Micro Exam 1

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good for which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be

300 televisions and 100 radios in Teeveeland and 300 radios and 100 televisions in Radioland.

Which of the following is the most accurate statement about production possibilities?

An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.

Which of the following is true?

Buyers determine demand and sellers determine supply

For a competitive market, which of the following is true?

If a seller charges more than the going price, buyers will go elsewhere.

If the United States decides to trade with Mexico, we know that

Mexico and the United States can both be better off.

Each of the following statements about trade is true EXCEPT

One country wins and one country loses.

After much consideration, you have chosen Cancun over Ft. Lauderdale for your Spring Break trip this year. For this decision to change, which of the following must occur?

The marginal benefit of Ft. Lauderdale must increase.

What would be the best statement about a theory based on assumptions that are not true?

The theory is a good one if it helps us to understand how the world works.

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.

When economists attempt to simplify the real world and make it easier to understand they make

assumptions

Trade between the United States and India

benefits both the United States and India

For each good produced in a market economy, demand and supply determine

both price and quantity.

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and technology.

The forces that make market economies work are

demand and supply

The behavior of people as they interact with one another in markets is referred to as

demand and supply.

In a competitive market,

each seller has limited control over the price of his product.

Which of the following concepts is NOT illustrated by the production possibilities frontier? a. efficiency b. opportunity cost c. equity

equity

An economic outcome is said to be efficient if the economy is

getting all it can from the scarce resources it has available.

The production possibilities frontier is a

graph that shows the various combinations of output the economy can possibly produce given the available resources and technology.

A market is a

group of demanders and suppliers of a particular good or service.

Economics is defined as the study of

how society manages its scarce resources

Economics is the study of

how society manages its scarce resources

The curved shape of the production possibilities frontier can be explained by

increasing cost of production.

Benefits from trade would NOT include a. the ability to specialize. b. a greater variety of goods and services becoming available. c. less competition. d. lower prices.

less competition.

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 5 televisions per year. Each nation has 100 workers. If Radioland trades 100 televisions to Teeveeland in exchange for 100 radios each year, then each country's maximum consumption of new radios and televisions per year will be

less than it would be in the absence of trade because neither country is specializing in the product for which it has a comparative advantage

On a production possibilities frontier, production is efficient if the production point is

on the frontier.

What you give up to obtain an item is called your

opportunity cost.

An economy's scarce resources are allocated by

prices for resources.

In a market economy,

quantity is determined by price.

Good assumptions can

simplify the complex world and make it easier to understand.

Efficiency means that

society is getting the most it can from its scarce resources

In the production possibilities frontier shown, the shift of the frontier from A to B was most likely caused by which of the following?

technological improvement in the production of batteries

In most societies, resources are allocated by

the combined actions of millions of households and firms.

When constructing a production possibilities frontier, all of the following are assumptions EXCEPT

the economy may increase its available factors of production.

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 has inefficiencies.

If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods,

the theory can be useful in helping economists understand the complex world of international trade involving many countries and many goods.

The opportunity cost of going to college is

the value of the best opportunity a student gives up to attend college.

A competitive market is one in which

there are so many buyers and many sellers that each has a negligible impact on price

A competitive market is one in which

there are so many buyers and many sellers that each has a negligible impact on price.

If an economy is producing efficiently

there is no way to produce more of one good without producing less of the other.

Historical episodes are valuable to economists because

they allow economists to evaluate economic theories of the present.

Who is it that ultimately determines the demand for a product or service?

those who buy the product or service

What is the goal of theories?

to help scientists understand how the world works

In economics, the cost of something is

what you give up to get it.

Canada can benefit from trade

with any nation