Microeconomics

24. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why?

...

Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today?

...

14. Refer to Figure 2-1. Which arrow represents the flow of spending by households?

A

13. Refer to Figure 2-1. Which arrow represents the flow of goods and services?

B

8. Refer to Table 3-2. Which of the following represents Aruba's production possibilities frontier when 100 labor hours are available?

C.

The English word that comes from the Greek word for "one who manages a household" is

Economy

23. Henry can make a bird house in 3 hours and he can make a bird feeder in 1 hour. The opportunity cost to Henry of making a bird house is 1/3 bird feeder.

False

31. In the circular-flow diagram, firms own the factors of production and use them to produce goods and services.

False

Economics is the study of how society allocates its unlimited resources.

False

Trade can make everyone better off except in the case where one person is better at doing everything.

False

Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $5800. Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?

He should sell the car now for $3800.

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Which of the following is a principle concerning how people interact?

Markets are usually a good way to organize economic activity.

21. Interdependence among individuals and interdependence among nations are both based on the gains from trade.

True

22. To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A has an absolute advantage over Farmer B in producing wheat.

True

30. Economists try to address their subject with a scientist's objectivity.

True

32. Points inside the production possibilities frontier represent inefficient levels of production.

True

Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.

True

Following the implementation of laws requiring automobiles to have seat belts, which of the following occurred?

a. An individual's probability of surviving an auto accident rose. b. There was an increase in pedestrian deaths. c. There was an increase in automobile accidents. d. All of the above are correct.

5. Assume Diana buys computers in a competitive market. It follows that

a. Diana has a limited number of sellers to turn to when she buys a computer. b. Diana will find herself negotiating with sellers whenever she buys a computer. c. if Diana buys a large number of computers, the price of computers will rise noticeably. d. None of the above is correct.

12. Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches depends on how many chairs and couches are being produced in

a. Panel (a).

3. Pocoyo bakes cookies and Pato grows vegetables. In which of the following cases is it impossible for both Pocoyo and Pato to benefit from trade?

a. Pocoyo does not like vegetables and Pato does not like cookies.

1. In a market economy, supply and demand determine

a. both the quantity of each good produced and the price at which it is sold.

4. For a market for a good or service to exist, there must be a

a. group of buyers and sellers.

16. For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to

a. have a comparative advantage in both activities.

11. In the markets for factors of production in the circular-flow diagram,

a. households provide firms with labor, land, and capital.

7. Just like models constructed in other areas of science, economic models

a. incorporate assumptions that contradict reality.

The principle that trade can make everyone better off applies to

a. individuals. b. families. c. countries. d. All of the above

8. The circular-flow diagram

a. is an economic model. b. incorporates two types of decision makers: households and firms. c. represents the flows of inputs, outputs, and dollars. d. All of the above are correct.

28. President Truman once said the wanted to find a one-armed economist because when he asked his economists for advice, they always answered, "On the one hand, ... On the other hand, ..." Truman's observation that economists' advice is not always straightforward

a. is rooted in the principle that people face tradeoffs. b. indicates that economists recognize that there are opportunity costs associated with policy decisions. c. confirms that economists are not suited to be presidential advisers. d. More than one of the above is correct.

2. Economists, like mathematicians, physicists, and biologists,

a. make use of the scientific method. b. try to address their subject with a scientist's objectivity. c. devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories. d. All of the above are correct

19. On a bowed production possibilities frontier, as you move down along the curve

a. more of one good must be given up to receive one unit of the other good. b. the available production technology does not change. c. the opportunity cost increases. d. All of the above are correct.

25. Normative statements are

a. prescriptive, whereas positive statements are descriptive.

The business cycle is measured by the

a. production of goods and services. b. number of people employed. c. the interest rate. d. Both a and b are correct.

20. Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

a. the United States should produce more pork than what it requires and export some of it to Mexico.

10. Refer to Table 3-6. We could use the information in the table to draw a production possibilities frontier for Maya and a second production possibilities frontier for Miguel. If we were to do this, measuring mixers along the horizontal axis, then

a. the slope of Maya's production possibilities frontier would be -1.6 and the slope of Miguel's production possibilities frontier would be -2.

18. When an economy is operating inside its production possibilities frontier, we know that

a. there are unused resources or inefficiencies in the economy.

17. If an economy is producing efficiently, then

a. there is no way to produce more of one good without producing less of another good.

3. The demand for a good or service is determined by

a. those who buy the good or service.

29. The Council of Economic Advisers

a. was created in 1946. b. advises the president of the United States on economic policy matters. c. writes the annual Economic Report of the President. d. All of the above are correct.

14. Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is

b. 2.8 bushels of corn.

9. Refer to Table 3-6. Assume that Maya and Miguel each has 40 hours available. If each person divides his/her time equally between the production of mixers and toasters, then total production is

b. 3.5 mixers and 6 toasters.

