Macro econ chapter 3

The division of labor benefits society only if

a system of exchange exists.

Because of scarcity, every economic decision involves

a trade-off.

Which of the following is a listing of the types or categories of resources?

land, labor, and capital

If good "A" is represented on the horizontal axis and good "B" on the vertical axis, then the steeper the production possibilities frontier at a given level of production of good "A," the

larger the opportunity cost of producing an extra unit of good "A."

A ticket to an Eric Clapton concert costs $45. If you have a ticket, you can "scalp" it (sell it illegally) for $75. To a ticket holder, the opportunity cost of actually attending the concert is

$75.

*In Figure 3-6 assume this economy is currently operating at point D. What is the opportunity cost of moving to B?

0

*At present, faculty in the Economics Department teach introductory and upper-level courses. Which graph in Figure 3-5 represents the change in the production possibilities of the Economics Department after a policy of using graduate students in addition to faculty to teach introductory sections was implemented?

3

Figure 3.7 *What is the opportunity cost of moving from point B to point A in Figure 3.7?

50 units of X

Table 3-2 Combination Cotton Corn A 12 16 B 17 15 C 21 13 D 23 9 E 24 5 *In Table 3-2, from point C, the opportunity cost of 3 more units of cotton would be

8 units of corn

Which of the following is a good example of efficient specialization and voluntary exchange?

A college professor hires someone to rototill a garden for spring planting.

Some authors claim that any point not on the frontier cannot be best. What is their reasoning to support this?

A point inside the frontier is inefficient, and represents wasted resources.

The divergence between money costs and opportunity costs is the least in which of the following situations?

A university, using a private contractor, builds a field house on land it purchased at full market value from a local farmer.

Which of the following must cope with scarcity?

All of the above are correct

Specialization in production

All of the above are correct.

Figure 3-4 In Figure 3-4, for which of the following would this statement be true: "To get more apples we have to give up wheat." A movement from

C to D

If the economy of Gwondanaland is growing more rapidly than the economy of Japan, most likely

Gwondanaland has lower current consumption than Japan

List the three coordination decisions made by every economy.

How? What? To whom?

How does scarcity affect the range of possible choices that decision makers face?

It narrows the range of choices

Is increased capital spending the only way for an economy to expand its production possibilities frontier?

No, an economy can also expand by invention and innovation.

*Do markets solve all of society's problems?

No, they do not solve problems such as unemployment and inflation.

Which principle states that as the production of one good expands, the opportunity cost of producing another unit of this good generally increases?

Principle of increasing cost

Which of the following events create an outward shift of the production possibilities curve?

Tax reductions reduce the cost and increase the volume of investment in factories, machinery, and research and development.

The U.S. government has an annual budget of about $1,600 billion. Does the U.S. government face the problem of scarcity?

Yes, resources are limited even for the U.S. government.

In a market system, ____ distributes goods among consumers in accord with their tastes and preferences, using voluntary exchange to determine who gets what.

a price system

Economics is the study of the logic of

all of the above

A production possibilities curve always slopes downward to the right because resources

are limited.

A rational decision is one that

assigns available resources in the manner most preferred by decision makers.

All of the points inside a production possibilities frontier are ____; all of the points outside the production possibilities frontier are ____.

attainable, unattainable

An optimal decision is one that is selected based on an analysis of

both explicit costs and implicit costs

The production possibilities frontier for a country is usually drawn

bowed outward from the origin.

What is the opportunity cost of economic growth?

consumption in the current time period

What is the basic task that economists expect the market to carry out?

deal with the fundamental problem of scarcity

The concept of opportunity cost in a fully employed economy with technology and resources held constant tells us that

expansion of output in one industry means output in another industry must contract

Which of the following is not an example of a type of factor of production?

government

Workers in Adam Smith's famous pin factory example, who were proficient in pin production, then faced the problem of

having to exchange pins for other goods and services.

According to the law of comparative advantage, a doctor who is also a talented auto mechanic should

hire a professional mechanic to repair her car.

Opportunity costs exist for

households, businesses, and governments.

Economics is generally concerned with

how resources are allocated among alternative goals

Scarcity is a concept that applies to all of the following except

human wants

The idea of opportunity cost is relevant

in almost any kind of decision

Because resources tend to be specialized, increased production of military goods tends to

increase the opportunity cost of more military goods.

*According to Figure 3-1, the opportunity cost of one more bushel of wheat is

lower at B than at D

In order to make an optimal choice we must use

marginal analysis.

A normal production possibilities frontier has a

negative slope, and is steeper near the horizontal axis than near the vertical axis.

When a firm or economy is operating efficiently, it is operating

on its production possibilities frontier.

For a given production possibilities frontier, which points are attainable?

points on or inside the frontier

The main reason that finished goods are scarce is that

raw material resources are scarce.

The economic problem of scarcity

requires that choices be made among alternatives

A principle that economists emphasize is that the ____ of decision makers are always limited.

resources

Increasing opportunity cost tends to occur if

resources are specialized.

If the production possibilities curve is a straight line,

resources can be moved from the production of one good to production of others with no loss of productivity.

Every economic decision involves a trade-off because of

scarcity.

As a general rule, an increase in the capital available to a society

shifts the production possibilities frontier outward, away from the origin

The notion of opportunity cost can be represented graphically by the

slope of the production possibilities frontier.

*The shape of the production possibilities frontier in Figure 3-1 implies that

some resources are better suited for producing wheat than for producing barley.

The shape of the production possibilities frontier in Figure 3-1 implies that

some resources are better suited for producing wheat than for producing barley.

Economists define efficiency as

the absence of waste.

In early 1996, the upper Midwest suffered record cold, with wind chills of fifty degrees below zero or worse. Yet, grocery stores stocked fresh citrus fruit (obviously not grown locally). Why did grocers stock the fruit?

the desire for profit

f an economy is operating inefficiently, then

the economy can increase production of consumption goods without reducing capital goods.

If production involves increasing opportunity cost, then moving nearer the horizontal axis will increase the opportunity cost of

the good that is shown on the horizontal axis.

The money cost of a good will approximate the opportunity cost if

the market functions well.

Although specialization of labor increases efficiency of production, it can lead to another major problem:

the need to exchange goods among producers.

Hutch Technology makes computer monitors, which sell for $100 each. What is the opportunity cost of ten monitors?

the other goods that could be produced with the resources that produce the ten monitors

The concavity or bowed-out shape of the production possibilities frontier is the result of

the principle of increasing cost.

Opportunity cost can best be defined as the

value of the best alternative forgone when the alternative at hand is chosen

Ex-London School of Economics student Mick Jagger sang, "You can't always get what you want, but if you try sometime, you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is that

you can allocate your resources to what gives you the highest value.