Economics Chapter 2 Q & A

A graph that shows the maximum attainable combinations of two goods when society efficiently uses its productive resources is called: a. a production possibilities frontier (PPF). b. a supply curve. c. opportunity cost. d. a consumer demand curve. e. absolute advantage.

A

A model without any simplifying assumptions: a. is highly complex and likely unworkable. b. excludes important predictive variables. c. is very helpful for solving tough, real-world problems. d. does not look like the real-world problem it is meant to address. e. provides simplified solutions to complex problems.

A

A positive statement: a. is a claim that can be tested. b. is a statement about what ought to be. c. is a declaration of opinion. d. is a claim that cannot be tested. e. cannot be evaluated using the scientific method.

A

An economist's use of experiments and real-world data to test a theory is an example of: a. the scientific method in economics. b. macroeconomics. c. economic growth. d. normative analysis. e. comparative advantage.

A

For both parties to benefit from specialization and trade, the trading parties must agree on: a. a price somewhere between their opportunity costs of production. b. a plan not to trade with other parties. c. who has the absolute advantage in production. d. the appropriate level of investment for the future. e. the source of comparative advantage.

A

Given current resources and technology, the unattainable range is best described as: a. only area O: points outside the PPF. b. points on the PPF only. c. only area I: points inside the PPF. d. area I: inside the PPF and points on the PPF. e. Area O: outside the PPF and points on the PPF.

A

Goods that are produced now so that they can be used to produce other goods in the future are called: a. capital goods. b. consumer goods. c. investment goods. d. normal goods. e. opportunity goods.

A

Greater investment in capital goods today leads to: a. greater growth in the production possibilities frontier (PPF) in the future. b. greater consumption today. c. the end of scarcity. d. less opportunity cost. e. scarcity.

A

Is there an opportunity cost to increased investment in capital goods today? a. Yes, increased production of capital goods means fewer consumer goods today. b. Yes, increased production of capital goods today means less economic growth in the future. c. No, increased production of capital goods today does not mean fewer consumer goods today. d. No, increased production of capital goods today guarantees more consumption today. e. No, if society is producing at an efficient point on the production possibilities frontier (PPF), then there is no opportunity cost to investment in capital goods.

A

On the television show "MythBusters," the hosts design experiments, collect data, and test theories based on popular myths. This is an example of: a. the scientific method as used in economics. b. economic growth. c. gains from trade. d. production possibilities. e. absolute advantage.

A

One reason that economists make assumptions when designing models is to: a. exclude variables that do not add predictive power to the model. b. make models more like the real world. c. make models more complex. d. increase endogenous factors. e. ensure that all possible factors are included.

A

Opportunity cost is evident on the production possibilities frontier (PPF) graph: a. as you move from one point on the frontier to another point on the frontier. b. as you move from the origin to any inefficient point. c. as you move from one unattainable point to an efficient point on the frontier. d. as you move from an inefficient point to the origin. e. at any one single point on the graph.

A

Specialization and trade allow individuals to: a. consume outside their own production possibilities frontier (PPF). b. shift their PPF outward. c. produce more goods with less technology. d. eliminate scarcity. e. produce fewer goods with less technology.

A

The _________ states that the opportunity cost of producing a good always rises as you produce more of it. a. law of increasing relative cost b. law of positive economics c. law of demand d. production possibilities frontier (PPF) model e. zero-sum game

A

The opportunity cost of every investment in capital goods is: a. current consumption (consumer goods). b. future consumption (capital goods today). c. absolute advantage. d. comparative advantage. e. scarcity.

A

The production possibilities frontier (PPF) shows: a. the trade-off between the efficient production of two different goods. b. the difference between micro analysis and macro analysis. c. the difference between normative and positive analysis. d. how a firm should price a new product. e. how price and quantity are related for a single good.

A

Which of the following is a normative statement? a. You should wear a helmet when cycling. b. The sky is blue. c. A bicycle has two wheels. d. A unicycle has five wheels. e. Electricity follows the path of least resistance.

A

When one producer can create more of a good than another producer using the same quantity of resources, the first producer has: a. a zero-sum game. b. gains from trade. c. an absolute advantage. d. a comparative advantage. e. increasing relative costs.

C

As you move from one efficient point on the production possibilities frontier (PPF) to another efficient point on the PPF, you experience: a. decreasing relative cost. b. opportunity cost. c. macroeconomics. d. unlimited resources. e. unattainable combinations.

