Econ 2005 - Chapter 2
B
A _____ is an economic system characterized by the private ownership of resources. a. pure command system b. pure capitalist system c. mixed system d. socialist system
A
A bowed-out production possibilities curve demonstrates: a. the law of increasing opportunity cost. b. the law of diminishing marginal utility. c. the law of absolute advantage. d. the law of comparative advantage.
B
A cost that has already been incurred and cannot be recovered is called a(n): a. explicit cost. b. sunk cost. c. opportunity cost. d. fixed cost.
A
Olivia has been looking for a new apartment and finds two apartments that fit her requirements and budget. Apartment A is in the city center and is close to her office. Apartment B is in the suburbs, and it will take an hour each day for Olivia to commute from Apartment B to her office. Both the apartments cost $25,000. However, apartment A is located in a noisy and polluted neighborhood, whereas apartment B is located in a green and pollution-free locality. The opportunity cost of choosing apartment A over apartment B is: a. the green and pollution-free locality. b. the extra commute time from office. c. the price of apartment B. d. the cost of furnishing apartment A.
Division of Labor
breaking down the production of a good into separate tasks
PPF Shifts In
decrease of resources
A
A firm can produce 10 units of product A or 16 units of product B by utilizing all the available resources. Suppose the firm chooses to utilize its resources to produce one unit of product B. The opportunity cost faced by the firm, in this case, will be _____. a. 0.6 units of product A b. 2 units of product A c. 1.6 units of product A d. 10 units of product A
A
A firm can produce 10 units of product A or 16 units of product B by utilizing all the available resources. Suppose the firm decides to utilize its resources to produce one unit of product A. The opportunity cost of the firm's choice to produce that unit will be: a. 1.6 units of product B. b. 2.6 units of product B. c. 0.6 units of product B. d. 16 units of product B
A
Amanda can choose between two alternatives after high school. She can either attend a university or work at her father's grocery store. Amanda will have to pay $9,000 for tuition and fees to enroll in the university. However, if she decides to work at the grocery store, she will earn $500 per week. If Amanda decides to go to college, the opportunity cost of her decision will be: a. the weekly wage of $500 she could have earned if she had decided to work at the grocery store. b. the time she could have spent visiting her friends and watching a movie. c. the leisure time she could have enjoyed if she had decided to do nothing. d. the $9,000 in tuition and fees that she has to pay in order to enroll at the university.
C
An increase in available resources or a technological advancement that enhances the productivity of one or more type of resources will cause a(n): a. leftward shift in the production possibility frontier. b. upward movement along the production possibility frontier. c. outward shift in the production possibility frontier. d. downward movement along the production possibility frontier.
B
Division of labor refers to: a. the free movement of workers across departments in a business. b. the process of breaking down the production of a good into separate tasks. c. the discrimination between a unionized worker and a nonunionized worker. d. the use of modern machinery and labor force in the production of a commodity.
B
Charles and Madeline run an event management business in which they have two major tasks: getting new clients and preparing food for the events. Charles takes 6 hours to prepare food for an event and 3 hours to get a new client. Madeline takes 12 hours to prepare food and 3 hours to get a new client. Which of the following is true? a. Madeline has an absolute advantage in preparing food. b. Charles has an absolute and a comparative advantage in preparing food. c. Madeline has a comparative advantage in preparing food. d. Charles has a comparative advantage in getting new clients.
A
Charles and Madeline run an event management business in which they have two major tasks: getting new clients and preparing food for the events. Charles takes 6 hours to prepare food for an event and 3 hours to get each new client. Madeline takes 12 hours to prepare food and 3 hours to get a new client. Charles and Madeline were initially splitting both tasks for a large number of events. However, they later decide to start reassigning work based on the principle of comparative advantage. Charles takes over food preparation while Madeline uses the free time to get more clients. Which of the following is a possible effect of specialization on the tasks performed by Charles and Madeline? a. The total number of events for which food is prepared will remain unchanged, but the number of new clients will increase by 2. b. The total number of events for which food is prepared will increase by 3, and the number of new clients will increase by 1. c. The total number of events for which food is prepared and the number of clients will remain unchanged. d. The total number of events for which food is prepared and the number of new clients will increase by 2.
