ME Chapter 2 quiz

Which of the following is a normative statement?

A camera makes a good wedding gift.

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 possibility frontier.

What is measured along the horizontal axis in a graph of the PPF?

the quantity of one good produced

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.

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 possibility frontier.

What is traded in factor markets?

land, labor, capital, and human capital

Those points lying beyond the PPF:

represent outcomes unattainable with the current level of technology and resources.

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

the allocation of resources within the economy

Economists typically depict the PPF 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.

Why do economists use models?

to make forecasts

What is one thing that economists generally agree on?

trade enhances welfare

Suppose that a single person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that a single 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.

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 result of free trade between nations is that:

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

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

households and firms

Which of the following statements is TRUE?

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

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 or10 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.

Picture a production possibility frontier. Point A lies inside (to the left) of the frontier. Points 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.

Picture a production possibility frontier. Point A lies inside (to the left) of the frontier. Points 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 all countries gain from trade, what reasoning is most likely underlying her argument?

Production according to the principle of comparative advantage lowers overall costs and therefore allows both countries to have a higher standard of living.