B

As you move from points N to M to L, the opportunity cost of additional apple pie: a. decreases due to the law of increasing relative cost. b. increases due to the law of increasing relative cost. c. decreases due to the law of normative economics. d. increases due to the law of marginal analysis. e. decreases due to enhancements in technology.

B

Ceteris paribus, if a society is producing at a point on the production possibilities frontier (PPF), it can only increase the production of one good by: a. also increasing the production of the second good. b. decreasing the production of the second good. c. increasing the price of the second good. d. decreasing the price of the second good. e. reducing the resources available for production.

B

Economic growth can be depicted on a production possibilities frontier (PPF) as an: a. inward shift of the PPF. b. outward shift of the PPF. c. inward rotation along the x axis. d. inward rotation along the y axis. e. increase in opportunity cost.

B

Goods that are produced for current consumption are called: a. capital goods. b. consumer goods. c. investment goods. d. normal goods. e. opportunity goods.

B

Over the last 20 years, countries such as India and China have: a. consumed heavily with little regard for the future. b. invested heavily and enjoyed significant economic growth. c. eliminated the problem of scarcity. d. produced outside their production possibilities frontier (PPF). e. produced wholly for current consumption.

B

Suppose you are studying a production possibilities frontier (PPF) that has a bowed-out shape relative to the origin. What causes this shape? a. economic growth b. the law of increasing relative cost c. absolute advantage d. normative economics e. more resources

B

The ability of one producer to create more of a good than another producer using the same quantity of resources is called: a. comparative advantage. b. absolute advantage. c. a positive-sum game. d. gains from trade. e. the law of increasing relative cost.

B

The movie Saving Private Ryan is about a military mission to find and recover a particular soldier—Private Ryan. The movie is predominantly about how much was given up in an effort to save this one particular soldier. The main economic theme of the movie is: a. absolute advantage. b. opportunity cost. c. normative analysis. d. comparative advantage. e. positive advantage.

B

The process of examining a change in one variable in a model while assuming that all the other variables remain constant is called: a. exogenous factors. b. ceteris paribus. c. normative analysis. d. positive analysis. e. faulty assumptions.

B

The set of efficient points is best described as: a. only area O: points outside the PPF. b. points on the PPF only. c. only area I: points inside the PPF. d. area I: inside the PPF and points on the PPF. e. area O: outside the PPF and points on the PPF.

B

To determine which of two producers has a comparative advantage, you would need to know their: a. increasing relative costs. b. opportunity costs of production for both goods. c. normative beliefs. d. zero-sum games. e. level of investment.

B

Variables that are not accounted for in a model are called: a. endogenous factors. b. exogenous factors. c. normative statements. d. positive statements. e. the scientific method.

B

When one producer has a comparative advantage in production, she: a. can produce more output than someone else using the same quantity of resources. b. can produce a good at a lower opportunity cost than someone else. c. does not benefit from trade with other producers. d. is unable to reach her production possibilities frontier (PPF). e. trades only with others who have the same comparative advantage.

B

When the opportunity cost of producing a good rises as you produce more of it, you experience: a. normative economics. b. increasing relative costs. c. downward-sloping demand. d. inferior goods. e. increasing marginal utility.

B

Which of the following is a positive statement? a. An economist should test every theory at least twice. b. Increases in the minimum wage cause unemployment. c. We ought to deregulate the mortgage market. d. The government must provide unlimited health care to citizens. e. We should forgo some current consumption in order to invest in the future.

B

Which of the following is a positive statement? a. My dog should lose some weight. b. Legally requiring dogs to have rabies shots will reduce the number of rabid dogs. c. You should take your dog to the veterinarian once a year for a checkup. d. Chihuahuas are cuter than bulldogs. e. All dogs should be required to wear leashes at all times.

B

Which of the following is necessary to build a good economic model? a. normative statements b. assumptions c. opinions d. complex math e. realism

B

Why do economists use models? a. Models are used to add complexity to a simple world. b. Models allow us to study a simplified version of a complex world. c. Models allow us to control exogenous factors. d. Models make the world harder to understand. e. Models allow us to examine more factors than what actually exists in our world.

B

You have an absolute advantage in producing something whenever: a. you enjoy producing that good. b. you can produce more of it than someone else can using the same quantity of resources. c. your opportunity cost is constant. d. your opportunity cost is lower than that of other producers. e. you have specific training in the production of that good.

