Quiz 1

Refer to Figure 2-9. What is the opportunity cost of producing 1 snow cone in Iceland?

2/3 Popsicle 180/270

________ involves undertaking an activity until its marginal benefits equal marginal costs.

Marginal Analysis

How are the fundamental economic decisions determined in Cuba?

The government decides because Cuba is a centrally planned economy.

Economists assume that rational people

respond to economic incentives.

Refer to Figure 2-6. If the economy is currently producing at point D, what is the opportunity cost of moving to point B?

0 Forks

How are the fundamental economic decisions determined in Canada?

Individuals, firms, and the government interact in a market to make these economic decisions.

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. Refer to Figure 2-2. What is the opportunity cost of one dozen roses?

.4 Dozen Orchids 200roses\80orchids Divide 80 by 200

Table 2-4 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Refer to Table 2-4. What is George's opportunity cost of cultivating a garden?

2 lawns mowed Lawns Mowed 10 Gardens Cultivated 5

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. Refer to Figure 2-2. What is the opportunity cost of one dozen orchids?

2.5 Roses Roses 200\ Orchids 80

The Farm Factory, a booth at the local Farmer's Market, sells fresh eggs for $1.50 per dozen and fresh milk for $2.50 per gallon. What is the opportunity cost of buying a dozen eggs

3/5 or a gallon of milk

Consider the following statements: a. Soda drinkers purchase more soda from a grocery store that sells soda at a lower price than other rival grocery stores in the area. b. Homeowners do not take steps to increase security even though they believe it is more costly to allow burglaries than to install security monitoring equipment. c. Manufacturers produce less of a particular cell phone when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

A

________ behavioral assumption about humans was that people usually act in a rational, self-interested way.

Adam Smiths

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs.

Allocative Efficiency

Which of the following is not an example of an efficiency-equity trade-off faced by economic agents?

Concerned about the falling birth rate, the French government has pledged more money for families with three children, in an effort to encourage working women to have more babies

Refer to Figure 2-13. Which two arrows in the diagram depict the following transaction: Carter earns a $400 commission for selling men's designer shoes at Brooks Brothers.

J and M Factor Markets/ Households

Refer to Scenario 1-1. Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cell cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 500 cigars?

Marginal Cost

Scenario 1-1 Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts." Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 400 t-shirts?

Marginal Revenue

Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. Refer to Figure 2-8. If the two countries have the same amount of resources and the same technological knowledge, which country has an absolute advantage in the production of both pineapples and coconuts?

Neither Country 100\150 Costa Rica 90\180 Guatamala

Which of the following best describes an assumption economists make about human behavior?

They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.

Fast food restaurants produce a range of menu items such as hamburgers, chicken sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of items?

What to produce

Which of the following would shift a nation's production possibilities frontier inward?

a law requiring workers to retire at age 50

The recession of 2007-2009 would most likely be represented in a production possibilities frontier graph by

a point inside the frontier.

Economic Models

are simplified versions of reality

Productive efficiency is achieved when firms produce goods and services

at the lowest cost.

The decision about what goods and services will be produced made in a market economy is made by

consumers and firms choosing which goods and services to buy or produce.

The primary purpose of patents and copyrights is to

encourage the expenditure of funds on research and development to create new products.

In a market economy, ________ interact in markets to decide the answers to the fundamental economic questions.

households and firms

The revenue received from the sale of an additional unit of a product

is a marginal benefit to the firm.

If the production possibilities frontier is linear, then

opportunity costs are constant as more of one good is produced.

Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that

people respond to economic incentives.

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

people without health insurance will be less likely to be overweight than people with health insurance.

In a market economy, those who are willing and able to buy what is produced

receive the most of what is produced.

According to the production possibility model, if more resources are allocated to the production of physical and human capital, then all of the following are likely to happen except

the country's total production will fall