Macro Ch2 Self-Test

Which of the following statements is most consistent with the principle about the basis for international trade? A. The United States would be better off being self-sufficient because it has an absolute advantage in producing most goods. B. The United States would be better off if it specialized in the production of some goods, and then traded some of them to other countries. C. The United States would be better off by producing at home the goods that it now imports—that way the nation can generate additional jobs here at home. D. The United States can never have an absolute advantage in producing every good it consumes, so it would be better off if it imported goods that it does not have an absolute advantage.

B. The United States would be better off if it specialized in the production of some goods, and then traded some of them to other countries

According to Adam Smith, which of the following is necessary for the proper functioning of the market system? A. For markets to work, people should take into account how their decisions affect society as a whole. B. For markets to work, government should help citizens make the right decisions. C. For markets to work, people must be free to pursue their self-interest. D. For markets to work, people and government need to coordinate their decisions.

C. For markets to work, people must be free to pursue their self-interest.

According to Adam Smith, which of the following is true? A. Markets work because producers, aided by government, ensure that neither too many nor too few goods are produced. B. Market prices can come to reflect the prices desired by all consumers. C. Individuals usually act in a rational, self-interested way. D. A guild system is the best way for coordinating the activities of buyers and sellers.

C. Individuals usually act in a rational, self-interested way.

Refer to the graphs below. What is point B' on your neighbor's PPF curve? A. Point B' is your neighbor's production before trade. B. Point B' is your neighbor's consumption before trade. C. Point B' is your neighbor's production after trade. D. Point B' is your neighbor's consumption after trade.

D. Point B' is your neighbor's consumption after trade.

T F 1. In his book An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith argued that a guild system was the most efficient way for a nation to coordinate the decisions of buyers and sellers.

F

T F 10. Opportunity cost refers to the all of the alternatives that must be given up to engage in an activity

F

T F 11. An individual who has comparative advantage in producing a good must also have absolute advantage in producing that good.

F

T F 12. The Congressional Budget Office has estimated that annual federal government spending on Medicare should remain at a constant level through 2020.

F

T F 5. Technological advances always increase the production of all goods and services equally.

F

T F 13. Because the governments of the United States, Canada, and Western European countries impose few restrictions on economic activity, the economies of these countries approximate free market economies.

T

T F 15. The marginal opportunity cost along a linear (straight-line) production possibilities frontier is constant.

T

T F 2. The story about Apple's production of the iPad shows how production requires the coordinated activities of many people, spread around the world.

T

T F 3. A nation with an absolute advantage in the production of two goods will usually have a comparative advantage in only one of the goods.

T

T F 4. A production possibilities frontier that is bowed outward illustrates increasing marginal opportunity costs

T

If the opportunity cost of producing one good is the same regardless of the quantity that the good is produced, then a. the production possibility frontier is linear. b. the production possibility frontier is bowed out. c. the production possibility frontier does not exist. d. the production possibility frontier has a positive slope.

a. the production possibility frontier is linear.

In the circular-flow diagram above, which arrow shows the flow of goods and services? a. A b. B c. C d. D

b. B

Refer to the graphs below. Each graph represents one country. Which country has a comparative advantage in the production of shirts? a. Country A b. Country B c. neither country d. both countries

b. Country B

Refer to the graph below. What does the term "increasing marginal opportunity cost" mean in this graph? a. There is a higher opportunity cost of producing either aircraft carriers or automobiles, so long as the quantity produced of that good is decreasing. b. There is a higher opportunity cost of producing either aircraft carriers or automobiles, so long as the quantity produced of that good is increasing. c. Increasing the production of aircraft carriers results in higher automobile production costs, such as the costs of labor and capital to build automobiles. d. Increasing the production of either aircraft carriers or automobiles creates more opportunities in the economy.

b. There is a higher opportunity cost of producing either aircraft carriers or automobiles, so long as the quantity produced of that good is increasing.

If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights? a. powerful political connections b. an independent court system c. action by government to prevent the exercise of certain property rights d. all of the above

b. an independent court system

In a free market system, which of the following groups brings together the factors of production— labor, capital, and natural resources—in order to produce goods and services? a. the government b. entrepreneurs c. lobbyists d. politicians

b. entrepreneurs

Refer to the graph below. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and producing hybrids? a. any point on the graph represents that trade-off b. moving from B to C c. moving from F to B d. moving from C to G

b. moving from B to C

Generally speaking, for a market system to work, individuals must a. be very cautious in their approach to saving and investment. b. take risks and act in rational, self-interested ways. c. be able to evaluate and understand all available options. d. consult people who have experience.

b. take risks and act in rational, self-interested ways.

