Chapter 1 & 2

Sometimes the government varies its spending, depending on the needs of the country. Which economic principle does this statement BEST represent?

Government policies can change spending

A friend comes up to you and offers you a free ticket to a professional baseball game that night. You decide to attend the game. The game takes five hours and costs you $15 for transportation. If you had not attended the game, you would have worked at your part-time job for $8 an hour. What is the cost to you of attending the game?

$55

Florida schools offered cash bonuses to students who scored high on the state's standardized exams. The cash bonuses are motivated by which economic principle?

People usually respond to incentives, exploiting opportunities to make themselves better off

The effect of a natural disaster can be shown by a(n) _____ the production possibility frontier. a) inward shift of b) movement from one point to another along c) outward shift of d) point inside of

a) inward shift of

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

b) efficient in production but not necessarily in allocation.

increases in a nation's standard of living are largely driven by: a) higher interest rates b) decreases in federal government spending c)lower rates of inflation d) increases in labor productivity

d) increases in labor productivity

An economy is efficient if it is:

not possible to produce more of one good without producing less of another good.

Absoulte Advantage

one country can produce more units using the same amount of resources

disequilibrium

there are opportunities for some people to be better off

which principle underlies the interaction of individual choices?

There are gains from trade

Which statement demonstrates one of the three principles of economy-wide interactions? a) In 2008, fearing a recession, Congress approved a White House proposal to rebate some taxes for 2007. b) Your roommate offers to pay for the movie tickets if you drive to the theater. c)A city builds a new public park on the grounds of an abandoned warehouse. d) A student chooses to rent a movie with friends, rather than study for an economics quiz.

a) In 2008, fearing a recession, Congress approved a White House proposal to rebate some taxes for 2007.

Which method of encouraging recycling is likely to be MOST effective given that people usually exploit opportunities to make themselves better off? a)imposing a tax per unit of garbage generated b) appealing to consumers to be a good citizen c) publicizing the advantages of recycling d)advertising different ways of recycling

a) imposing a tax per unit of garbage generated

In movement along a production possibility frontier, the opportunity cost to society of getting more of one good: a) is measured by the amount of the other good that must be given up. b)is measured in dollar terms. c) is always constant. d) usually decreases.

a) is measured by the amount of the other good that must be given up.

(Table: Wheat and Aluminum) Use Table: Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table: a) the United States has a comparative advantage in wheat and an absolute advantage in wheat. b)Germany has a comparative advantage in aluminum and an absolute advantage in aluminum. c)the United States has a comparative advantage in both aluminum and wheat d)Germany has an absolute advantage in aluminum and a comparative advantage in wheat.

a) the United States has a comparative advantage in wheat and an absolute advantage in wheat.

I know when I shop at the local grocery store, I am helping my community. Which economic principle does this statement BEST represent? a) There are gains from trade. b) One person's spending is another person's income. c)People usually respond to incentives, exploiting opportunities to make themselves better off. d) Overall spending sometimes gets out of line with the economy's productive capacity.

b) One person's spending is another person's income.

Peter Pundit, an economics reporter in the United States, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the United States will no longer benefit from trade with the EU. Do you think Peter Pundit is correct or not? If not, what do you think is the source of his mistake? a) Peter Pundit is correct. The United States will lose any comparative advantage it may have. b) Peter Pundit is not correct. He confuses absolute and comparative advantage. c) Peter Pundit is correct. The United States will lose any absolute advantage it may have. d) Peter Pundit is not correct. The United States will still have an absolute advantage in producing some products.

b) Peter Pundit is not correct. He confuses absolute and comparative advantage.

The United States and Germany can produce both wheat and aluminum. The table below shows, in tonnage, the maximum annual output combinations of wheat and aluminum that can be produced. Which choice represents a possible trade based on specialization and comparative advantage? A) Germany would trade 2 tons of aluminum to the United States for 0.5 ton of wheat b) The United States would trade 1 ton of wheat to Germany for 1 ton of aluminum. c) The United States would trade 1 ton of wheat to Germany for 1.5 tons of aluminum. d) Germany would trade 2 tons of wheat to the United States for 1 ton of aluminum.

b) The United States would trade 1 ton of wheat to Germany for 1.5 tons of aluminum

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

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

Manny is attending college and majoring in chemistry. By doing so, Manny is improving his: a)labor. b)human capital. c)capital. d)land.

b) human capital

The effect of an increase in productive inputs such as labor and capital can be shown by a(n): a) movement from one point to another along the production possibility frontier. b) outward shift of the production possibility frontier. c) point inside of the production possibility frontier. d) inward shift of the production possibility frontier.

b) outward shift of the production possibility curve

The concept of comparative advantage is based on: a) absolute labor productivity. b) relative opportunity costs. c) dollar prices of labo. d)relative labor costs.

b) relative opportunity costs

Specialization and trade usually lead to: a) lower economic growth. b) the exchange of goods and services in markets. c)lower living standards. d) higher prices.

b) the exchange of goods and services in markets.