D
Economic decision makers should ignore _____ while making choices. a. opportunity costs b. marginal costs c. average costs d. sunk costs
A
_____ involves the direct exchange of one good for another without the use of money. a. Barter b. Export c. Import d. Economic growth
D
In a market system, the answer to the "for whom to produce" economic question is that: a. goods are allocated to everyone irrespective of their willingness or ability to pay for it. b. goods are allocated to those with the ability to pay but no willingness to pay, as expressed through market demand. c. goods are allocated to those who need them the most. d. goods are allocated to those with the willingness and ability to pay, as expressed through market demand.
C
In terms of opportunity cost, _____ is the ultimate constraint. a. information b. education c. time d. creativity
B
Olivia has been looking for a new apartment and finds two apartments that fit her requirements and budget. Apartment A is in the city center and is close to her office. Apartment B is in the suburbs and it will take an hour each day for Olivia to commute from Apartment B to her office. Both the apartments cost $25,000. However, apartment A is located in a noisy and polluted neighborhood, whereas apartment B is located in a green and pollution-free locality. The opportunity cost of choosing apartment B is: a. the price of apartment A. b. the distance from the city center. c. the cost of furnishing apartment B. d. the green and pollution-free locality.
B
One of the key criteria used to distinguish among different economic systems is: a. when allocation decisions are made. b. how allocation decisions are made. c. what allocation decisions are made. d. where allocation decisions are made.
D
Ralph and Sue perform two tasks: making soccer balls and sewing cotton shirts. With the given resources, Ralph can make 20 soccer balls or sew 6 shirts and Sue can make 16 balls or sew 10 shirts. Which of the following is true? a. Ralph has an absolute advantage in the production of shirts. b. Sue has an absolute advantage in the production of soccer balls. c. Sue should specialize in the production of soccer balls. d. Ralph should specialize in the production of soccer balls.
B
Robert and Jackson both work at an accountant's office. Their major tasks involve responding to client queries through e-mails and preparing financial statements. Robert can respond to 20 emails in an hour or prepare 2 financial statements, whereas Jackson can respond to 35 emails in an hour or prepare 1 financial statement. Which of the following is true? a. The opportunity cost of responding to client queries for Jackson is 0.2 financial statements. b. Jackson has a lower opportunity cost of replying to client queries than Robert has. c. Robert has a lower opportunity cost of replying to client queries than Jackson has. d. The opportunity cost of responding to client queries for Robert is 0.5 financial statements.
D
Suppose an economy consists of two industries: textiles and steel. Migration of workers from the textile industry to the steel industry will cause: a. a movement on the existing production possibility frontier away from the steel industry toward the textile industry. b. an outward shift in the production possibility frontier. c. a leftward shift in the production possibility frontier. d. a movement on the existing production possibility frontier away from the textile industry toward the steel industry.
A
Suppose an economy produces food and clothing, and a technological innovation occurs that enhances the productivity of resources used in producing both goods. Which of the following would be consistent with this situation? a. There is a parallel outward shift of the PPF. b. The PPF rotates outward along the clothing axis and remains fixed at the point of maximum food production. c. There is a parallel inward shift of the PPF. d. The PPF rotates outward along the food axis and remains fixed at the point of maximum cloth production.
A
Suppose both John and Bill can do two tasks in a day. If John can do each of the two tasks faster than Bill, then: a. John should specialize in performing the task for which he has a comparative advantage. b. Bill should specialize in performing the task for which he has an absolute advantage. c. John should specialize in performing both tasks. d. Bill should specialize in performing both tasks.
A
Suppose, in an hour, you can either make 20 tortillas or word-process 5 pages of text and your roommate can either make 15 tortillas or word-process 15 pages of text. Which of the following is correct? a. Your comparative advantage is in making tortillas. b. Your roommate's comparative advantage is in making tortillas. c. You have an absolute advantage in both tasks. d. Your roommate has an absolute advantage in both tasks.
