Principles of Microeconomics

Raising taxes and increasing welfare payments a. proves that there is such a thing as a free lunch. b. reduces market power. c. improves efficiency at the expense of equality. d. improves equality at the expense of efficiency. e. does none of the above.

D

Which of the following statements is normative? a. The unemployment rate should be lower. b. People work harder if the wage is higher. c. Printing too much money causes inflation. d. Large government deficits cause an economy to grow more slowly.

A

According to the principle of comparative advantage, a. countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners. b. countries should specialize in the production of goods for which they use fewer resources in production than their trading partners. c. countries with a comparative advantage in the production of every good need not specialize. d. countries should specialize in the production of goods that they enjoy consuming.

A

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent, a. students will shift majors from education to accounting. b. students will shift majors from accounting to education. c. fewer students will attend college. d. None of the above is true.

A

Exhibit on Desktop The opportunity cost of 1 unit of electronics in Korea is a. 2 units of food. b. 1/4 of a unit of food. c. 1/2 of a unit of food. d. 4 units of food.

A

Exhibit on Desktop The opportunity cost of 1 unit of food in Korea is a. 1/2 of a unit of electronics. b. 1/4 of a unit of electronics. c. 4 units of electronics. d. 2 units of electronics.

A

Exhibit on Desktop The opportunity cost of producing 1 metric ton of beef in Peru is a. 3 tons of fruit. b. 2 tons of fruit. c. 1 ton of fruit. d. 6 tons of fruit. e. 1/3 ton of fruit.

A

Exhibit on Desktop hich of the following statements about comparative advantage is true? a. Australia has a comparative advantage in the production of food while Korea has a comparative advantage in the production of electronics. b. Korea has a comparative advantage in the production of food while Australia has a comparative advantage in the production of electronics. c. Australia has a comparative advantage in the production of both food and electronics. d. Korea has a comparative advantage in the production of both food and electronics. e. Neither country has a comparative advantage.

A

Foreign trade a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home. b. allows a country to avoid trade-offs. c. makes the members of a country more equal. d. increases the scarcity of resources. e. is none of the above.

A

If a nation has a comparative advantage in the production of a good, a. it can produce that good at a lower opportunity cost than its trading partner. b. it can produce that good using fewer resources than its trading partner. c. it can benefit by restricting imports of that good. d. it must be the only country with the ability to produce that good. e. none of the above is true.

A

Points on the production possibilities frontier are a. efficient. b. inefficient. c. unattainable. d. normative. e. none of the above.

A

Productivity can be increased by a. improving the education of workers. b. restricting trade with foreign countries. c. raising union wages. d. raising minimum wages.

A

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade, a. the domestic price of 1 ring is 1/3 of a watch. b. the domestic price of 1 ring is 1/4 of a watch. c. the domestic price of 1 ring is 4 watches. d. the domestic price of 1 ring is 12 watches. e. the domestic price of 1 ring is 3 watches.

A

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "That's ridiculous. If the government spent an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!" These economists a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

A

The scientific method requires that a. scientists be objective. b. only correct theories are tested. c. scientists use precision equipment. d. scientists use test tubes and have clean labs. e. only incorrect theories are tested.

A

Trade-offs are required because wants are unlimited and resources are a. scarce. b. unlimited. c. marginal. d. economical. e. efficient.

A

Which of the following activities is most likely to produce an externality? a. A student has a party in her dorm room. b. A student eats a hamburger in the student union. c. A student reads a novel for pleasure. d. A student sits at home and watches television.

A

Which of the following statements regarding the circular-flow diagram is true? a. The factors of production are owned by households. b. If Susan works for IBM and receives a paycheck, the transaction takes place in the market for goods and services. c. If IBM sells a computer, the transaction takes place in the market for factors of production. d. The factors of production are owned by firms. e. None of the above is true.

A

Economics is the study of how a. to fully satisfy our unlimited wants. b. society manages its scarce resources. c. to reduce our wants until we are satisfied. d. society manages its unlimited resources. e. to avoid having to make trade-offs.

B

Exhibit on Desktop Korea should a. specialize in food production, export food, and import electronics. b. specialize in electronics production, export electronics, and import food. c. produce neither good because it has an absolute disadvantage in the production of both goods. d. produce both goods because neither country has a comparative advantage.

B

Exhibit on Desktop Peru will export a. both fruit and beef. b. fruit. c. beef. d. neither fruit nor beef.

B

Exhibit on Desktop The opportunity cost of 1 unit of electronics in Australia is a. 5 units of food. b. 4 units of food. c. 1/5 of a unit of food. d. 1/4 of a unit of food.