In Kessy's old kitchen, he could bake 10 cookies or mix 15 glasses of lemonade in one day. Now Kessy has a larger oven and refrigerator. How does this affect his production possibility frontier? a)It shifts his production possibility frontier in. b)It shifts his production possibility frontier out. c) He will not be able to produce as much as before. d)He will be less efficient.

b)It shifts his production possibility frontier out.

Because of trade, a country may: a) find its production possibility frontier shifting outward. b) avoid opportunity costs. c) consume outside its production possibility frontier. d)consume inside its production possibility frontier.

c) consume outside its production possibility frontier.

The process observed when an economy's production possibility frontier shifts outward is: a) specialization. b) full employment. c) economic growth. d) comparative advantage.

c) economic growth

If every individual were required to be self-sufficient: a)living standards for some individuals would fall, but for others they would rise.living standards would rise. b) living standards would rise c)living standards would fall. d)it's impossible to say how living standards would change.

c) living standards would fall

As part of its monetary policy, the Federal Reserve controls a) the federal government's expenditures on goods and services b) the prime rate (of interest) c)the (targeted) federal funds rate (of interest) d) the (unified) overall corporate bond rate (of interest)

c)the (targeted) federal funds rate (of interest)

Margo spends $30,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is: a) $30,000. b)whatever she would have earned had she not been in college c)whatever she would have purchased with the $30,000 plus whatever she would have earned had she not been in college. d)whatever she would have purchased with the $30,000 instead.

c)whatever she would have purchased with the $30,000 plus whatever she would have earned had she not been in college.

Which statement is TRUE? a) Some very talented people have a very low opportunity cost in everything they do. b) Some very untalented people have a comparative advantage in nothing they do. c) Some very talented people have a comparative advantage in everything they do. d) It is possible to have an absolute disadvantage but a comparative advantage in something.

d) It is possible to have an absolute disadvantage but a comparative advantage in something.

Economists usually assume that production is subject to increasing opportunity costs because: a) if production is efficient, it is not possible to increase the production of all goods simultaneously. b) individuals desire constantly increasing opportunities to make themselves better off. c) higher production usually results in more inflation. d) not all resources are equally suited to producing every good.

d) not all resources are equally suited to producing every good.

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. Suppose the economy is operating at point G. This implies that: a)the economy lacks the resources to achieve a combination such as C b) people in this economy don't really like strawberries or submarines. c) the economy can move to a point such as C only if it improves its technology. d) the economy has unemployment and/or inefficiently allocates resources.

d) the economy has unemployment and/or inefficiently allocates resources.

Because people usually exploit opportunities to make themselves better off, if the price of gasoline rises and stays high for an extended period, we expect people to: a) buy larger and less fuel-efficient cars. b) increase the number of miles they drive. c)ride their bicycles less. d) use more public transportation.

d) use more public transportation

All children have to be immunized against polio, measles, mumps, and other diseases. If you don't have enough money to pay for the immunizations, they will be provided free at the county health clinic. Which economic principle does this statement BEST represent? a) Government policies can change spending. b) Resources should be used efficiently to achieve society's goals. c) People usually respond to incentives, exploiting opportunities to make themselves better off. d)When markets don't achieve efficiency, government intervention can improve society's welfare.

d)When markets don't achieve efficiency, government intervention can improve society's welfare.

Marginal analysis

determines how much of an action should be done, comparing MB and MC

opportunity cost equation Good 1=

good 2/ good 1

An economy is said to have a comparative advantage if it:

has the lowest cost of producing a particular good, compared with other economies.

In most cases, economic efficiency is achieved through

incentives built into a market economy

If an economy has NOT achieved efficiency, there must be ways to:

make some people better off without making others worse

economic way of thinking

making choices at the margin

As long as people have different _____, everyone has a comparative advantage in something.

opportunity costs

positive economics

the branch of economic analysis that describes the way the economy actually works

Specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities. Creates gains from trade

comparitive advantage

the country with the lowest opportunity cost should specialize in the production of that good or service.

if equilibrium exists

there will be no remaining opportunities for individuals to make themselves better off.

the cost of getting something

what you gave up to get it

opportunity cost

whatever must be given up to obtain some item