Principals of Microeconomics Final Exam Review

A production possibilities frontier (PPF) is a boundary that separates a. Production points where resources are unemployed from production points where they are fully employed b. Points where only necessities are produced from those where both necessities and luxuries are produced c. Equitable production points from inequitable production points d. Efficient production points from inefficient production points e. Attainable production points from unattainable production points

Attainable production points from unattainable production points

An increase in the production of military goods and an equivalent reduction in the production of non-military goods at full employment is represented by a. A move from a point on the PPF to a point inside the PPF b. A move from a point inside the PPF to a point on the PPF c. A move from one point on the economy's PPF to a different point on the PPF d. An increase in the economies PPF e. A decrease in the economies PPF

A move from one point on the economy's PPF to a different point on the PPF

Use statements I and II to answer the question. (I) To an economist, the use of scarce resources always involves a cost in the form of other desirable goods or services or activities given up. (II) If resources are scarce, there is a cost to using them even if their price is zero. a. I is false; II is true b. I is true; II is false c. Both I and II are true d. Both I and II are false

Both I and II are true

To Increase its economic growth, a nation should a. Increase current consumption b. Eliminate expenditure on capital goods c. Limit the number of people in college because they produce nothing d. Encourage education because that increases the quality of labor e. Encourage spending on goods and services

Encourage education because that increases the quality of labor

Use statements I and II to answer this question. (I) When making choices, most people respond to incentives. (II) If the marginal benefit of an activity increases, ceteris paribus, people will choose more of it, and if the marginal cost increases, ceteris paribus, they will choose less of it a. I is true; II is false b. Both I and II are false c. I is false; II is true d. Both I and II are true

Both I and II are true

When we say that Kuwait has a comparative advantage over the U.S. in the production of crude oil, we mean that Kuwait a. Can produce more crude oil each year that the U.S. b. Has more crude oil than the U.S. c. Has more of the resources needed to produce crude oil than the U.S. d. Can produce crude oil at lower money cost than the U.S. e. Can produce crude oil at a lower opportunity cost than the U.S.

Can produce crude oil at a lower opportunity cost than the U.S.

The law of comparative advantage suggests that a. A nations real income is increased by exporting as much of its products to other countries as possible and importing as little from other countries as possible b. Every economy should strive to be self-sufficient c. Each good should be produced by the individual, state, or nation whose opportunity cost is lowest d. Each good should be produced by the individual, state, or nation that can produce the greatest amount of the good e. Wealthy countries can produce all goods and services at lower costs than poor countries

Each good should be produced by the individual, state, or nation whose opportunity cost is lowest

The cost of a one-unit increase in an activity a. Is called the sunk cost b. Is called the marginal benefit/cost c. Is the total one-unit cost d. Decreases as more of the activity is done e. Is called the marginal cost

Is called the marginal cost

A Pakistani textile worker has a comparative advantage in producing finished denim jeans if _____. a. She can produce more finished denim jeans than an American textile worker b. Her opportunity cost to produce denim cloth is less than an American textile worker's opportunity cost to produce denim cloth c. She can produce all the finished denim jeans that Pakistani consumers want d. Her opportunity cost to produce finished denim jeans is less than an American textile worker's opportunity cost to produce finished denim jeans e. Her opportunity cost to produce finished denim jeans is equal to her opportunity cost to produce denim cloth

Her opportunity cost to produce finished denim jeans is less than an American textile worker's opportunity cost to produce finished denim jeans

Use statements I and II to answer this question. (I) The law of demand states that other things remaining the same, if the price of a good rises, the quantity demanded of that good increases. (II) The law of supply states that other things remaining the same, if the price of a good rises, the quantity supplied of that good increases. a. I is true; II is false b. Both I and II are true c. Both I and II are false d. I is false and II is true

I is false and II is true

Use statements I and II to answer this question. (I) Faced with scarcity, we must make choices. (II) People have choices about the use of luxuries, but they have no choices about the use of necessities. a. Both I and II are true b. I is true; II is false c. Both I and II are false d. I is false; II is true

I is true; II is false

As a country that has a "bowed-out" production possibilities frontier increases production of the good in which it has a comparative advantage, the opportunity cost of a unit of that good a. Might either increase or decrease b. Decreases c. Remains the same d. Increases