B

If Elaine can produce more output from a set amount of resources than Jerry can, you know that: a. Elaine has a comparative advantage. b. Jerry has a comparative advantage. c. Elaine has an absolute advantage. d. Jerry has an absolute advantage. e. Elaine has a normative advantage.

C

On a production possibilities frontier (PPF) that shows the trade-off between consumer goods and capital goods given a fixed amount of labor, unemployment is illustrated by: a. movement from a point within the frontier to a point on the frontier. b. a point outside the frontier. c. a point within the frontier. d. movement from a point on the frontier to another point on the frontier. e. a point on the frontier.

C

The opportunity cost of increasing production of apple pies from 14 to 16 pies is: a. 2 blueberry pies. b. 14 apple pies. c. 7 blueberry pies. d. 4 blueberry pies. e. 16 blueberry pies.

C

The process of using current resources to create or buy new capital is called: a. absolute advantage. b. comparative advantage. c. investment. d. the law of increasing relative cost. e. economic growth.

C

A society that is producing its maximum combination of goods and using all available resources for production: a. has minimized its opportunity cost. b. has maximized its opportunity cost. c. is operating on its production possibilities frontier (PPF). d. is operating outside its production possibilities frontier (PPF). e. has eliminated scarcity.

C

According to the figure, a new technology that makes it easier to peel, core, and prepare apples will cause: a. the entire production possibilities frontier (PPF) to shift outward. b. the entire PPF to shift inward. c. the PPF to rotate outward to a larger maximum quantity of apple pies with no change in maximum blueberry pies. d. the PPF to rotate outward to a larger maximum quantity of blueberry pies with no change in maximum apple pies. e. the PPF to stay exactly the same because there is no change in resources.

C

An increase in the labor force would be reflected in a society's production possibilities frontier (PPF) by an: a. increase in opportunity cost. b. inward shift of the PPF. c. outward shift of the PPF. d. outward rotation along the x axis. e. outward rotation along the y axis.

C

Ceteris paribus means: a. in sets of two. b. constant opportunity cost. c. other things being equal. d. buyer beware. e. there is no reason to argue about people's tastes.

C

Forgoing current consumption so that those resources can be used to produce new capital is called: a. absolute advantage. b. comparative advantage. c. investment. d. scarcity. e. saving.

C

Variables that are controlled for in a model are called: a. normative statements. b. positive statements. c. endogenous factors. d. exogenous factors. e. the scientific method.

C

Which of the following is a normative statement? a. The current exchange rate is 0.7 British pounds per U.S. dollar. b. In January, the average temperature in Fargo, North Dakota, is 56 degrees. c. Winters in Arkansas are too cold. d. On average, people save 15% when they switch to GEICO. e. University of Virginia graduates earn more than Duke University graduates.

C

Which statement best describes the opportunity cost evident in the production possibilities frontier (PPF) for the accompanying figure? a. The law of increasing relative cost applies because the PPF is a straight line. b. The law of increasing relative cost applies because the PPF is bowed outward. c. The opportunity cost is constant because the PPF is a straight line. d. The opportunity cost is constant because the PPF is bowed outward. e. The opportunity cost decreases because the line has negative slope.

C

At full employment, a society produces: a. somewhere within its production possibilities frontier (PPF). b. somewhere outside its PPF. c. at the origin on its PPF graph. d. on its PPF. e. only one good.

D

Car companies build wind tunnels to test the aerodynamics and the handling capabilities of their car designs. The many variables that can be precisely controlled inside the wind tunnel are considered: a. normative factors. b. positive factors. c. comparative factors. d. endogenous factors. e. exogenous factors.

D

Consumer goods: a. are produced today to be used to produce more goods in the future. b. are produced today to be consumed at some point in the future. c. are invested today in order to consume more today. d. are produced today to be consumed today. e. generate economic growth.

D

Economic growth is represented on a production possibilities frontier (PPF) by the PPF: a. getting steeper. b. getting flatter. c. shifting inward. d. shifting outward. e. rotating downward.

D

Given current resources and technology, the attainable range is best described as: a. only area O: points outside the PPF. b. points on the PPF only. c. only area I: points inside the PPF. d. area I: points inside the PPF and points on the PPF. e. Area O: points outside the PPF and points on the PPF.

D

Goods that are produced today in order to make other valuable goods and services in the future are called: a. normal goods. b. inferior goods. c. consumer goods. d. capital goods. e. personal goods.

D

How will a reduction in the national unemployment rate affect a nation's production possibilities frontier (PPF)? a. It will cause the PPF to shift inward. b. It will cause the PPF to shift outward. c. It will move society to a point farther inside the PPF. d. It will move society outward to a point closer to or on the PPF. e. It will push society to a point outside its PPF.

