ECON 201 Exam 1
In the diagram to the right, point F indicates an
inefficient result.
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $400,000 next year playing for a minor league baseball team, $900,000 next year playing for a European professional football team, or $0 returning to college for another year. The opportunity cost of the student-athlete returning to college next year is
$900,000
Tom's lawn service specializes in mowing lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1hour, he can mow 3 lawns or trim 5 bushes. Tom's opportunity cost of mowing lawns in terms of trimming bushes is ___ trimmed bushes per mowed lawn.
1.67
If Ford uses all its resources to produce trucks, how many can it produce? Suppose Ford is currently building 3 thousand cars per day. To build an additional 1 thousand cars, how many fewer trucks can be built? According to the graph, building 3 thousand cars per day and 3 thousand trucks per day is
10 thousand trucks per day. 2 thousand fewer trucks per day. technically ineffiecnt
If both countries specialize completely by producing only that for which they have a comparative advantage and then trade 2,000 automobiles for 16,000 computers, what will each country's consumption of automobiles and computers be? To answer this question, fill in the table below with the amounts of automobiles and computers the United States and Japan will consume with specialization and trade.
2000 6000 48000 16000
What is a trade war? Why did a trade war occur in 2018?
A situation in which one country raises tariffs and other countries retaliate by raising tariffs on the first country's exports. Other countries reacted to U.S. tariffs enacted by the Trump administration by placing retaliatory tariffs on many U.S. products.
Why do some people oppose the World Trade Organization (WTO)?
A. Some opponents are specifically against the globalization process that began in the 1980s and became widespread in the 1990s. B. Some critics of the WTO support globalization in principle but believe that the WTO favors the interests of the high-income countries at the expense of the low-income countries. C. Some opponents desire to erect trade barriers to protect domestic firms from foreign competition. D. All of the above.
Economics is a social science because
A. it is based on studying the actions of individuals. B. it applies the scientific method to the study of the interactions among individuals. C. it considers human behavior—particularly decision-making behavior. D. all of the above.
In economic terms, however, we found that although he had a(n) ___ advantage in both pitching and hitting/playing outfield over his teammates he held a(n) ___ advantage in hitting/playing outfield.
Absolute; Comparative
_____ is a situation in which a country does not trade with other countries. The _____ is the ratio at which a country can trade its exports for imports from other countries. By trading, countries are able to consume more than they could without trade. This outcome is possible because
Autarky, terms of trade A. shifting production to the more efficient country—the one with the comparative advantage—increases total production. B. world production of both goods increases after trade. C. inefficiencies in resource allocation are reduced. D. all of the above.
From the PPFs shown above it can be determined that the opportunity cost of oil is higher in country Given the comparative opportunity costs as revealed by the PPFs shown above, the comparative advantage for country A lies in After these two countries specialize and trade with each other, country B will be importing
B oil corn
How does the U.S. government protect steelworkers in West Virginia at the expense of steelworkers in South Korea? Which of the two arguments is most convincing?
By imposing a tariff on steel imports, the government protects U.S. steelworkers by reducing imports; however, that means South Korea is exporting less steel, which hurts steelworkers there. Since both of these arguments are based on normative statements, someone could find either argument more convincing.
___ has an absolute advantage in the production of hats, and ___ has an absolute advantage in the production of beer. ___ has a comparative advantage in the production of hats, and ___ has a comparative advantage in the production of beer. The table represents the amount of hats and beer after trading for each country
Chile Chile Chile Argentine 9400 1400
Your neighbor's consumption point after trade is illustrated by point
D
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
What do economists mean by scarcity? Which of the following is not scarce according to the economic definition?
Economists mean that unlimited wants exceed limited resources. Time Coal Food Workers None of the above
a. What was the main provision of this act? b. Why would the columnist argue that the act was more likely to hurt than help low-income families? c. If the columnist is correct, why did the sponsors of the act in Congress write the act the way that they did?
Firms whose employees received assistance from government benefits, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP), would be required to pay a tax equal to cost of the assistance. Firms that might otherwise have hired a low-wage worker may now be reluctant to do so because the firms could be liable for paying the tax. The sponsors of the legislation may have hoped that firms would raise the wages of low-income workers, which would make it unnecessary for these workers to apply for government benefits.
Which of the following is a correct statement about a mixed economy?
In a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
Is Lowery correct that it is the role of the federal government to guarantee that people have financial security?
Lowery is making a normative judgment regarding the policy. Normative analysis concerns what one person believes ought to be. You can agree or disagree with her opinion depending on your own views of the issue. There is no way to demonstrate that Lowery's opinion is correct.
Can we conclude that, during these years, foreign trade between the two countries benefited the United States more than it benefited Canada?
No, countries will engage in trade when there is a gain from trade to both parties.
Trade-offs force society to make choices, particularly when answering the following three fundamental questions:
One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?
