ECON ch 1-4
Suppose you have $100 to invest. There are 3 potential one-year projects you can choose from and they only differ in their returns. After one year, you can get $110 from Project 1, $102 from Project 2, and $115 from Project 3. What would be the total cost (including the opportunity cost) if you choose Project 1?
$115
Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is
2.8 bushels of corn.
Here are some production possibilities for an imaginary economy for a given year. cars newspapers 10. 400 12. 360 14. ?
310
Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is
5/3 bushels of corn
Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. He can sell the boat as it is now for $300. What are the cost and benefit associating with the decision of making the additional repair?
700,800
Which of the following statements is not correct?
Absolute advantage is the driving force of specialization.
The country of Econoland produces two goods, textbooks and widgets. Last year it produced 200 textbooks and 500 widgets. This year it produced 250 textbooks and 600 widgets. Given no other information, which of the following events could not explain this change?
Any of these events could, in fact, explain the change.
Which of the following statements about comparative advantage is not true?
Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.
An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world.
False
In a simple circular-flow diagram, firms own the factors of production and use them to produce goods and services.
False
Which of these statements is a normative statement (as opposed to a positive statement)?
Gasoline prices ought to be lower than they are now. The federal government should raise taxes on wealthy people. The social security system is a good system and it deserves to be preserved as it is
The principle of comparative advantage does not provide answers to certain questions. One of those questions is as follows:
How are the gains from trade shared among the parties to a trade?
A furniture maker currently produces 100 tables per week and sells them for a profit. She is considering expanding her operation in order to make more tables. Should she expand?
It depends on the marginal cost of producing more tables and the marginal revenue she will earn from selling more tables
Which of the following transactions does not take place in a market for a factor of production?
Juanita works as a marriage counselor and her clients pay her on a per-hour basis for her services.
Which of the following statements about models is correct?
Models assume away irrelevant details.
Which of the following is an example of a positive statement?
Prices rise when the government prints too much money.
Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines. Which of the following statements is true?
The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food.
"Society would be better if the welfare system were abolished" is a normative statement, not a positive statement.
True
A production possibilities frontier is a graph that shows the various combinations of outputs the economy can produce given its factors of production and its technology.
True
An economy is being efficient if it is impossible to produce more of one good without producing less of another.
True
If government regulations designed to protect wetlands removed very productive farmland from production, the production possibilities would shift inward
True
Two variables that are negatively related will move in opposite directions.
True
When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included?
You should include only the amount by which your room and board expenses exceed the expenses for rent and food if you were not in college
The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the
amount of the other good that must be given up.
Which of these activities will most likely result in an external benefit
an elderly woman plants a flower garden on the vacant lot next to her house
The difference between production possibilities frontiers that are bowed out and those that are straight lines is that
bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illustrate constant opportunity cost
In economics, capital refers to
buildings and machines used in the production process.
Teresa eats three oranges during a particular day. The marginal benefit she enjoys from eating the third orange
can be thought of as the total benefit Teresa enjoys by eating three oranges minus the total benefit she would have enjoyed by eating just eating the first two oranges
The average cost per seat on the 50 passenger Floating-On-Air Bus company's trip from Kansas City to St. Louis on which no refreshments are served is $45. In advance of a particular trip three seats remain unsold. The bus company would only increase its profit if
charged any ticket price for above $0 for the three remaining seats
rational people make decisions at the margin by
comparing marginal costs and marginal benefits
Economists view positive statements as
descriptive, making a claim about how the world is.
Total output in an economy increases when each person specializes because
each person spends more time producing that product in which he or she has a comparative advantage
If a copper refinery does not bear the entire cost of the smoke it emits it will
emit too much smoke
In the united states higher income tax rates on rich people could be justified on the basis of
enhanced equity for society
Market failure can be caused by
externalities and market power
If it takes U.S. workers fewer hours to produce every good than it takes German workers, the United States cannot gain from trade with Germany.
false
Mark is a computer company executive, earning $200 per hour managing the company and promoting its products. His daughter Regan is a high school student, earning $6 per hour helping her grandmother on the farm. Mark's computer is broken. He can repair it himself in one hour. Regan can repair it in 10 hours. Mark's opportunity cost of repairing the computer is lower than Regan's.
false
The producer who has the smaller opportunity cost of producing a good is said to have an absolute advantage in producing that good.
false
The principle that "trade can make everyone better off" applies to interactions and trade between
families, states within the United states, nations
Evidence indicates that seat belt laws have led to
fewer deaths per automobile accidents
Economists make use of assumptions, some of which are unrealistic, for the purpose of
focusing their thinking
A construction company has built 50 houses so far this year at a total cost to the company of $8 million. If the company builds a 51th house its total cost will increase to 8.18$ million. Which of the following statements is correct?
for the first 50 houses the average cost per house was 160,000
The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by
government actions that distort prices
Which of the following statements does not apply to a market economy
government policies are the primary forces that guide the decisions of firms and households
A circular-flow diagram is a model that
helps to explain how participants in the economy interact with one another. helps to explain how the economy is organized. incorporates the markets for the factors of production.