Refer to the graphs below. Which graph best represents the concept of economic growth? a. the graph on the left b. the graph on the right c. both graphs d. neither graph

c. both graphs

In which markets are factors of production, such as labor, capital, natural resources, and entrepreneurial ability traded? a. product markets b. essential markets c. factor markets d. competitive markets

c. factor markets

If a country has a comparative advantage in the production of a good, then that country a. also has an absolute advantage in producing that good. b. should allow another country to specialize in the production of that good. c. has a lower opportunity cost in the production of that good. d. All of the above are true.

c. has a lower opportunity cost in the production of that good.

Refer to the graph below. What is the opportunity cost of moving from point B to point C? a. 200 automobiles b. 400 automobiles c. 50 aircraft carriers d. 150 aircraft carriers

d. 150 aircraft carriers

Refer to the graph below. What is the opportunity cost of producing 400 aircraft carriers? a. 200 automobiles b. 50 aircraft carriers c. 200 automobiles d. 600 automobiles

d. 600 automobiles

In the circular-flow diagram above, which two arrows show the flow of funds? a. A and B b. B and C c. B and D d. A and D

d. A and D

Which of the following would create economic growth, that is, shift the production possibilities frontier outward? a. an increase in the available labor b. an increase in technology that affects the production of both goods c. an increase in the available natural resources d. all of the above

d. all of the above

Refer to the graph below. Which of the following combinations of pies and cakes is unattainable given existing resources? a. two cakes and six pies b. one cake and seven pies c. zero cakes and ten pies d. four cakes and seven pies

d. four cakes and seven pies

Refer to the graph below. The graph shows the data from Solved Problem 2.1. What is the opportunity cost of switching from Choice D to Choice E? a. two pies b. eight pies c. two cakes d. one cake

d. one cake

According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity? a. price b. government regulation c. financial markets d. cost

a. price

In the circular-flow diagram above, which arrow shows the flow of factors of production? a. A b. B c. C d. D

c. C

Refer to the graph below. How many hybrids are produced at the point where BMW produces 800 SUVs? a. 0 b. any amount up to 800 c. exactly 800 d. 400

a. 0

Consider the table below. What is country A's opportunity cost of producing 1 unit of clothing? a. 2 units of food b. 1/2 a unit of food c. 6 units of food d. 2 units of clothing

a. 2 units of food

What happens if a country produces a combination of goods that uses all of the resources available in the economy? a. The country is operating on its production possibilities frontier. b. The country is maximizing its opportunity cost. c. The country has eliminated scarcity. d. All of the above occur if a country uses all available resources.

a. The country is operating on its production possibilities frontier.

In the United States, property rights a. are guaranteed by two amendments to the U.S. Constitution. b. are guaranteed by some state governments but not other state governments. c. are prohibited by the federal government. d. exist in markets but are not enforced by the government.

a. are guaranteed by two amendments to the U.S. Constitution.

Which of the following refers to markets where goods such as computers or services such as medical treatment are offered? a. product markets b. essential markets c. factor markets d. competitive markets

a. product markets

Which of the following is critical to the success of a market system? A. to allow individuals or firms to have exclusive use of their property B. to prevent individuals from buying or selling their property depending on the circumstances C. Both a. and b. are critical to the success of a market system. D. to allow the government to determine the optimal use of private property

A. to allow individuals or firms to have exclusive use of their property

In the circular-flow diagram above, which arrow shows the flow of spending by households? a. A b. B c. C d. D

a. A

Refer to the graphs below. Each graph represents one country. Which country should specialize in the production of computer chips? a. Country A b. Country B c. Neither country; they both should produce some computer chips and some shirts. d. Both countries should specialize in the production of computer chips.

a. Country A

What is the role of an entrepreneur? a. to operate a business that produces a good or service b. to bring together the factors of production—labor, capital, and natural resources c. to take risks d. all of the above

d. all of the above

T F 14. The Bavarian Motor Works Company has always produced its automobiles in Germany to supervise production and employ German workers, who have high levels of technical skills

F

T F 8. The circular-flow diagram is used to explain why the opportunity cost of increasing the production of one good is the decrease in production of another good.

