Practice 1.1

In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. His friend Ava can make 10 cookies or 10 glasses of lemonade. His other friend, Ian, can make 10 cookies or 20 glasses of lemonade. Who has the lowest opportunity cost in cookie production?

Ava

In a single day, George can bake 10 cakes and Greta can bake 5 cakes. We know that _____ has a(n) _____ advantage in baking cakes.

George; absolute

If they bake only cakes, in a single day George can bake 10 cakes and Greta can bake 5 cakes. If they make only pies, in a single day George can bake 10 pies while Greta can bake 4 pies. We know that _____ has an absolute advantage and a comparative advantage in making _____.

George; pies

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. We know that _____ has a comparative advantage in _____.

Laurence; programs

In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. Therefore, _____ has a(n) _____ advantage in making hamburgers.

Sarah; absolute

If they produce only hamburgers, in a single day Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. If they make milkshakes only, in a single day Sarah can produce 10 milkshakes, and Abe can produce 4 milkshakes. Therefore, _____ has an absolute advantage and a comparative advantage in making _____.

Sarah; milkshakes

Which of the following is a normative statement?

The best way to encourage growth in the economy is through government spending

Which of the following is an example of a positive statement?

The federal government pays for 46% of U.S. health care costs

If an economy has to sacrifice only one unit of good X for each unit of good Y produced throughout the relevant range, then its production possibility frontier has:

a constant negative slope

The production possibility frontier will shift outward for all of the following reasons EXCEPT:

an increase in the unemployment rate

The effect of a natural disaster can be shown by _____ the production possibility frontier.

an inward shift of

An economy is said to have a comparative advantage in the production of a good if it can produce that good:

at a lower opportunity cost than another economy

The production possibility frontier will shift outward because of:

better technology that improves worker productivity

If an economy has to sacrifice increasing amounts of good X for each additional unit of good Y produced, then its production possibility frontier is:

bowed out

Jim is being paid $7.25 an hour to work at a restaurant. In the circular flow this is an example of a:

business buying resources in the factor market

Because of trade, a country may:

consume outside its production possibility frontier

The simplest circular-flow model shows the interaction between households and firms. In this model:

firms supply goods and services to households, which in turn supply factors of production to firms

The importance of an economic model is that it allows us to:

focus on the effects of only one change at a time

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced

In movement along a production possibility frontier, the opportunity cost to society of getting more of one good:

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

A simplified representation that is used to study a real situation is called a(n):

model

Which of the following is FALSE about the circular flow?

money flows from households to firms as households offer factors of production for sale

A student sleeps 8 hours per day and divides the remaining time between study time and leisure time. The table shows the combinations of study and leisure time that can be produced in the 16 waking hours of each day. Suppose the student completes a speed-reading course that allows him to do the same amount of studying in half as many hours. His opportunity cost:

of leisure as increased

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

opportunity cost

The _____ illustrates the trade-offs facing an economy that produces only two goods.

production possibility frontier

Abe starts exercising regularly, and after a few months he can do twice as much of everything. In a single day Abe can now make 10 hamburgers or 8 milkshakes rather than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe's production possibility frontier has _____, but his opportunity costs of making milkshakes _____.

shifted right; are unchanged

Greta starts using a new baking technique, and she can now do twice as much of everything. In a single day Greta can now make 10 cakes or 8 pies, rather than the 5 cakes and 4 pies she could previously bake. Greta's production possibility frontier has _____, but her opportunity costs of making pies _____.

shifted right; are unchanged

When building a model, economists:

simplify reality to highlight what really matters

In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that:

the United States has a comparative advantage in the production of automobiles

A production possibility frontier that is a straight line sloping down from left to right suggests that:

the opportunity costs of the products are constant