7. Refer to Table 3-1. Which of the following combinations of wheat and beef could Andia produce in one 8- hour day?

b. 9 bushels of wheat and 25 pounds of beef

4. Economists face an obstacle that many other scientists do not face. What is that obstacle?

b. It is often difficult and sometimes impossible to perform experiments in economics.

21. Refer to Figure 2-3. This economy has the ability to produce at which point(s)?

b. K, M, N

11. Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches is constant in

b. Panel (b).

17. Trade can make everybody better off because it

b. allows people to specialize according to comparative advantage.

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

b. can produce using all available resources and technology.

1. People who provide you with goods and services

b. do so because they get something in return.

22. Microeconomics is the study of

b. how individual households and firms make decisions.

26. A statement describing how the world is

b. is a positive statement.

7. A decrease in quantity demanded

b. results in a movement upward and to the left along a demand curve.

6. A monopoly is a market with one

b. seller, and that seller sets the price.

15. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

b. the available production technology.

23. A microeconomist — as opposed to a macroeconomist — might study

b. the effect of rising oil prices on employment in the airline industry.

13. The opportunity cost of an item is

b. what you give up to get that item.

Trade between the United States and India

benefits both the United States and India.

10. Which of these terms are used interchangeably?

c. "inputs" and "factors of production"

6. Refer to Table 3-1. Assume that Andia and Zardia each has 360 minutes available. If each person divides his time equally between the production of wheat and beef, then total production is

c. 35 bushels of wheat and 22 pounds of beef.

11. Which of the following demonstrates the law of demand?

c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.

27. Which of the following is an example of a positive, as opposed to normative, statement?

c. Prices rise when the government prints too much money.

15. If Shawn can produce more donuts in one day than Sue can produce in one day, then

c. Shawn has an absolute advantage in the production of donuts.

3. Which of the following is an example of using the scientific method with a natural experiment?

c. Tracking the price of oil when a war in the Middle East interrupts the flow of crude oil.

2 . In a market economy, supply and demand are important because they

c. can be used to predict the impact on the economy of various events and policies.

8. A movement upward and to the left along a demand curve is called a(n)

c. decrease in quantity demanded.

6. In building economic models, economists often omit

c. details.

12. A demand schedule is a table that shows the relationship between

c. price and quantity demanded.

5. A certain cowboy spends 10 hours per day mending fences and herding cattle. For the cowboy, a graph that shows his various possible mixes of output (fences mended per day and cattle herded per day) is called his

c. production possibilities frontier.

4. A production possibilities frontier is a straight line when

c. the rate of tradeoff between the two goods being produced is constant.

1. Economists use some familiar terms in specialized ways

c. to provide a new and useful way of thinking about the world.

Communist countries worked under the premise that

central planners were in the best position to determine the allocation of scarce resources in the economy

Making rational decisions "at the margin" means that people

compare the marginal costs and marginal benefits of each decision.

13. Refer to Figure 4-2. If Consumer A and Consumer B are the only consumers in the market, then the market quantity demanded when the price is $6 is

d. 12 units.

24. Which of the following statements is correct about the roles of economists?

d. In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.

20. Refer to Figure 2-3. At which point is this economy producing its maximum possible quantity of pans?

d. N

2. When can two countries gain from trading two goods?

d. Two countries could gain from trading two goods under all of the above conditions.

9. An increase in the price of a good will

d. decrease quantity demanded.

10. The law of demand states that, other things equal, when the price of a good

d. falls, the quantity demanded of the good rises.

5. Economists make assumptions in order to

d. focus their thinking on the essence of the problem at hand.

18. By definition, imports are

d. goods produced abroad and sold domestically.

19. By definition, exports are

d. goods produced domestically and sold abroad.

9. Which two groups of decision makers are included in the simple circular-flow diagram?

d. households and firms

12. The two loops in the circular-flow diagram represent

d. the flows of inputs and outputs and the flow of dollars.

To increase living standards, public policy should

ensure that workers are well educated and have the necessary tools and technology.

A tradeoff exists between a clean environment and a higher level of income in that

laws that reduce pollution raise costs of production and reduce incomes.

The term used to describe a situation in which markets do not allocate resources efficiently is

market failure

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that

people face tradeoffs.

When the government redistributes income from the wealthy to the poor,

people work less and produce fewer goods and services.

An example of an externality is the impact of

pollution from a factory on the health of people in the vicinity of the factory.

What is the most important factor that explains differences in living standards across countries?

productivity

The government enforces property rights by

providing police and courts.

The phenomenon of scarcity stems from the fact that

resources are limited.

Resources are

scarce for households and scarce for economies.

Efficiency means that

society is getting the maximum benefits from its scarce resources.

You have driven 500 miles on a vacation and then you notice that you are only 25 miles from an attraction

the cost of driving the next 25 miles, but not the cost of driving the first 500.

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns

the enjoyment she would have received had she watched the video.

Which of the following firms is most likely to have market power?

the only hotel in a rural area

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops.

The opportunity cost of going to college is

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

In economics, the cost of something is

what you give up to get it.