinations of pies and cakes is unattainable given existing resources?

4 cakes and 7 pies

Refer to the graph above. What is the opportunity cost of producing 400 aircraft carriers?

600 Automobiles

Refer to the graph above. Which of the following combinations is unattainable with the current resources available in this economy?

Combination G

Refer to the graphs above. Each graph represents one country. Which country should specialize in the production of chips?

Country A

SRefer to the graphs below. What is point B' on your neighbor s PPF curve?

Point B' is your neighbor's consumption after trade.

Refer to the graphs above. Which graph better represents an improvement only in the technology used to make automobiles?

the graph on the right

Refer to the graph above. How many roadsters are produced at the point where BMW produces 800 SUVs?

0

Refer to the graph above. In this problem, what is the opportunity cost of producing five cakes?

10 pies

Consider the table above. What is country A s opportunity cost of producing 1 unit of clothing?

2 unites of food

Suppose BMW is currently at point B. What is the opportunity cost of producing 200 more SUVs?

200 roadsters

Consider the table below. Which country has a comparative advantage in the production of each good?

Country A has a comparative advantage in the production of food; Country B has a comparative advantage in the production of clothing.

The table below shows the quantity of two goods that a worker in Country A and a worker in Country B can produce per day. Which country has an absolute advantage in the production of each good?

Country A has an absolute advantage in the production of each good.

Refer to the graphs above. Each graph represents one country. Which country has a comparative advantage in the production of shirts?

Country B

According to Adam Smith, which of the following is necessary for the proper functioning of the market system?

For markets to work, people must be free to pursue their self-interest.

According to Adam Smith, which of the following is true?

Individuals usually act in a rational, self-interested way.

Refer to the graph above. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and producing roadsters?

Moving from B to C

What is the name given to the highest-valued alternative that must be given up to engage in any activity?

Opportunity cost

Refer to the graph above. What does the term increasing marginal opportunity cost mean in this graph?

There is a higher opportunity cost of producing either aircraft carriers or automobiles, so long as the quantity produced of that good is increasing.

If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?

an independent court system

In a free market system, which of the following groups brings together the factors of production—labor, capital, and natural resources—in order to produce goods and services?

entrepreneurs

If a country has a comparative advantage in the production of a good, then that country

has a lower opportunity cost in the production of that good.

Which of the following comprises the two key groups of participants in the circular flow of income?

households and firms

Absolute advantage is the ability of an individual, firm, or country to

produce more of a good or service than competitors using the same amount of resources.

Refer to the graphs above. Which graph represents the concept of economic growth?

the graph on the left

The table above shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Which of the following statements is true?

George has an comparative advantage in lawn mowing

What happens if a country produces a combination of goods that uses all of the resources available in the economy?

The country is operating on its production possibilities frontier.