Exam 1
Suppose each of the following rows represents the choice faced by policy makers given the current set of U.S. institutions and technology. What is the opportunity cost of reducing unemployment from 8 percent to 4 percent? Unemployment Inflation 10 3 8 4 6 5 5 7 4 10 6 percentage points of unemployment 4 percentage points of unemployment 4 percentage points of inflation 6 percentage points of inflation
6 percentage points of inflation The opportunity cost is what must be given up. In this case, to reduce unemployment from 8 percent to 4 percent, inflation must rise from 4 percent to 10 percent. The change in the inflation rate is the opportunity cost of lowering unemployment.
Refer to the graph below. https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/colander10e/Ch02_Q42_Col.jpg Productive inefficiency occurs at what point? D C A B
D Efficiency is not achieved at D because resources can be reallocated in such a way as to produce more of both goods.
Which of the following is not one of the three principal components of a socialist economy? Entrepreneurs are encouraged by the profit motive, rather than government directive, to satisfy consumer wants in the most efficient manner possible Workers directed by a government planning board as to where they will work and how much they will be paid Government ownership of the means of production Distribution is according to need
Entrepreneurs are encouraged by the profit motive, rather than government directive, to satisfy consumer wants in the most efficient manner possible Under socialism, government directives determine what is produced, not individuals.
Which of the following is not an example of government's role as an actor? Increases in social security spending Laws that require states and the federal government to balance their budgets Equal opportunity and labor laws that restrict businesses' freedom to hire and fire whomever they want Social security tax cuts that reduce the percentage paid by employees
Equal opportunity and labor laws that restrict businesses' freedom to hire and fire whomever they want Such laws directly affect the relationship between businesses and households and exemplify government's role as a referee, not an actor.
Which group has ultimate control over the U.S. economy? Business Households Multinationals Government
Households Ultimately, households have control because households own businesses and elect governments.
Which of the following is the best example of an economic precept? The supply/demand model Predictable irrationality The production possibility model Laissez-faire
Laissez-faire Predictable irrationality is an assumption. The supply/demand model is a model as is the production possibility model. Laissez-faire is a precept since it is the application of a model along with normative judgment about the relevance of the model and its assumptions to the real world.
Suppose that in Slovakia one unit of labor can produce either 16 tons of wheat or 32 tons of soy and in Poland one unit of labor can produce either 4 tons of wheat or 2 tons of soy. Given this information, which of the following statements is true? Poland has a comparative advantage in producing wheat but not soy. Slovakia has a comparative advantage in producing both wheat and soy. Poland has a comparative advantage in producing soy but not wheat. Slovakia has a comparative advantage in producing neither wheat nor soy.
Poland has a comparative advantage in producing wheat but not soy. Slovakia must give up 2 tons of soy to increase wheat production by 1 ton whereas Poland has to give up only 1/2 a ton of soy, and so Poland has a comparative advantage in producing wheat.
Suppose that in Slovakia one unit of labor can produce either 20 tons of wheat or 40 tons of soy and in Poland one unit of labor can produce either 40 tons of wheat or 20 tons of soy. If each country has two units of labor, which of the following consumption combinations can be attained only with trade? Poland consumes 80 tons of wheat. Poland consumes 40 tons of wheat and 20 tons of soy. Slovakia consumes 30 tons of both soy and wheat. Slovakia consumes 80 tons of soy.
Slovakia consumes 30 tons of both soy and wheat. Slovakia can reach this consumption combination by producing 80 tons of soy and then trading 50 tons of soy to Poland for 30 tons of wheat. Note that all the other consumption combinations can be produced without trade.
Which of the following topics is most appropriately studied in a microeconomics course? When the next recession will arrive Why unemployment is so low and inflation has not accelerated The decision by a nurse to change professions How the presidential candidates' tax plans might affect economic growth
The decision by a nurse to change professions Microeconomics is the study of individual choice.
Which of the following topics is best categorized as a macroeconomic issue? The choices a student makes in selecting college courses The effect of a drought on the price of corn The decision by Apple to produce fewer Macintosh computers The effect of an increase in federal spending on the unemployment rate
The effect of an increase in federal spending on the unemployment rate "The effect of an increase in federal spending on the unemployment rate" focuses on an aggregate relationship.
Two nations with differing comparative advantages will be able to consume more if they specialize and trade with each other than if they did not specialize or trade with each other. True False
True Trade shifts production of each good to the country or countries with the lowest opportunity costs. As a consequence, total production rises and hence so does total consumption, allowing each country to consume more than if it did not trade.
Microeconomics includes the study of: a firm's pricing policies. inflation. business cycles. unemployment.
a firm's pricing policies. Inflation, unemployment, and business cycles are all part of macroeconomics.