Macroeconomics is
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
What was the purpose of the WTO when it was established? Which of the following would likely occur if the WTO collapsed and countries reverted to imposing tariffs on imports from other countries? Which groups would be made better off, and which groups would be made worse off? Briefly explain. If the WTO collapsed and had the consequences that Jones outlined, the economic efficiency of the world economy would
The purpose of the WTO was to promote trade among market economies. The prices on those imported goods would rise, some firms would gain by selling more but others would lose from higher input prices, global trade would fall, exporting firms would be hurt, some consumers would pay higher prices, and deadweight losses would arise in the economies of countries imposing the new tariffs. decrease
Macroeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Some politicians argue that eliminating U.S. tariffs and quotas would help the U.S. economy only if other countries eliminated their tariffs and quotas in exchange.
This statement is false; the U.S. economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.
Which country has an absolute advantage in producing tacos? Which country has a comparative advantage in producing tacos? If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of ___ additional ton(s) of hamburgers can be produced for the two countries combined and a total of ___ additional ton(s) of tacos can be produced.
US Mexico 8 4
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
If trade with China during that period, often called the "China shock," destroyed 2.4 million jobs, how can Boudreaux claim that "trade is not a job killer"?
While trade with China eliminated jobs in U.S. companies that were less efficient than foreign companies, it also created new jobs in U.S. companies that export products to foreign markets.
Which of the following statements is true for Tazania with trade?
With trade, Tanzania is producing on its PPF but not consuming on its PPF.
Were the Walmart executives correct to consider a 25 percent tariff on imports to be the equivalent of a 25 percent tax on their customers? Briefly explain.
Yes, a tariff is an indirect tax on U.S. consumers. Since the U.S. government can't force foreigners to pay U.S. taxes, they impose them on U.S. firms who import foreign goods. Those U.S. firms then pass along the cost of these tariffs to U.S. consumers in the form of higher prices.
Productive efficiency means that Allocative efficiency means that
a good or service is produced at the lowest possible cost. every good or service is produced up to the point where marginal benefit is equal to marginal cost.
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
Relative to a market economy, a centrally-planned economy would be expected to be
better at neither productive efficiency nor allocative efficiency because the absence of market-imposed competition negates the need of firms to satisfy consumer wants or produce using the lowest-cost methods.
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ___ economy in which the government decides how economic resources will be allocated. Or a society can have a ___ economy in which the decisions of households and firms interacting in markets allocate economic resources.
centrally planned market
Among the main sources of comparative advantage are the following:
climate and natural resources, relative abundance of labor and capital, technology, external economies.
The basis for trade is _____ advantage
comparative
If the columnist is correct about the effect of the sanctions, then, in the long run, the sanctions will
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.
An ___ is someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.
entrepreneur
___ are goods and services produced domestically but sold to other countries. ___ are goods and services bought domestically but produced in other countries. ___ are taxes imposed by a government on imports of a good into a country.
exports imports tariffs
What do economists mean by the word "marginal"? Economists believe that an activity should be continued up to the point where
extra or additional the marginal benefit from the activity is equal to the marginal cost.
Your opportunity cost of attending a game compared with the opportunity cost facing a college student 17 years ago is Can this change in opportunity cost account for the decline in college football attendance? Briefly explain.
higher, because more games are televised today. Yes, because these changes increase the opportunity cost of watching football games in person.
Two key groups participate in markets. A ___ consists of all the individuals in a home. ___ are suppliers of goods and services. We can use a simple economic model called the ___ to see how participants in markets are linked.
household Firms circular-flow diagram
If you were a member of the organization, what reply best represents clear economic thinking? This attitude
ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs.
One effect of tariffs and quotas
is to cost jobs outside the industries immediately affected.
We do not see complete specialization in the real world because
not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ.
___ is concerned with what is, and ___ is concerned with what ought to be. Economics is about ___ , which measures the costs and benefits of different courses of action.
positive analysis normative analysis positive analysis
The Scottish philosopher Adam Smith argued in 1776 that
prices would do a better job of coordinating the activities of buyers and sellers than guilds could.
Protectionism is the use of trade barriers to shield domestic firms from foreign competition. Protectionism is usually justified on the basis of several arguments which include:
saving jobs, protecting infant industries, and protecting national security.
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
What effect would a prolonged drought have on the initial production possibilities frontier? If there is a prolonged drought, then the PPF will This will indicate that less ___ can be produced.
shift in along both axes. of both goods
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing its consumption.
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
When the New York Times columnist concluded that this was, "... precisely the way globalization is supposed to work" he meant that The outcome in Rochester shows that globalization
when an industry changes, jobs will be created in other sectors. is good for some, like the consumers of digital cameras, and bad for others, like the unemployed Kodak workers.
A free market exists
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.
It would be possible for middle- and lower-income Americans to be both the biggest losers and at the same time the biggest winners from free trade if they are the ones most likely to
work in industries that produce at higher opportunity cost than in other countries and purchase those goods that can be produced at lower opportunity cost in other countries.
Determine the missing opportunity costs in the table below and fill in the missing values. From the tables above it is clear that _____ has an absolute advantage in the production of both goods and that _____ has a comparative advantage in cell phones, while _____ has a comparative advantage in digital music players.
2 2 Japan, Japan, United States
