ecc 221 exam 1 (Doris Bennett)

As an economy moves from point to point along its production possibilities frontier, what is changing

the allocation of resources within the economy

If market failures exist, it becomes more economically efficient for

the government to intervene to improve society's welfare

Economists typically depict the production possibilities frontier as a bowed out curve rather than as a straight line in order to show that

the opportunity cost of producing a good rises as more is produced

if the supply curve shifts to the left, and the demand curve does not change then the equilibrium price

will increase, and the quantity will decrease.

Which of the following is a normative statement

A camera makes a good wedding gift

An equilibrium outcome is one in which:

a. no one has as incentive to change his or her decisions or behavior.

Why do economists use models

to make forecasts

With which one of the following statements would economists be most likely to disagree?

. Resources and inputs used in production are unlimited.

Which one of the following statements is not true of a market economy?

A central planning authority makes decisions about production and consumption

Which of the following statements is true

All countries can gain from trade if they all specialize in production according to comparative advantage

Many firms compete in providing overnight delivery services. If the market for overnight delivery services experiences an increase in price, what must have happened

An increase in demand and a decrease in supply

Suppose you hear an economist make an assertion that, between the two countries, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea expressed in the assertion?

France can produce chocolate at a lower opportunity cost than Italy can

Suppose that in Australia, it takes 2 hours of labor to harvest 10 bushels of apples and 4 hours of labor to harvest 10 bushels of tomatoes. Further, suppose that a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of the following statements is true

Of these two countries, Brazil has a comparative advantage in producing tomatoes.

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which of the following points represent feasible (attainable) production points

Points A, B and C are feasible

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which points represent efficient production points?

Points B and C are efficient

If an economist argues that everyone gains from trade, what reasoning is most likely underlying her argument?

That production according to the principle of comparative advantage lowers overall costs and therefore allows everyone to have a higher standard of living.

If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii?

The demand curve for hotel rooms will shift to the right

Which of the following would cause a surplus of newsprint

The demand for newsprint decreases, and the price does not change

How would an increase in the price of cotton affect the market for cotton T-shirts at your university bookstore?

The supply curve for cotton T-shirts will shift to the left

Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly through the use of new technology?

The supply curve for kayaks will shift to the right

Suppose that over time, you have observed an increase in the number of people owning digital cameras and a decrease in the price of these cameras. Which of the following would account for this

The supply curve has shifted to the right and the demand curve has remained constant

Which of the following could account for the fact that ice cream prices have recently increased and that consumption of ice cream has declined?

The supply of ice cream has decreased.

What would be the dominant effect in the market for new homes of an increase in the wages of skilled tradesmen who work in housing construction?

The supply of new homes would shift to the left.

What happens in the market for wheat when dry winter weather causes a poor harvest?

The supply of wheat decreases and the demand remains unchanged.

What best describes the competitive market

There are many buyers and sellers of the same good

Suppose that one person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that one person working in Turkey for the same length of time can produce either 15 yards of cloth or 30 baskets. Which of the following statements is then true?

Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets

Exchanges taking place in a market system:

are voluntary

The equilibrium price of a good is the price:

at which there is no surplus and no shortage of the good

The purpose of an economic system is to:

allocate scarce resources

if the demand curve shifts to the left, and the supply curve does NOT change, then the equilibrium price

and quantity both will decrease

Economists generally agree that people are most likely to change their behavior when they

are given incentives to do so.

What name is given to the form of exchange in which individuals trade goods and services directly, without money serving as a medium of exchange

barter

The condition of scarcity means that

choices must be made in the allocation of productive resources.

The downward slope of the demand curve indicates that, all else equal:

consumers will buy more of a good when its price decreases.

Which of the following changes would cause a decrease in the demand for DVD rentals?

decrease in the price of movie admissions

An economy is ________ if it has exploited all opportunities to benefit someone without making anyone else worse off.

efficient

An economic system is in ________ when no individual would be better off by making a different choice

equilibrium

Macroeconomics is the branch of economics studying

fluctuations in the overall level of business activity

The result of free trade between nations is that

goods can be produced in the location where their opportunity cost is the lowest

Adam Smith used the idea of the invisible hand to refer to the ability of market economies to

harness the power of individual self-interest for the good of society as a whole

What are the two sectors represented in a simple circular-flow diagram of the economy

households and firms

If the price of a bale of cotton increases from $0.80 to $1.20, and a pound of Kenyan coffee decreases from $12 a pound to $10 a pound, we can expect a(n)

increase in the quantity demanded of Kenyan coffee

If coffee is a normal good, then an increase in consumer income will

increase the demand for coffee.

The focal point of economic inquiry is

individual choice.

If a country specializes according to its own comparative advantage and then trades with other nations

it can consume at a higher level than the domestic production possibilities frontier

What is traded in factor markets

land, labor, capital, and human capital

If both gasoline and jet fuel prices increase significantly due to a war in the Middle East. The impact on Federal Express will be a:

leftward shift in the Federal Express supply curve.

Consider gas stations. As a result of an economic recession and a decrease in consumer incomes, there will be a:

leftward shift in the station's demand curve and lower gas prices

After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by

opportunity cost

With which one of the following statements would economists be most likely to agree

people usually exploit opportunities to make themselves better off.

The upward slope of the supply curve indicates that:

producers supply more of a good when its price increases

Those points lying beyond the production possibilities frontier

represent outcomes unattainable with the current level of technology and resources

A price above the equilibrium price will

result in quantity supplied being greater than quantity demanded

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization

A shortage is the result of when:

the price of a good is held below the equilibrium price.

When economists want to describe how much an economy can produce with a given amount of resources, they use a model known as

the production possibilities frontier

Market failure results when

the pursuit of individual self-interest leads to bad results for society as a whole

What is measured along the horizontal axis in a graph of the production possibilities frontier

the quantity of one good produced

What is one thing that economists generally agree on

the relative merits of rent controls and housing subsidies

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers, they have access to a wide variety of goods and services. What principle allows for this?

trade

An opportunity cost arises:

whenever any choice is made.

Economic theory asserts that people will behave in ways that:

will enhance their own overall well-being