Which two groups of decisionmakers are included in the simple circular-flow diagram?
households and firms
In the markets for the factors of production,
households are sellers and firms are buyers.
Economics is the study of
how society manages its scarce resources
Which of the statements is not true
in the presence of a market failure government action will always improve on the market outcome
A company that formerly produced software went out of business because too many potential customers bought illegally produced copies of the software instead of buying the product directly from the company. This instance serves as an example of
inadequate enforcement of property rights
A production possibilities frontier will be a straight line if
increasing the production of one good by x units entails a constant opportunity cost in terms of the other good.
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers
Absolute advantage is found by comparing different producers'
input requirements per unit of output.
Factors of production are
inputs into the production process.
When the government prevents prices from adjusting naturally to supply and demand
it adversely affects the allocation of resources
A tradeoff exists between a clean environment and a higher level of income in that
laws that reduce pollution raise costs of production and reduce incomes
Benefits from trade would not include
less competition
A rationale for government involvement in a market economy is as follows
markets sometimes fail to produce a fair distribution of economic well being. Markets sometimes fail to produce an efficient allocations of resources. Property rights have to be enforced
Suppose that someone makes the argument that because empty alcohol containers are found at many accidents, the containers cause accidents. This would be an example of
omitted variables.
Production is efficient if the economy is producing at a point
on the production possibilities frontier.
What you give up to obtain an item is called
opportunity cost
Based on the available evidence which of the following groups benefits most from mandatory seat belt laws?
owners of collision repair shops
An example of an externality is the impact of
pollution from a factory on the health of people in the vicinity of the factory
market power refers to the
power of a single person or small group to influence market prices
The invisible hand directs economic activity though
prices
The amount by which firms' sales revenue exceeds their payments to factors of production is called
profit
If education produces external benefits for society, which of the following might Not be an appropriate policy for society to adopt regarding education
programs which promote the hiring of high school dropouts
A primary functions of prices in a market economy is to provide participants with
relevant economic information
The basic principles of economics imply that policymakers should
rely on markets to guide economic activity except when markets produce inefficient or inequitable outcomes
The overriding reason as to why households and societies face many decisions is that
resources are scarce
In the early 19th century, the Russian government sent doctors to southern Russian villages to provide assistance during a cholera epidemic. The villagers noticed that wherever doctors appeared, people died. Therefore, many doctors were chased away from villages, and some were even killed. This reaction to the correlation between doctors and deaths is most likely a problem of
reverse causality.
Resources are
scarce for households and scarce for economies
A marginal change is a
small, incremental adjustment
A production possibilities frontier that is a straight line shows
that resources can be shifted easily and seamlessly from the production of one good to the production of a different good.
A type of graph that can be used to display the relationship between two variables is
the coordinate system.
A production possibilities frontier shifts outward when
the economy experiences economic growth.
The two loops in the circular-flow diagram represent
the flows of inputs and outputs and (ii) the flow of dollars.
Which of the following firms is most likely to have market power
the last gas station in New Mexico for 100 miles
People are willing to pay more for a diamond than for a diamond than for a water because
the marginal benefit of an extra diamond exceeds the marginal benefit of an extra bottle of water
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
the nation is not using all available resources or is using inferior technology or both
In an economy in which decisions are guided by prices and individual self interest there is
the potential to achieve efficiency in production
Consider a shoemaker and a vegetable farmer. Potentially, trade could benefit both individuals if
the shoemaker can produce only shoes and the vegetable farmer can produce only vegetables. the shoemaker is capable of growing vegetables, but he is not very good at it. the vegetable farmer is better at growing vegetables and better at making shoes than the shoemaker.
Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade,
the two countries' combined output of both goods will be higher than it would be in the absence of trade. Greece will produce more fish than it would produce in the absence of trade. Germany will produce more cars than it would produce in the absence of trade.
A production possibilities frontier can shift outward if
there is a technological improvement.
If an economy is producing efficiently, then
there is no way to produce more of one good without producing less of another good
Mallory decided to spend three hours working overtime rather than watching a video with her friends. She earns 8$ and hour. her opportunity cost of working is
they enjoyment she would have received had she watched the video
in the former Soviet Union producers were paid for meeting output targets, not selling products. Under those circumstances what were the economic incentives for producers
to produce enough to meet the output target without regard for quality or cost
As long as two people have different opportunity costs, each can gain from trade, since trade allows each person to obtain a good at a price lower than his or her opportunity cost
true
Differences in opportunity cost allow for gains from trade.
true
For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.
true
International trade may make some individuals in a nation better off, while other individuals are made worse off.
true
Trade allows a country to consume outside its production possibilities frontier
true
Factors of production are
used to produce goods and services