B

High and persistent inflation is caused by a. unions increasing wages too much. b. governments increasing the quantity of money too much. c. OPEC raising the price of oil too much. d. regulations raising the cost of production too much.

B

If a nation has an absolute advantage in the production of a good, a. it can produce that good at a lower opportunity cost than its trading partner. b. it can produce that good using fewer resources than its trading partner. c. it can benefit by restricting imports of that good. d. it will specialize in the production of that good and export it. e. none of the above is true.

B

In the short run, a. an increase in inflation temporarily increases unemployment. b. a decrease in inflation temporarily increases unemployment. c. inflation and unemployment are unrelated. d. the business cycle has been eliminated. e. None of the above is true

B

In which of the following cases is the assumption most reasonable? a. To estimate the speed at which a beach ball falls, a physicist assumes that it falls in a vacuum. b. To address the benefits of trade, an economist assumes that there are two people and two goods. c. To address the impact of money growth on inflation, an economist assumes that money is strictly coins. d. To address the impact of taxes on income distribution, an economist assumes that everyone earns the same income.

B

Suppose the world consists of two countries—the United States and Mexico. Furthermore, suppose there are only two goods—food and clothing. Which of the following statements is true? a. If the United States has an absolute advantage in the production of food, then Mexico must have an absolute advantage in the production of clothing. b. If the United States has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing. c. If the United States has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing. d. If the United States has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of food. e. None of the above is true.

B

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "That's ridiculous. Inflation is the greatest social evil." These economists a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

B

Which of the following statements about microeconomics and macroeconomics is not true? a. Microeconomics is a building block for macroeconomics. b. The study of very large industries is a topic within macroeconomics. c. Macroeconomics is concerned with economy-wide phenomena. d. Microeconomics and macroeconomics cannot be entirely separated.

B

Which of the following statements about trade is true? a. Unrestricted international trade benefits every person in a country equally. b. Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage. c. People that are skilled at all activities cannot benefit from trade. d. Trade can benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage.

B

Check My Work Which of the following issues is related to microeconomics? a. the impact of technology on economic growth b. the impact of money on inflation c. the impact of oil prices on auto production d. the impact of the deficit on saving

C

Economic growth is depicted by a. a shift in the production possibilities frontier inward. b. a movement from inside the curve toward the curve. c. a shift in the production possibilities frontier outward. d. a movement along a production possibilities frontier toward capital goods.

C

Economic models are a. useless if they are simple. b. usually made of wood and plastic. c. built with assumptions. d. created to duplicate reality

C

Exhibit on Desktop Argentina has a comparative advantage in the production of a. both fruit and beef. b. fruit. c. beef. d. neither fruit nor beef.

C

Exhibit on Desktop As we move from point A to point D, a. the opportunity cost of eggs in terms of bacon is constant. b. the economy becomes less efficient. c. the opportunity cost of eggs in terms of bacon rises. d. the opportunity cost of eggs in terms of bacon falls. e. the economy becomes more efficient

C

Exhibit on Desktop If the economy is operating at point C, the opportunity cost of producing an additional 15 units of bacon is a. 10 units of eggs. b. 20 units of eggs. c. 30 units of eggs. d. 40 units of eggs. e. 50 units of eggs.

C

Exhibit on Desktop Prices of electronics can be stated in terms of units of food. What is the range of prices of electronics for which both countries could gain from trade? a. The price must be greater than 4 units of food but less than 5 units of food. b. The price must be greater than 1/4 of a unit of food but less than 1/2 of a unit of food. c. The price must be greater than 2 units of food but less than 4 units of food. d. The price must be greater than 1/5 of a unit of food but less than 1/4 of a unit of food.

C

Exhibit on Desktop The opportunity cost of 1 unit of food in Australia is a. 4 units of electronics. b. 1/5 of a unit of electronics. c. 1/4 of a unit of electronics. d. 5 units of electronics.

C

Exhibit on Desktop Point F represents a. a combination of production that can be reached if we reduce the production of eggs by 20 units. b. a combination of production that is inefficient because there are unemployed resources. c. a combination of production that can be reached if there is a sufficient advance in technology. d. none of the above

C

In making which of the following statements is an economist acting more like a scientist? a. The state should increase subsidies to universities because the future of our country depends on education. b. The unemployment rate should be reduced because unemployment robs individuals of their dignity. c. A reduction in unemployment benefits will reduce the unemployment rate. d. The rate of inflation should be reduced because it robs the elderly of their savings.

