Macro quiz #1

Which of the following is the most accurate statement about production possibilities?

An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.

A marginal change is best illustrated by which of the following?

Arizona, which usually receives 10 inches of rain per year, received 11 inches last year.

For which of the following individuals would the opportunity cost of going to college be highest?

a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree

Economists use the phrase "There is no such thing as free lunch," to illustrate the principle that:

making decisions requires trading off one goal against another

Which markets are represented in the simple circular-flow diagram?

markets for goods and services and markets for factors of production

Which of the following phrases best captures the notion of efficiency?

minimum waste

Resources are...

scarce for households and scarce for economies

An example of an externality is the impact of...

society's decisions on johns well-being

Economists use the word equity to describe a situation in which...

the benefits of society's resources are distributed fairly among members

Which of these terms are used interchangeably?

"inputs" and "factors of production"

The two loops in the circular-flow diagram represent

(i) the flows of inputs and outputs and (ii) the flow of dollars.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies:

- enhance equity - reduce efficiency - reduce the reward for working hard

Approximately what percentage of the world's economics experience scarcity?

100%

With respect to how economists study the economy, which of the following statements is most accurate?

Economists devise theories, collect data, and analyze the data to test the theories.

A furniture maker currently produces 100 tables per week and sells them for a profit. She is considering expanding her operation in order to make more tables. Should she expand?

It depends on the marginal cost of producing more tables and the marginal revenue she will earn from selling more tables

Which of the following statements is false?

With trade, one country wins and one country loses

Teresa eats three oranges during a particular day. The marginal benefit she enjoys from eating the third orange

can be thought of as the total benefit Teresa enjoys by eating three oranges minus the total benefit she would have enjoyed by eating just the first two oranges.

An economic theory about international trade that is based on the assumption that there are only two countries and two goods..

can be useful in helping economists understand the complex world of international trade involving many countries and many goods.

Which of the following concepts can not be illustrated by the production possibilities frontier?

equity

Causes of market failure include:

externalities and market power

In a market economy, who makes the decisions that guide most economic activity?

firms and households

In the markets for goods and services,

firms provide households with output.

Economists make assumptions in order to...

focus their thinking on the essence of the problem at hand

In the simple circular-flow diagram, the participants in the economy are

households and firms

In the markets for factors of production,

households provide firms with labor, land, and capital.

Economics is the study of:

how society manages its scarce resources

What you give up to obtain an item is called your

opportunity cost

The "invisible hand" directs economic activity through...

prices

A typical worker in Italy can produce 24 units of product in an eight-hour day, while a typical worker in Poland can produce 25 units of product in a 10-hour day. We can conclude tha

productivity is 3 units per hour for the Polish worker and 21/2 units per hour for the Italian worker.

Which of the following statements applies to economics, as well as to other sciences such as physics?

real world observations often lead to theories

A production possibilities frontier that is a straight line shows

that resources can be shifted easily and seamlessly from the production of one good to the production of a different good.

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

the actions of government central planners

People are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

The bowed-out shape of the production possibilities frontier can be explained by the fact that

the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.