D

If Jim can sell paper at a lower opportunity cost than Dwight can, then: a. Jim has an absolute advantage in paper sales. b. Dwight has an absolute advantage in paper sales. c. Jim has a positive advantage in paper sales. d. Jim has a comparative advantage in paper sales. e. Dwight has a comparative advantage in paper sales.

D

Mrs. Abel has a comparative advantage in producing cabbage if, in comparison to Mrs. Bee, Mrs. Abel can grow cabbage: a. with less labor. b. with fewer inputs. c. at a lower equilibrium. d. at a lower opportunity cost. e. with less technology.

D

The _________ illustrates the various combinations of output that a society can produce if all of its resources are being used efficiently. a. concept of absolute advantage b. law of positive statements c. law of demand d. production possibilities frontier (PPF) e. principle of comparative advantage

D

The ability of one producer to produce a good at a lower opportunity cost than another producer is called: a. a normative statement. b. a zero-sum game. c. absolute advantage. d. comparative advantage. e. the law of increasing relative cost.

D

The area inside (within) the production possibilities frontier (PPF) contains: a. normative points. b. positive points. c. efficient points. d. inefficient points. e. high opportunity cost points.

D

The opportunity cost of increasing the production of apple pies from 12 to 14 pies is: a. 2 blueberry pies. b. 14 apple pies. c. 7 blueberry pies. d. 4 blueberry pies. e. 2 apple pies.

D

The process of using current resources to create new capital is: a. absolute advantage. b. comparative advantage. c. specialization. d. investment. e. free.

D

When testing a paper airplane on your campus quad, which of the following would be an exogenous factor? a. the weight of the paper used in making the plane b. the ratio of wingspan to plane length c. the height of the body of the plane d. the level of wind encountered e. the number of folds in the wings

D

Which of the following is NOT an assumption that economists make when developing a production possibilities frontier (PPF)? a. We live in a world with only two goods. b. There are no increases in technology. c. There is no change in available resources. d. Society will always be producing somewhere on the PPF. e. There are no decreases in technology.

D

Which of the following is a positive statement? a. Winters in Arkansas are too cold. b. Everyone should work in a bank to understand the true value of money. c. Harvard University is the top education institution in the country. d. On average, people save 15% when they switch to GEICO. e. Everyone ought to have a life insurance policy.

D

You have a comparative advantage in producing a good whenever: a. you enjoy producing that good. b. you can produce more of the good than someone else can using the same resources. c. your opportunity cost is constant. d. your opportunity cost of producing that good is lower than that of other producers. e. you have specific training in the production of that good.

D

The important act of holding all other variables constant while examining a particular variable is known as: a. endogeneity. b. a normative statement. c. a positive statement. d. macroeconomics. e. ceteris paribus.

E

The opportunity cost of increasing production of blueberry pies from 7 to 11 pies is: a. 2 blueberry pies. b. 14 apple pies. c. 7 blueberry pies. d. 4 apple pies. e. 2 apple pies.

E

The scientific method and the tools of economics are useful in examining: a. only how individuals make decisions. b. only how business firms make decisions. c. only how government policies affect macroeconomic outcomes. d. only the trade-offs evident in production possibilities frontier (PPF). e. anything; economists will use their tools to study anything in the world around them.

E

When testing a model rocket on your campus quad, which of the following would be an endogenous factor? a. the current wind speed across the quad b. the quad's elevation and air pressure c. the extent of precipitation d. the gravitational pull of the earth e. the size of the rocket engine

E

Which of the following is a normative statement? a. The sky is blue. b. The sky is green with pink polka dots. c. Points on the production possibilities frontier (PPF) are efficient. d. Points outside the PPF are unattainable with current resources. e. We should strive to push the PPF outward.

E

Which of the following is a positive statement? a. Individuals should make good long-term decisions. b. Corporations should maximize shareholder value. c. Government should reduce the level of unemployment. d. The most important effects of policy happen in the short term. e. The unemployment rate is 8%.

E

Which of the following would NOT lead to an outward shift of a future production possibilities frontier (PPF)? a. population growth b. increased investment today c. an increase in technology d. the discovery of new resources e. a decline in life expectancy

E

Which point in the corresponding figure represents a combination of smoothies and milk shakes that society cannot currently produce? a. point A b. point B c. point C d. point D e. point E

E