1.08 Module One Exam

Tom Richards, a local doctor, decides to play a round of golf on Wednesday afternoon. The round of golf will take Dr. Richards five hours to complete (including travel time to and from the course). The out of pocket expenses for the green fees, lost golf balls, cart rental, gas expense, and tips to the bag boys total $80. A healthy lunch at the course, which he eats everyday, cost him $20. Dr. Richards earns $100 per hour at his practice. What is the opportunity cost of Dr. Richards' Wednesday afternoon golf outing?

$500

Very few people in the United States today attempt to follow the example of Henry David Thoreau in On Walden Pond and "go into the woods to live simply, producing by my own hands all that is necessary for life." Economists explain this by saying:

Being self-sufficient dramatically reduces one's standard of living.

With which worker do Diminishing Marginal Returns (DMR) begin? #28

DMR begins with the 4th worker.

The term "consumer sovereignty" refers to what and is used in what type of economy?

It is used in the market economy and means "The consumer decides!"

In a day Susan can write 4 sonnets or 200 lines of computer code. Tom can write 1 sonnet or 100 lines of computer code in a day. Which is the following statements is true? i. Susan has an absolute advantage in both products. ii. Susan has an absolute advantage in both products and should produce both. iii. Susan has a comparative advantage in both products. iv. Tom has no absolute advantage but does have a comparative advantage in writing computer code. v. Tom has no absolute advantage but does have a comparative advantage in writing sonnets.

Only I and IV are correct.

One of the basic arguments that capitalism uses against command economies is that i. capitalism is more equitable because it distributes its resources equally among citizens. ii. capitalism is more efficient because the existence of private property creates/generates incentives for the economy to grow and develop. iii. command economies are efficient in the distribution of goods and services but lack incentives.

Only II

Which of the following statements about factors of production are true? i. Some nations have many resources and yet remain poor. ii. Only those resources that are privately owned can be used efficiently. iii. If a nation is classified as efficient, we know it possesses abundant resources of all types. iv. A nation can have relatively few resources and still have an efficient economy.

Only statements I and IV are correct

Which of the following correctly matches a factor of production with its payment?

Providers of labor earn wages

The United States economy as best classified as a mixed economy with elements of traditional, command and market economies. Which scenarios properly match the description of the economic activity to the type of economic system Description of Economic Activity Economic System I. Hank works the same fields in the same way as his father did Traditional II. A National Guard general orders troops to attend exercises Traditional III. Student lockers are allocated alphabetically in a school Command IV. Stocks are bought and sold on the NY Stock Exchange Market V. Students choose their own major in college Market

Scenarios I, III, IV, and V are the only properly matched descriptions.

Which of the following is the best example of an activity undertaken by someone who economists classify as an entrepreneur?

Starting a new business

Which of the following statements about the production possibilities frontier is true? I. If the PPF is bowed outward (from the origin), producing more of one product results in greater and greater opportunity costs in the output of the second product. II. If the economy is operating at full and efficient employment, the output combinations will be on the PPF. iii. Unattainable combinations of goods are shown by points inside the PPF. iv. Economic growth may be illustrated by shifting the PPF outward, away from the origin.

Statements I, II, and IV are true.

Given Figure #2 above and realizing that Point A is on the PPF, point B is inside the PPF and Point C is outside the PPF, which of the following statements are correct? i. All these points may be attained using the current resource base and technology. ii. Point A represents a combination of goods that this economy can produce at full employment. iii. Point B represents a production level that would occur with significant levels of unemployment. iv. Point A is preferred over Point B. v. Point B cannot be produced given the current state of technology and resource base of this economy.

Statements II, III, and IV are the only correct statements.

What one function differentiates a business manager from an entrepreneur?

The entrepreneur assumes the responsibility for the risk of failure for the business; the manager doesn't.

Shirley Macuga is the world's fastest typist and is also a world famous brain surgeon. She earns $5,000/hour operating on brains. Shirley can type her bills for a whole month's worth of surgery in 30 minutes and yet Shirley hires a billing clerk to complete the surgery bills. The clerk requires all month to type the bills. The clerk is paid $2,000 per month. Is Shirley smart to hire the billing clerk? Why or why not?

Yes, because Shirley has a comparative advantage in surgery and so gains by specializing in surgery and hiring the clerk.

. An economic model is:

a simplified representation of an economic concept or institution.

An economist's definition of capital would include:tools and equipment. A. factories and machinery. B. shares of stock. C. borrowed money.

both A and B but not C or D

In the economy of the Macro Islands, all basic economic questions are decided by the benevolent dictator. This economy is classified as a:

command economy.

In a pure market economy, the "What to produce?" question is ultimately answered by:

consumer sovereignty.

Advantages to an economy following specialization and trade under the concept of comparative advantage include:

enjoying a higher standard of living than before specialization and trade.

The Law of Increasing Opportunity Costs tells us that:

f we are on the PPF, as we produce more of product #1 we have to give up increasing amounts of product #2.

The economic term scarcity evolves from two basic facts of economic life:

human wants are unlimited but the resources available to fill those wants are limited.

One of the economic factors that allows the free market to achieve efficiency is

incentives

In economics the term "scarce" is best defined as:

limited or valuable.

Kate decided to spend $350 a new Ping driver to improve her golf game. She also considered Nike and TaylorMade drivers. The Nike was her second choice. The opportunity cost of Kate's decision to buy the Ping was:

not being able to buy the Nike driver

The crucial consequence of scarcity is that:

people must make choices among competing uses for those scarce resources.

When the federal government established patent laws, it was ensuring

property rights for entrepreneurs.

Nations gain from international trade because:

t allows the nations to concentrate on those products that they produce with a comparative advantage and hence lower opportunity costs. it channels the nations' resources into those areas that are most profitable to the nation. it increases the nations' standard of living compared to self-sufficient production. it allows more goods and services to be produced. all of the above are correct. (correct answer)

If two variables are said to have an inverse relationship, then:

the slope of the graph is negative.

The following statement by a worker: "I am going to work extra time today. I am saving money to go on a cruise", is a reflection of the following economic principle

the use of incentives to guarantee a higher productivity of economic resources.

You go to a new movie that everyone is raving about. However, you are not enjoying the movie at all, and, in fact, you feel that this is the worst movie you have ever seen. If you do not get up and leave the theater before the end of the show, though you could get a refund for your ticket, you are in effect saying that:

you stayed because you have nothing better to do with your time.