Increases

You can spend the evening studying or you can go see a movie. You will choose to spend the evening studying if the a. Marginal benefit of spending the evening studying is greater than the marginal cost of spending the evening studying b. Marginal benefit of spending the evening studying is greater than the marginal cost of going to see a movie c. Total benefit of spending the evening studying is greater than the total benefit of going to see a movie d. Marginal benefit of spending the evening studying is less than the marginal benefit of going to see a movie

Marginal benefit of spending the evening studying is greater than the marginal cost of spending the evening studying

When new and better ways of producing all goods and services are discovered, or when the quantity of capital increases, a. The economy moves along its production possibilities frontier b. The PPF rotates outward so that the economy can produce more of the good measured on the x-axis but the same amount of the good measured on the y-axis c. The opportunity cost of all goods decreases d. Our economy grows but we still face scarcity and opportunity cost

Our economy grows but we still face scarcity and opportunity cost

Everyday we make many choices. We can't avoid making choices because _____ a. Our wants exceed the resources available to satisfy them. b. We cant find enough things to do to fill our day c. There is too much variety d. There is too much available e. There are too many TV channels

Our wants exceed the resources available to satisfy them

Economics studies choices that arise from one fact. What is that fact? a. There is too much variety b. Too much of the world's oil is in the Middle East c. Resources are unable to satisfy all our wants d. We must distinguish between right and wrong e. The rich are too rich and the poor are too poor

Resources are unable to satisfy all our wants

Scarcity a. Can be eliminated by raising the price b. Arises whenever there is a limited amount of a resource c. Results when the amount of a resource available is insufficient to satisfy society's wants d. Is characteristic of poor countries but not of wealthy countries e. Applies to necessities but not to luxuries

Results when the amount of a resource available is insufficient to satisfy society's wants

When the price of widgets increases, both the equilibrium price and the equilibrium, quantity of gadgets increases. Therefore, we can conclude that widgets and gadgets are a. Unrelated goods b. Complements c. Substitutes d. Normal goods e. Inferior goods

Substitutes

A Pakistani textile worker can produce 5 yards of denim cloth or 5 pairs of finished denim jeans in a day. An American textile worker can produce 75 yards of denim cloth or 15 pairs of finished jeans in one day. To maximize the total output of denim cloth and finished jeans, a. The Pakistani worker produces finished jeans and the American worker produces denim cloth b. The Pakistani worker produces denim cloth and the American worker produces finished jeans c. The American worker produces both denim cloth and finished jeans and the Pakistani worker produces nothing d. The Pakistani and American textile workers should each spend half of their time producing denim cloth and the other half producing finished jeans

The Pakistani worker produces finished jeans and the American worker produces denim cloth

Pizza and tacos are substitutes. If the price of pizzas increases, what happens? a. The demand for pizzas decreases and the demand for tacos increases b. The demand for both goods decreases c. The quantity demanded of tacos increases and the quantity demanded of pizza decreases d. The quantity demanded of pizza decreases and the demand for tacos increases e. The demand for each decreases because both are normal goods

The quantity demanded of pizza decreases and the demand for tacos increases

Economists use the ceteris paribus assumption a. To isolate the factor of interest and investigate its effects in the clearest possible way b. To hold everything constant c. Because it is impossible to unscramble cause and effect in economies d. Because it isn't possible to do experiment in economies

To isolate the factor of interest and investigate its effects in the clearest possible way

A nation's economy grows when it does all of the following except a. Develop better technologies for producing goods and services b. Improve the quality of its labor force be education, on-the-job training, and work experience c. Get more machines to help in production d. Use all its resources to produce consumption goods

Use all its resources to produce consumption goods

You would expect a lower price to increase the number of people who decide to take a cruise because _____. a. Everyone loves a bargain b. Lower prices suggest the cruise line is facing tough economic times and people cruise now before the cruise line goes out of business c. Lower prices raise the marginal benefit d. A lower price means more time spent in port and less times cruising e. With a lower price more people will have a marginal benefit that exceeds price

With a lower price more people will have a marginal benefit that exceeds price

"Comparative advantage" is defined as a situation in which one person can produce a. all goods for lower opportunity cost than another person b. more of all goods than another person c. a good for a lower dollar cost than another person d. more of a good than another person e. a good for a lower opportunity cost than another person

a good for a lower opportunity cost than another person

The marginal benefit of an activity is i. The benefit from a one-unit increase in the activity ii. The benefit of a small, unimportant activity iii. Measured by what a person is willing to give up to get one additional unit of the activity a. ii and iii b. i only c. ii only d. iii only e. i and iii

i and iii