Alan is sitting in a bar drinking beers that cost $1 each. According to the economic decision rule, Alan will quit drinking when the marginal: benefit to him of an additional beer is greater than $1. cost to him of an additional beer is less than the marginal benefit. cost remains at $1. benefit to him of an additional beer is less than $1.
benefit to him of an additional beer is less than $1. Alan will quit drinking only when the marginal cost exceeds the marginal benefit.
An economic principle: is an action taken to influence the course of economic events. should be used to make every individual decision. can be combined with knowledge of economic institutions to make policy proposals. generally is stated as a normative statement.
can be combined with knowledge of economic institutions to make policy proposals. Economic principles are meant to describe individual or societal choices, not determine them. To the best of their abilities economists strive to state economic principles in positive terms. See the definition of economic principle in the text.
Refer to the production possibility curve for Ricardia below. https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/colander10e/Ch02_Q19_Col.jpg The graph indicates that with the resources and technology it has available, Ricardia: cannot produce both 20 units of rye and 10 units of eggs. cannot produce both 20 units of rye and 5 units of eggs. can produce both 40 units of rye and 20 units of eggs. can produce either 40 units of rye or 20 units of eggs.
can produce either 40 units of rye or 20 units of eggs. From this graph we can tell that with the given inputs, the following combinations are possible [eggs, rye]: (20, 0), (15, 10), (10, 20), (5, 30), and (0, 40).
In the former USSR, state planners decided what was to be produced. They passed orders down to factories, allocating raw materials, workers, and other factors of production to them. This is an example of (a): corporation. command economy. government as a referee. market economy.
command economy. See the definition of command economy in the text.
Trade based on comparative advantage benefits: consumers in some countries but hurts consumers in other countries. producers in all countries but not consumers. neither producers nor consumers. consumers in all countries.
consumers in all countries. Trade based on comparative advantage increases the efficiency of production, which results in more goods available to consumers.
The quantity of goods and services available to society: is not of economic importance. is fixed. depends on human action. will always grow to meet individuals' wants and desires.
depends on human action. The quantity of goods and services available depends on the incentives to work.
Normative economics seeks to: objectively explain how the economy functions. determine how government policies affect the economy. determine the most appropriate economic goals for a society. objectively explain economic problems such as inflation and unemployment.
determine the most appropriate economic goals for a society. Normative economics attempts to determine what an economy should look like and what it should accomplish.
In the United States, government performs all of the following functions except: redistributing income. regulating the economy. determining production levels. purchasing goods and services.
determining production levels. Businesses, not government, determine production levels.
If there is an inverse relationship between two variables, the graph relating the two variables will be: horizontal. upward-sloping. downward-sloping. vertical.
downward-sloping. If there is an inverse relationship between two variables, as one increases, the other decreases, making the graph of them downward-sloping.
The price of computers has fallen each year for the last 30 years. This is probably an example of the working of: nonmarket forces. economic forces. political forces. social forces.
economic forces. This is an example of the price mechanism changing as a result of changes in supply and demand, or the invisible hand.
Government regulation of working conditions is an example of: government as actor. government as referee. government as owner. government as dictator.
government as referee. Government as referee is when government sets the rules between economic players. Regulating working conditions is an example.
The slope of a line is zero when it is: vertical. horizontal. a downward-sloping line that makes a 45 degree angle with the horizontal and vertical axes. an upward-sloping line that makes a 45 degree angle with the horizontal and vertical axes.
horizontal. When a line is horizontal, its rise is always zero, and so its slope is always zero.
Mexico has a comparative advantage in producing corn: regardless of the opportunity cost in other countries. if its opportunity cost of producing corn is higher than the opportunity cost in other countries. if its opportunity cost of producing corn is the same as the opportunity cost in other countries. if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
if its opportunity cost of producing corn is lower than the opportunity cost in other countries. A country has a comparative advantage in the production of a good if its opportunity cost of producing that good is less than that of other countries.
What kind of relationship exists between the price of gas and the quantity demanded for gas if the quantity demanded for gas falls when the price of gas increases? perverse. normal. inverse. direct.
inverse If there is an inverse relationship between two variables, as one increases, the other decreases, as is true in this case.
To engage in economic reasoning, one must compare: total cost and total benefit. marginal cost and marginal benefit. marginal cost, sunk cost, and total benefit. sunk cost and marginal cost.
marginal cost and marginal benefit. Such a comparison makes it possible to determine whether the marginal benefit of an action exceeds the marginal cost.
