Microeconomics Chapter 2

(Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. If Tealand is producing 10 million scones and 10 million cups of tea (point A), we know that the economy: is using its resources inefficiently. has found new resources. is fully employing its resources. is using its resources efficiently.

is using its resources inefficiently

When a nation's economy grows: its production possibility frontier shifts outward. it has moved to a more consumer-oriented position on its production possibility frontier. it has been able to reach full employment. its production possibility frontier shifts inward

its production possibility frontier shifts outward

Unemployment decreased to its lowest level in 10 years last month. This statement is: a value judgment. a positive economic statement. an example of an opportunity cost. a normative economic statement.

a positive economic statement

(Figure: Wine and Wheat) Look at the figure Wine and Wheat. The opportunity cost of moving from producing ONLY wheat to producing ONLY wine is _____ tons of wheat. 15 3 6 9

15

(Table: Production Possibilities Schedule I) Look at the table Production Possibilities Schedule I. The opportunity cost of producing the fourth unit of consumer goods is _____ units of capital goods. 6 2 4 8

8

Which of the following is FALSE about the circular-flow diagram? Households are the primary demanders of goods and services. Money flows from households to firms as households offer factors of production for sale. Firms are the primary suppliers of goods and services. Money flows in the direction opposite to goods and services and factors of production.

Money flows from households to firms as households offer factors of production for sale

Which of the following is a normative statement? The best way to encourage growth in the economy is through government spending. The federal minimum wage is higher today than it was in 1990. Children in the United States are required to go to school until they reach a certain age. Women's labor force participation rate has increased during the past 100 years

The best way to encourage growth in the economy is through government spending

Suppose Indiana produces only steel and corn, with fixed amounts of land, labor, and capital resources. Which of the following best sets the stage for economic growth? The percentage of Indiana residents with a college degree rises from 25% to 30%. The United States imports more and more low-cost steel from Asian countries. The unemployment rate in Indiana rises from 5% to 6%. The Midwest has a devastating drought

The percentage of Indiana residents with a college degree rises from 25% to 30%

(Table: Coffee and Salmon Production Possibilities II) Look at the table Coffee and Salmon Production Possibilities II. This table shows the maximum amounts of coffee and salmon, both measured in pounds, that Brazil and Alaska can produce if they just produce one good. Brazil has a comparative advantage in producing: neither coffee nor salmon salmon only. coffee only. both coffee and salmon

coffee only

If an economy is producing at a point on its production possibilities frontier, it is: not necessarily efficient in production or allocation. efficient in production but not necessarily in allocation. efficient in allocation but not necessarily in production. efficient in production and allocation

efficient in production but not necessarily in allocation

(Figure: Production Possibility Frontier) Look at the figure Production Possibilities Frontier. If the economy is operating at point B, producing 16 cars and 12 computers per period, a decision to move to point E and produce 18 computers: entails a loss of 4 cars per period. makes it clear that this economy has decreasing opportunity costs. entails a loss of 8 cars per period. indicates that you can have more computers and more cars simultaneously.

entails a loss of 8 cars per period

The importance of an economic model is that it allows us to: build an accurate mathematical model of the economy. build a complex and accurate model of the economy. focus on the effects of only one change at a time. avoid opportunity costs.

focus on the effects of only one change at a time

(Figure: Bicycles and Radishes I) Look at the figure Bicycles and Radishes I. It shows production possibility frontiers for two countries that produce only radishes and bicycles. The axes of the two graphs are measured in equivalent units. Country A is operating at point M, and country B is operating at point N. Suppose country A discovers a new technology that greatly increases its ability to produce bicycles but has no effect on its ability to produce radishes. This would: increase the opportunity cost of producing radishes in country B. increase the opportunity cost of producing radishes in country A. lower the opportunity cost of producing radishes in country A. not affect the opportunity cost of producing radishes in country A.

increase the opportunity cost of producing radishes in country A

In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that: Japan has a comparative advantage in the production of both goods. the United States has a comparative advantage in the production of automobiles. the United States has an absolute advantage in the production of steel. Japan has a comparative advantage in the production of automobiles.

the United States has a comparative advantage in the production of automobiles

To achieve the gains from trade, each nation should specialize in the production of a good or service if: its production possibility frontier is closer to the origin than that of any other country. the country can make the product while forgoing fewer alternative products than any other country. its production possibility frontier is farther from the origin than that of any other country. the country can make the product using fewer resources than any other country

the country can make the product while forgoing fewer alternative products than any other country

Economists who are asked to choose between two government policies may disagree because: as a matter of course, economists often take opposing points of view so that all sides of a question may be discussed. they base their conclusions on models that make different assumptions. they make the same value judgments about the desirability of the policies. economists are trained ignore facts and focus on theory.

they base their conclusions on models that make different assumptions

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. Given this information and supposing Laurence and Carrie Anne have constant opportunity costs, we know that _____ has an absolute advantage in _____. Carrie Anne; both programs and sunglasses. Carrie Anne; programs but not in sunglasses. Laurence; both programs and sunglasses. Laurence; programs but not in sunglasses

Laurence; both programs and sunglasses