F

T F 9. If property rights are not enforced by the government, then more goods and services will be produced in free markets.

F

T F 7. Households are suppliers of the factors of production that are used by firms to produce goods and services.

T

T F 6. It is possible to have an absolute advantage in producing a good without having a comparative advantage.

T

The table below shows the quantity of two goods that a worker in Country A and a worker in Country B can produce per day. Which country has an absolute advantage in the production of each good? a. Country A has an absolute advantage in the production of each good. b. Country B has an absolute advantage in the production of each good. c. Both countries have an absolute advantage in the production of each good. d. Neither country has an absolute advantage in the production of each good.

a. Country A has an absolute advantage in the production of each good.

Refer to the graph below. As you move from point A to point B and then to point C on this graph, what happens to the marginal opportunity cost? a. It increases. b. It decreases. c. It remains constant. d. It equals zero.

a. It increases.

Refer to the graphs below. Which of the following could have caused the outward shift of the curve in the graph on the left side? a. an increase in technology that affects the production of both aircraft carriers and automobiles b. technological change that affects only the aircraft carrier industry c. unemployment in the economy d. a change in the cost of producing automobiles

a. an increase in technology that affects the production of both aircraft carriers and automobiles

Refer to the graph below. Which of the following combinations is unattainable with the current resources available in this economy? a. combination G b. combination F c. combinations A or E d. None of the combinations above can be attained with current resources.

a. combination G

What is the outcome of enforcing contracts and property rights in a market system? a. increased economic activity b. decreased economic activity c. no effect on economic activity d. an unpredictable but definite effect on economic activity

a. increased economic activity

Absolute advantage is the ability of an individual, firm, or country to a. produce more of a good or service than competitors using the same amount of resources. b. produce a good or service at a lower opportunity cost than other producers. c. consume more goods or services than others at lower costs. d. reach a higher production possibilities frontier by lowering opportunity costs.

a. produce more of a good or service than competitors using the same amount of resources.

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity. a. smaller b. greater c. proportional d. more instant

a. smaller

Refer to the graphs below. Which graph represents the concept of economic growth? a. the graph on the left b. the graph on the right c. both graphs d. neither graph

a. the graph on the left

Refer to the graph below. Which of the following combinations is inefficient? a. combination G b. combination F c. combinations A or E d. both F and G

b. combination F

Refer to the graphs below. Which graph better represents an improvement only in the technology used to make automobiles? a. the graph on the left b. the graph on the right c. both graphs d. neither graph

b. the graph on the right

Refer to the graph below. What is the opportunity cost of moving from point B to point C? a. 200 SUVs b. 400 SUVs c. 200 hybrids d. 400 hybrids

c. 200 hybrids

Fill in the blanks. In a simple circular-flow model, there are flows of _________ and flows of _________. a. factors of production; goods and services b. funds received from the sale of factors of production; spending on final goods and services c. Both (a) and (b) are correct. d. None of the above. Actually, there are no flows in the circular flow of income.

c. Both (a) and (b) are correct.

Refer to the graphs below. If you have a comparative advantage in the production of apples, what point would best represent your production with trade? a. A b. A' c. C d. D

c. C

Consider the table below. Which country has a comparative advantage in the production of each good? a. Country A has a comparative advantage in the production of both goods. b. Country B has a comparative advantage in the production of both goods. c. Country A has a comparative advantage in the production of food; Country B has a comparative advantage in the production of clothing. d. Country B has a comparative advantage in the production of food; Country A has a comparative advantage in the production of clothing.

c. Country A has a comparative advantage in the production of food; Country B has a comparative advantage in the production of clothing.

Which of the following comprises the two key groups of participants in the circular flow of income? a. domestic residents and foreign residents b. government and financial institutions c. households and firms d. savers and borrowers

c. households and firms

What is the name given to the highest-valued alternative that must be given up to engage in any activity? a. scarcity b. the production possibilities frontier c. opportunity cost d. a trade-off

c. opportunity cost

What are copyrights designed to do? a. prevent entrepreneurs from earning excessive profits b. eliminate unnecessary duplication whenever it arises c. protect intellectual property rights d. all of the above

c. protect intellectual property rights

Refer to the graph below. The graph is a representation of the data in Solved Problem 2.1. In this problem, what is the opportunity cost of producing five cakes? a. zero cakes b. zero pies c. ten pies d. There is insufficient information to answer the question.

c. ten pies