A
The _____ states that the individual, firm, region, or country with the lower opportunity cost of producing a particular good should specialize in producing that good. a. law of comparative advantage b. law of diminishing marginal utility c. law of absolute advantage d. law of increasing opportunity cost
C
The economic system known as a market system is also referred to as: a. socialism. b. mercantilism. c. capitalism. d. Marxism.
A
The production possibilities frontier rotates outward along one of the axes when: a. there is a technological change that enhances the production of only one of the goods. b. there is a decrease in the availability of resources used to produce both goods. c. there is a decrease in the quality of resources used to produce both goods. d. there is a technological change that enhances the production of both goods.
B
The production possibilities frontier shows: a. possible combinations of two types of resources that can be used to produce a given combination of two goods. b. possible combinations of two types of goods that can be produced when all available resources are fully and efficiently employed. c. the possible quantity of a good that will be supplied at various possible prices. d. the possible quantity of a good that will be consumed at various possible prices.
A
_____ is the ability to make something using fewer resources than other producers use. a. Absolute advantage b. Comparative advantage c. Specialization d. Division of labor
D
The total production of goods and services in the world economy will increase if: a. nations trade and specialize in the production of a good in which they have an absolute advantage. b. there is a fall in the price of resources. c. there are widespread barriers on trade. d. nations trade and specialize in the production of a good in which they have a comparative advantage.
C
The value of the best alternative activity that is forgone is known as: a. marginal benefit. b. explicit cost. c. opportunity cost. d. marginal cost.
D
Under a pure command system, decisions are made by: a. firms. b. banks. c. households. d. the central government.
A
We can say that a firm is practicing division of labor if: a. each worker in the firm performs a particular task in the production process. b. it constantly organizes training programs for its workers. c. each worker in the firm carries out all the tasks in the production process. d. it hires only skilled laborers.
A
When you specialize in a task that you do best, you are applying the: a. law of comparative advantage. b. law of supply. c. law of absolute advantage. d. law of demand.
C
Which of the following are the three fundamental economic questions? a. What to produce, when to produce, and where to produce? b. What time to produce, what place to produce, and how to produce? c. What to produce, how to produce, and for whom to produce? d. What to produce, when to produce, and for whom to produce?
B
Which of the following ideas is NOT demonstrated by the PPF? a. Opportunity cost. b. Diminishing returns to scale. c. Efficiency. d. Scarcity.
B
Which of the following is a drawback of a pure command economy? a. Some producers may try to monopolize markets by eliminating competition. b. In a command economy, nobody in particular owns resources, therefore each person has less incentive to employ them in their highest-valued use, so some resources are wasted. c. People with no resources to sell could starve in a command economy. d. The production or consumption of some goods involves side effects that can either harm or benefit people not involved in the production or consumption of these goods.
B
Which of the following is a feature of a mixed economy? a. No well-defined property rights. b. Private ownership of some resources and public ownership of other resources. c. The barter system as a means of exchange. d. Public ownership of resources and centralized planning.
D
Which of the following is a fundamental question that an economic system must answer? a. What process is used to allocate resources? b. Who owns the resources? c. What types of incentives guide economic decision makers? d. What goods and services are to be produced?
B
Which of the following is a possible drawback of pure capitalism? a. Public goods are produced by private firms and are sold at high prices. b. Some producers may try to monopolize markets by eliminating competition. c. People with abundant resources are compelled to share their resources with those who have no resources. d. The protection of property rights and enforcement of contracts are controlled by a central authority and not a private entity.
C
Which of the following is an advantage of specialization of laborers? a. It leads to an increase in the demand for skilled workers. b. It increases the cost of production by increasing the training cost of a firm. c. It allows workers to develop more experience at a particular task. d. It provides equal opportunity of growth to both skilled and unskilled laborers.
C
Which of the following is an assumption of the study of an economy's production possibilities? a. The focus of the study is on the production during a period of 5 years. b. It is assumed that the legal system, property rights, tax laws, and the conventions of a market keep changing during the period of study. c. Output is limited to just two broad classes of products: consumer goods and capital goods. d. The quantity of economic resources is assumed to be a variable component, but the quality of resources is assumed to be fixed.