In the graph shown, what change would increase production efficiency? https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/colander10e/Ch02_Q26_Col.jpg moving from A to D moving from D to B moving from C to D moving from A to B
moving from D to B Efficiency is increased when a given quantity of inputs is reallocated in such a way as to produce more of each good. Operating inside the production possibility curve is less efficient than an economy operating on its production possibility curve would be.
Scarcity exists because: individuals cannot solve the three central coordination problems. new wants continue to develop and willingness to meet them is limited. the supply of goods is always less than the demand. governments cannot solve the three central coordination problems.
new wants continue to develop and willingness to meet them is limited. Scarcity exists because human desires have always exceeded human willingness to meet those desires.
Laissez-faire is an economic: theorem because it is the logical conclusion of a model with carefully stated relationships among variables. theorem because it is based on deductive analysis of a model that is based on assumptions. precept because it is the logical conclusion of a model with widely held assumptions. precept because it is based on a model and normative judgments about the relevance of the model to the real world.
precept because it is based on a model and normative judgments about the relevance of the model to the real world. Laissez-faire is the application of a model along with a normative judgment about the relevance of the model and its assumptions to the real world. Thus, it is a precept, not a theorem.
For a market to exist: everyone must have identical wants and desires. government must guarantee equal treatment for all. private property rights must be allocated and defended by government. individuals must be concerned with the social good.
private property rights must be allocated and defended by government. For a market to exist private property rights must exist and be accepted by individuals or be defended by other means such as government or tradition.
Consider the table below, in which each production choice represents a point on a production possibility curve. Choice Eggs Rye A 10 0 B 8 10 C 6 20 D 4 30 E 2 40 F 0 50 This production possibility table could be graphed as a: straight line with negative slope. curved line with positive slope. curved line with negative slope. straight line with zero slope.
straight line with negative slope. Graph each point and find out that the graph of the table is a straight line or realize that the opportunity cost of 10 rye is always 2 eggs. Constant opportunity costs are represented by a straight-line production possibility curve.
If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal, it would be efficient to locate production facilities in: Mexico since the cost per unit of output will be lower. the United States since the cost per unit of output will be lower. Mexico since the cost per unit of output will be higher. the United States since the cost per unit of output will be higher.
the United States since the cost per unit of output will be lower. U.S. workers are paid 8 times the Mexican wage, but are 9 times more productive, and so it costs $16 in the United States to produce the same amount of output in one hour that can be produced for $18 in Mexico in nine hours.
If a production possibility curve representing a trade-off between a grade in English and a grade in math has a negative slope, we know that: one can get better grades in English only if one gets better grades in math. there is no relationship between grades in English and grades in math. there is an inverse relationship between grades in English and grades in math. there is a direct relationship between grades in English and grades in math.
there is an inverse relationship between grades in English and grades in math. The negative slope of the production possibility curve implies that one can get better grades in English only by sacrificing better grades in math.
If U.S. workers are paid $16 an hour and Indian workers are paid the equivalent of $4 an hour but U.S. workers can produce four times as many goods as Indian workers in the same amount of time: there is no reason to move production from the United States to India. production will migrate to India. workers in the United State are paid too much. production will migrate to the United States.
there is no reason to move production from the United States to India. Because the cost of producing one unit of a good is the same in both countries, there is no reason to move production.
In 11th century Europe, the central economic decisions were made by: the nation-state. tradition and the lord of the manor. the church. central governments.
tradition and the lord of the manor. In the year 1000 no nation-states existed. The central what, how, and for whom questions were decided by tradition.
In a feudalist society, in comparison with mercantilism: tradition plays a more important role than the government. government plays a large role in determining the what, how, and for whom decisions. merchants play a more important political role than serfs. markets make the central economic decisions.
tradition plays a more important role than the government. Feudalism is an economic system in which traditions rule. In mercantilism government makes the what, how, and for whom decisions.
If there is a direct relationship between two variables, the graph relating those two variables will be: downward-sloping. horizontal. upward-sloping. vertical.
upward-sloping. If there is a direct relationship between two variables, as one increases, so will the other, making the graph of them upward-sloping.
A partnership is a business: legally treated as a person and owned by stockholders who are not liable for the actions of the corporate "person." with two or more owners, with each owner liable for every other owner's actions. that has only one owner. in which each owner is liable only to the extent of his or her own investment.
with two or more owners, with each owner liable for every other owner's actions. A partnership is defined in the text as a business with two or more owners. Each owner is liable for the other owner's mistakes.
The slopes of the curve at points A and B (maximum and minimum) are: https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/colander10e/Ch02_Q107_Col.jpg infinity and zero. 1 and zero. zero and zero. zero and 1.
zero and zero. As mentioned in the textbook, both maximum and minimum points have slopes of zero.
