ECO 270 Chapter 1 HW

What is the opportunity cost (in civilian output) of a defense buildup that raises military spending from 4.0 to 4.3 percent of a $20 trillion economy?

60 Billion Explanation: If a $20 trillion economy allocates 4.0 percent to defense spending, the country will spend $800 billion on defense (= 4% × $20 trillion = 0.04 × $20,000,000,000,000 = $800,000,000,000 = $800 billion or $0.8 trillion). If defense spending increases to 4.3 percent, defense spending would now be equal to $860 billion (= 4.3% × $20 trillion = 0.043 × $20,000,000,000,000 = $860,000,000,000 = $860 billion or $0.86 trillion). The opportunity cost of this increase in defense spending is $60 billion of other output produced (= $860 billion - $800 billion = $60 billion).

Given that resources are scarce,

A "free lunch" is possible, but only for a limited number of people. Opportunity costs are experienced whenever choices are made. Poor countries must make choices, but rich countries with abundant resources do not have to make choices. Some choices involve opportunity costs while other choices do not. Answer: Opportunity costs are experienced whenever choices are made.

A technological advance would best be represented by

A shift outward of the production possibilities curve. A shift inward of the production possibilities curve. A movement from inside the production possibilities curve to a point on the production possibilities curve. A movement from the production possibilities curve to a point inside the production possibilities curve. Answer: A shift outward of the production possibilities curve.

In terms of the production possibilities curve, inefficiency is represented by

All points on the curve. All points outside the curve. All points inside the curve. A rightward shift of the curve. Answer: All points inside the curve.

Which of the following will cause the production possibilities curve to shift inward?

An increase in the working-age population. A decrease in the size of the labor force. A technological advance. An increase in knowledge. Answer: A decrease in the size of the labor force.

If an economy experiences constant opportunity costs with respect to two goods, then the production possibilities curve between the two goods will be?

Bowed outward or concave from below. A straight, downward-sloping line. Bowed inward or convex from below. Bowed outward until the two goods are equal, and then bowed inward. Answer: A straight, downward-sloping line.

A production possibilities curve indicates the

Combinations of goods and services an economy is actually producing. Maximum combinations of goods and services an economy can produce given its available resources and technology. Maximum combinations of goods and services an economy can produce given unlimited resources. Average combinations of goods and services an economy can produce given its available resources and technology. Answer: Maximum combinations of goods and services an economy can produce given its available resources and technology.

Adam Smith's invisible hand is now called

Economic growth. The market mechanism. Opportunity cost. Laissez faire. Answer: The market mechanism.

The production possibilities curve illustrates which two of the following essential principles?

Factors of production and price signals. Scarce resources and opportunity cost. Market mechanisms and laissez faire. Economic growth and market failure. Answer: Scarce resources and opportunity cost.

Economics can be defined as the study of

For whom resources are allocated to increase efficiency. How society spends the income of individuals. How scarce resources are allocated. None of the choices are correct. Answer: How scarce resources are allocated.

Which of the following is not one of the three core economic issues that must be resolved?

How to produce the goods and services we select. What to produce with unlimited resources. Who should get the goods and services we produce. What to produce with limited resources. Answer: What to produce with unlimited resources.

Macroeconomics focuses on the behavior of

Individual consumers. Government agencies. The overall economy. All of the choices are correct. Answer: The overall economy.

The invisible hand refers to

Intervention in the economy by the government bureaucrats we do not see and over whom we have no control. Undiscovered natural resources. The allocation of resources by market forces. The person who has the responsibility to coordinate all the markets in a market economy. Answer: The allocation of resources by market forces.

The basic factors of production include

Land, labor, money, and capital. Land, labor, money, and inputs. Labor and money. Land, labor, capital, and entrepreneurship. Answer: Land, labor, capital, and entrepreneurship.

Opportunity cost is

Measured only in dollars and cents. The total dollar cost to society of producing the goods. The difficulty associated with using one good in place of another. What is given up in order to get something else. Answer: What is given up in order to get something else.

Economic growth would best be represented by a

Shift outward of the production possibilities curve. Shift inward of the production possibilities curve. Movement from inside the production possibilities curve to a point on the production possibilities curve. Movement from the production possibilities curve to a point inside the production possibilities curve. Answer: Shift outward of the production possibilities curve.

Which of the following is true when an economy is producing efficiently?

The economy is producing on the production possibilities curve. The economy is producing outside the production possibilities curve. The economy is getting the fewest goods and services from the available resources. Everyone in the economy is happy. Answer: The economy is producing on the production possibilities curve.

Which of the following events would allow the production possibilities curve to shift outward?

The economy's capital stock declines. More teenagers enter the labor force. Technology is lost. People begin to retire at earlier ages. Answer: More teenagers enter the labor force.

The fundamental problem of economics is

The law of increasing opportunity costs. The scarcity of resources relative to human wants. How to get government to operate efficiently. How to create employment for everyone. Answer: The scarcity of resources relative to human wants.

The production possibilities curve illustrates

The limitations that exist because of scarce resources. That there is no limit to what an economy can produce. That there is no limit to the level of output. The existence of unlimited wants and resources. Answer: The limitations that exist because of scarce resources.

Which of the following may be used in an attempt to correct market failure?

The market mechanism. Laws and regulations. Laissez faire price policies. Government failure. Answer: Laws and regulations.

According to the law of increasing opportunity costs,

The more one is willing to pay for resources; the smaller will be the possible level of production. Increasing the production of a particular good will cause the price of the good to remain constant. In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods. None of the choices are correct. Answer: In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

If the United States decides to convert automobile factories to tank production, as it did during World War II, but finds that some auto manufacturing facilities are not well suited to tank production, then

The production possibilities curve between tanks and automobiles will appear as a straight line. The production possibilities curve between tanks and automobiles will shift outward. Decreasing opportunity costs will occur with greater automobile production. Increasing opportunity costs will occur with greater tank production. Answer: Increasing opportunity costs will occur with greater tank production.

The Latin phrase ceteris paribus means

The production possibilities curve never shifts. Laissez faire. Other things remain equal. The invisible hand. Answer: Other things remain equal.

Which of the following is not a macroeconomic statement?

The unemployment rate for the United States rose to 5 percent in the last quarter. The Federal Reserve lowered interest rates at its last meeting. Congress increased the minimum wage rate in January. Jenny's wage rate rose, and in response, she decided to work more hours. Answer: Jenny's wage rate rose, and in response, she decided to work more hours.

If an economy is producing inside the production possibilities curve, then

There is full employment of resources. It is operating efficiently. It can produce more of one good without giving up some of another good. There are not enough resources available to produce more output. Answer: It can produce more of one good without giving up some of another good.