C
Which of the following is an example of a sunk cost? a. The money spent by a wholesaler to transport goods to different retail outlets. b. Olivia's decision to shift to an apartment close to her office instead of an apartment in the suburbs. c. Robert's investment in an unsuccessful business venture. d. Jack's decision to prepare for his exams when his friends are going to a rock concert.
C
Which of the following is the best description of the production possibilities frontier (PPF)? a. The PPF is a curve showing the changes in output of a good or service brought about by changes in input usage. b. The PPF is a curve showing the quantity of a good or service supplied by producers at each price level. c. The PPF is a curve showing alternative combinations of goods that can be produced when available resources are used efficiently. d. The PPF is a curve showing the different input combinations used to produce a particular good or service.
D
Which of the following is true about opportunity cost? a. The opportunity cost of the chosen item is the value of all the alternatives that are foregone. b. Opportunity cost has nothing to do with scarcity and time. c. The opportunity cost of engaging in some activity, such as attending opera, will be the same for different people. d. Opportunity cost may vary with circumstances.
D
Which of the following is true of a pure command system? a. Some producers may try to monopolize markets by eliminating the competition in a command economy. b. The production or consumption of some goods in a command economy involves side effects that can harm or benefit people not involved in the market transaction. c. Firms in a command economy have no incentive to produce so-called public goods. d. A pure command economy is difficult to run; hence, resources are used inefficiently at times.
C
Which of the following is true of absolute advantage? a. Absolute advantage in the production of a good encourages specialization. b. Absolute advantage focuses on the opportunity cost of using resources. c. Absolute advantage focuses on the use of fewer resources. d. Absolute advantage is a better guide to division of labor than comparative advantage.
C
Which of the following is true of specialization and exchange? a. Specialization and exchange cause an increase in the price of the products being traded. b. Specialization and exchange create a more independent economic environment. c. Specialization and exchange create more interdependence in an economy. d. Specialization and exchange cause inefficiency in the allocation of resources across a country.
A
Which of the following statements is true? a. The United States represents a mixed system, with government directly accounting for a little more than one-third of all economic activity. b. A mixed economy is characterized by the barter system as a means of exchange. c. One of the drawbacks of a pure command economy is that people with no resources to sell could starve in a command economy. d. The United States represents a pure command system, with government directly accounting for a little more than one-half of all economic activity.
C
Which of the following will cause an outward shift in an economy's PPF? a. A technological change that benefits the production of only capital goods. b. An increase in the migration of workers from one industry to another. c. A stable political environment and reliable property rights. d. A decrease in capital stock.
B
_____ exists in production when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another. a. Inefficiency b. Efficiency c. Comparative advantage d. Absolute advantage
Sunk Cost
a cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions
Production Possibilities Frontier (PPF)
a curve showing alternative combinations of goods that can be produced when available resources are used efficiently; a boundary line between inefficient and unattainable combinations; below curve is inefficient, above curve is unattainable
Pure Command System
an economic system characterize by the public ownership of resources and centralized planning; aka communism
Pure Capitalism
an economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets; aka market system
Mixed System
an economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are regulated by government
Economic Growth
an increase in the economy's ability to produce goods and services; reflected by an outward shift of the economy's PPF
Private Property Rights
an owner's right to use, rent, or sell resources or property
Specialization of Labor
focusing work effort on a particular product or a single task; takes advantage of individual preferences and natural abilities; allows workers to develop more experience at a particular task; reduces the need to shift among different tasks; permits the introduction of labor-saving machinery
PPF Shifts Out
people decide to work longer hours, increase in size or health of labor force, increase in the skills of the labor force, an increase in the availability of other resources, increase in capital produced, technological discovery that benefits consumer goods only
Comparative Advantage
the ability to make something at a lower opportunity cost than other producers face
Absolute Advantage
the ability to make something using fewer resources than other producers use
Efficiency
the condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another; getting the most from available resources
Barter
the direct exchange of one product for another without using money
Law of Comparative Advantage
the individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good
Economic System
the set of mechanisms and institutions that resolve the what, how, and for whom questions
Opportunity Cost
the value of the best alternative forgone when an item or activity is chosen
Law of Increasing Opportunity Cost
to produce more of one good, a successively larger amount of the other good must be sacrificed; PPF is curved due to this