Microeconomics Module Three Quiz

In a diversified economy with individuals as well as firms participating in trade, how will economic activity be allocated? Activities with lower management costs in firms will be managed by firms, which leaves the rest to individuals. Activities with higher management costs by individuals will be managed by individuals, which leaves the rest to firms. Management costs will be absorbed into the economy and there will be no impact in the allocation of economic activity. Firms will continue to lower their management costs, which results in monopolies.

Activities with lower management costs in firms will be managed by firms, which leaves the rest to individuals.

Which of the following statements about the "division of labor" is true? It reduces firms' productivity and increases their costs, because employees specialize and divide up their tasks. It reduces firms' productivity and lowers their costs, because employees all do the same tasks. It increases firms' productivity and reduces their costs, because employees specialize and divide up their tasks. It increases firms' productivity and increases their costs, because employees do the same tasks.

It increases firms' productivity and reduces their costs, because employees specialize and divide up their tasks.

Which of the following statements is accurate? Society is better off when everyone aims to be self-sufficient. Society is worse off when trade is maximized. Society is better off when local trade is maximized and when international trade is minimized. Society is better off when trade is maximized.

Society is better off when trade is maximized.

Both the Ivory Coast and Ghana have geographic and climatic conditions that are favorable to cocoa beans, which are used to make chocolate. Yet, the Ivory Coast is a world leader in cocoa bean production, while Guatemala produces relatively few cocoa beans. Why might this be the case? The Ivory Coast has an absolute advantage in cocoa bean production. Guatemala has an absolute advantage in cocoa bean production. The Ivory Coast has a comparative advantage in cocoa bean production. Guatemala has a comparative advantage in cocoa bean production.

The Ivory Coast has a comparative advantage in cocoa bean production.

What are two reasons why transaction costs exist? Trading partners do not exist and there is limited time to agree to a trade. Trading partners are hard to find and there is limited time to agree to a trade. Trading partners are hard to find and there is enough time to agree to a trade. Trading partners are not needed and there is limited time to agree to a trade.

Trading partners are hard to find and there is limited time to agree to a trade.

When a person can do something at a lower opportunity cost than another person, she has... an absolute advantage. a comparative advantage. an absolute disadvantage. a comparative disadvantage.

a comparative advantage.

Individual preferences in society can give rise to resource misallocations. Transaction costs help correct this misallocation by... enforcing agreements between trading partners. helping trading partners find each other and negotiate a trade. allowing middlemen that specialize in coordinating trading opportunities to profit. preventing trading partners from taking advantage of each other.

allowing middlemen that specialize in coordinating trading opportunities to profit.

Joey was always the best player on his basketball team in every category—scoring, rebounds, assists, and defense. But, he usually had teammates who had a comparative advantage in scoring, rebounds, and defense. In such situations, which category should Joey have focused on? scoring rebounding assists defense

assists

Trade occurs when... both parties expect the trade to make them better off. neither party expects the trade to make them better off. one side becomes better off, while the other side becomes worse off. both parties expect the trade to make them worse off.

both parties expect the trade to make them better off.

The "middleman" creates value for society by... connecting buyers with sellers. taking a cut of the transaction between buyers and sellers. charging a markup when acquiring a good or service. helping sellers at the expense of buyers.

connecting buyers with sellers.

When trade is expanding exponentially, it is... growing at a steady, usually rapid, rate. declining at a slow rate. accelerating at an ever higher rate. growing at an increasing, then decreasing, rate.

growing at a steady, usually rapid, rate.

When an individual is better off after buying a good, the business he or she purchased from... is worse off. is also better off. is better off, unless the item was on sale. cannot know if it is better off.

is also better off.

Adam Smith identified three ways that the division of labor increases productivity. Which of the following is NOT one of them? increased dexterity, with respect to a task saving time that would otherwise be spent switching from task to task more invention and innovation on new methods of production less need for workers, as machines gradually take over

less need for workers, as machines gradually take over

In a hypothetical world with no trade, everyone must be entirely self-reliant. Trade and specialization create wealth by encouraging people to become... more interdependent. less interdependent. more self-reliant. more independent.

more interdependent.

The next most valued thing given up when someone does or buys something is called the... division of labor. comparative advantage. opportunity cost. opportunity sacrifice.

opportunity cost.

The technology available through a ride-sharing application—which enables consumers looking for a ride to locate drivers in close proximity and decide which one to contract with—reduces what type of transaction cost? search and information costs bargaining and decision costs policing and enforcement costs search and rescue costs

search and information costs

In the presence of a free market of trading individuals, firms will tend to arise because... firms aggregate many traders and make it easier for them to trade amongst themselves. the costs of conducting trades in the market is low, and firms take advantage of the traders. the costs of searching for a trading opportunity, negotiating it, and enforcing it have become too high for individual traders. the costs of searching for a trading opportunity, negotiating it, and enforcing it are low for individual traders.

the costs of searching for a trading opportunity, negotiating it, and enforcing it have become too high for individual traders.

If you go on vacation to Paris, which of the following would NOT be a potential opportunity cost of the trip? the work that you might have finished the expensive TV and sound system you might have purchased the friends you might have seen the historic Parisian sights that you see

the historic Parisian sights that you see

Which of the following is NOT an example of a marketplace? Seattle's Pike Place, a public market in Seattle, Washington a Target store a street-car vendor two friends trading baseball cards

two friends trading baseball cards

Which of the following correctly describes comparative advantage? when a person can do something at a higher opportunity cost than another person when a person can do something at a lower opportunity cost than another person when everyone can do the same thing—no better and no worse—than everyone else when a person gets better at something, by doing it repeatedly

when a person can do something at a lower opportunity cost than another person