C

Joe is a tax accountant. He receives $100 per hour doing tax returns. He can type 10,000 characters per hour into spreadsheets. He can hire an assistant who types 2,500 characters per hour into spreadsheets. Which of the following statements is true? a. Joe should not hire an assistant because the assistant cannot type as fast as he can. b. Joe should hire the assistant as long as he pays the assistant less than $100 per hour. c. Joe should hire the assistant as long as he pays the assistant less than $25 per hour. d. None of the above is true.

C

Positive statements are a. macroeconomic. b. statements of prescription that involve value judgments. c. statements of description that can be tested. d. microeconomic.

C

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade, a. the opportunity cost of 1 watch is 1/3 of a ring. b. the opportunity cost of 1 watch is 1/4 of a ring. c. the opportunity cost of 1 watch is 3 rings. d. the opportunity cost of 1 watch is 12 rings. e. the opportunity cost of 1 watch is 4 rings.

C

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is a. nothing, because you found the money. b. $20 (because you could have used the $20 to buy other things). c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game. d. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game. e. none of the above.

C

Which of the following is most likely to produce scientific evidence about a theory? a. a lawyer employed by General Motors addressing the impact of air bags on passenger safety b. a radio talk show host collecting data on how capital markets respond to taxation c. a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending d. an economist employed by the AFL/CIO doing research on the impact of trade restrictions on workers' wages

C

Which of the following products would be least capable of producing an externality? a. Stereo equipment b. Inoculations against disease c. Food d. Education e. Cigarettes

C

Which of the following situations describes the greatest market power? a. Volvo's impact on the price of autos b. a farmer's impact on the price of corn c. Microsoft's impact on the price of desktop operating systems d. a student's impact on college tuition

C

Which of the following statements is true about a market economy? a. Taxes help prices communicate costs and benefits to producers and consumers. b. With a large enough computer, central planners could guide production more efficiently than markets. c. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. d. The strength of a market system is that it tends to distribute resources evenly across consumers.

C

Which of the following statements is true? a. Self-sufficiency is the road to prosperity for most countries. b. A self-sufficient country consumes outside its production possibilities frontier. c. A self-sufficient country at best can consume on its production possibilities frontier. d. Only countries with an absolute advantage in the production of every good should strive to be self-sufficient.

C

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.) a. There is not enough information to answer this question. b. No. c. Yes.

C

A rational person does not act unless a. the action makes money for the person. b. the action is ethical. c. the action produces marginal costs that exceed marginal benefits. d. the action produces marginal benefits that exceed marginal costs. e. None of the above is true.

D

An increase in the price of beef provides a. no information because prices in a market system are managed by planning boards. b. information that tells consumers to buy less pork. c. information that tells consumers to buy more beef. d. information that tells producers to produce more beef.

D

Exhibit on Desktop If the economy were operating at point E, a. the opportunity cost of 20 additional units of eggs is 30 units of bacon. b. the opportunity cost of 20 additional units of eggs is 20 units of bacon. c. the opportunity cost of 20 additional units of eggs is 10 units of bacon. d. 20 additional units of eggs can be produced with no impact on bacon production.

D

Exhibit on Desktop Which of the following statements about absolute advantage is true? a. Korea has an absolute advantage in the production of food while Australia has an absolute advantage in the production of electronics. b. Korea has an absolute advantage in the production of both food and electronics. c. Australia has an absolute advantage in the production of food while Korea has an absolute advantage in the production of electronics. d. Australia has an absolute advantage in the production of both food and electronics.

D

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than a. $100. b. $300. c. $500. d. $800. e. none of the above.

D

Which of the following is not a factor of production? a. land b. labor c. capital d. money e. All of the above are factors of production.

D

Which of the following is not part of the opportunity cost of going on vacation? a. the money you could have made if you had stayed home and worked b. the money you spent on a Broadway show c. the money you spent on airline tickets d. the money you spent on food

D

Which of the following will not shift a country's production possibilities frontier outward? a. an advance in technology b. an increase in the capital stock c. an increase in the labor force d. a reduction in unemployment

D

Workers in the United States enjoy a high standard of living because a. unions in the United States keep the wage high. b. we have protected our industry from foreign competition. c. the United States has a high minimum wage. d. workers in the United States are highly productive. e. None of the above is true.

D

Which of the following involve a trade-off? a. Buying a new car b. Going to college c. Watching a football game on Saturday afternoon d. Taking a nap e. All of the above involve trade-offs

E