Eco 1001
Factors of production are a. used to produce goods and services. b. also called output. c. abundant in most economies. d. assumed to be owned by firms in the circular-flow diagram.
And a: used to produce goods and services. they are the inputs that are essential for the production of an output.
Elasticity is a. a measure of how much buyers and sellers respond to changes in market conditions. b. the study of how the allocation of resources affects economic well-being. c. the maximum amount that a buyer will pay for a good. d. the value of everything a seller must give up to produce a good.
Ans a : a measure of how much buyers and sellers respond to changes in market conditions.
To say that government intervenes in the economy to promote equality is to say that government is aiming to a. create a more fair distribution of income. b. change the ingredients that are used to "bake" the economic pie. c. enlarge the economic pie. d. All of the above are correct.
Ans a : a. create a more fair distribution of income.
You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? a. the amount you value the first movie + $3 b. the amount you value the first movie + $9 c.$3 d.$9
Ans a. the amount you value the first movie + $3 It is because the opportunity cost is the value of all the benefits forgone while deciding to see the new release. In the above case, the benefits include 3 dollars coupon that could have been availed if one sees the first movie and the amount the person values for the first movie.
In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by a. 40 per month. b. 50 per month. c. 75 per month. d. 100 per month.
Ans a:
Scenario 8-1Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $5 when she hires someone to clean her house. Which of the following is true? a. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. b. Ernesto will continue to clean Erin's house, and his producer surplus will increase. c.Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will decrease. d. All of the above are correct.
Ans a: Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged.
Ans a: It increases.
Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of points could be on Brazil's production possibilities frontier? a. (200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts) b. (200 cashews, 40,000 peanuts) and (150 cashews, 30,000 peanuts) c. (300 cashews, 60,000 peanut) and (200 cashews, 50,000 peanuts) d. (300 cashews, 60,000 peanuts) and (200 cashews, 80,000 peanuts)
Ans a: It is given that opportunity cost of each cashew is 100 peanuts. This means in order to produce 1 cashew we have to sacrifice 100 Peanuts. We can also say that In order to produce 100 peanuts we have to sacrifice 1 cashew. Hence In order to produce 1 peanut Brazil have to sacrifice 1/100 cashews. Hence In order to 5000 peanuts we have to sacrifice (1/100)*5000 = 50 cashews). In option (a) initially Bangladesh have (200 Cashews , 30000 Peanuts) now suppose Bangladesh wants to produce 35000 Peanuts i.e. 35000 - 30000 = 5000 extra peanuts and as discussed above In order to 5000 peanuts we have to sacrifice (1/100)*5000 = 50 cashews). Hence Total cashew produced If they want to produce 35000 peanuts is 200 - 50 = 150 Cashews. Hence, (200 Cashews , 30000 Peanuts) and (150 Cashews , 35000 Peanuts) is on same production function.
What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls, and more firms decide to manufacture traditional film? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.
Ans a: Price will fall, and the effect on quantity is ambiguous.
Which of the following events would increase producer surplus? a. Sellers' costs stay the same and the price of the good increases. b. Sellers' costs increase and the price of the good stays the same. c. Sellers' costs increase and the price of the good decreases. d. All of the above are correct
Ans a: Sellers' costs stay the same and the price of the good increases.
When the nation of Isoland opens up its steel market to international trade, that change a. creates winners and losers, regardless of whether Isoland ends up exporting or importing steel. b. results in a decrease in total surplus, regardless of whether Isoland ends up exporting or importing steel. c. creates winners, but no losers, if Isoland ends up exporting steel. d. creates losers, but no winners, if Isoland ends up importing steel.
Ans a: creates winners and losers, regardless of whether Isoland ends up exporting or importing steel
When a tax is imposed on the buyers of a good, the demand curve shifts a. downward by the amount of the tax. b. upward by the amount of the tax. c. downward by less than the amount of the tax. d. upward by more than the amount of the tax
Ans a: downward by the amount of the tax.
The tax burden will fall most heavily on buyers of the good when the demand curve a. is relatively steep, and the supply curve is relatively flat. b. is relatively flat, and the supply curve is relatively steep. c. and the supply curve are both relatively flat. d. and the supply curve are both relatively steep
Ans a: is relatively steep, and the supply curve is relatively flat.
Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. negative, and the good is an inferior good. b. negative, and the good is a normal good. c. positive, and the good is an inferior good. d. positive, and the good is a normal good.
Ans a: negative, and the good is an inferior good.
Suppose the nation of Canada forbids international trade. In Canada, you can obtain a hockey stick by trading 5 baseball bats. In other countries, you can obtain a hockey stick by trading 8 baseball bats. These facts indicate that a. if Canada were to allow trade, it would export hockey sticks. b. Canada has an absolute advantage, relative to other countries, in producing hockey sticks. c. Canada has a comparative advantage, relative to other countries, in producing baseball bats. d. All of the above are correct.
Ans a:if Canada were to allow trade, it would export hockey sticks.
The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an a. importer of fish and the price of fish in Germany will be $6.00. b. importer of fish and the price of fish in Germany will be $8.00. c. exporter of fish and the price of fish in Germany will be $6.00. d. exporter of fish and the price of fish in Germany will be $8.00.
Ans a:importer of fish and the price of fish in Germany will be $6.00.
Figure 3-8 Chile's Production Possibilities FrontierColombia's Production Possibilities Frontier Refer to Figure 3-8. If Chile and Colombia each divides its time equally between making coffee and making soybeans, then total production is a. 12 pounds of coffee and 12 pounds of soybeans. b. 14 pounds of coffee and 9 pounds of soybeans. c. 16 pounds of coffee and 6 pounds of soybeans. d. 28 pounds of coffee and 18 pounds of soybeans.
Ans b : 14 pounds of coffee and 9 pounds of soybeans. if Chile & Columbia each divides its time equally Total coffee production = 16/2 + 12/2 = 8 + 6 = 14 pounds Total soybeans production = 12/2 + 6/2 = 6 + 3 = 9 pounds Opportunity cost of Colombia for soybeans = 12 / 6 = 2 pounds of coffee Opportunity cost of Chile for soybeans = 16 / 12 = 4/3 pounds of coffee So Chile has comparative advantage in soyabeans Colombia has comparative advantage in Coffee
In a given market, how are the equilibrium price and the market-clearing price related? a. There is no relationship. b. They are the same price. c. The market-clearing price exceeds the equilibrium price. d. The equilibrium price exceeds the market-clearing price.
Ans b : They are the same price.
The welfare of sellers is measured by a. consumer surplus. b. producer surplus. c. total surplus. d. price.
Ans b :producer surplus.
According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like a. a U. b. an upside-down U. c. a horizontal straight line. d. an upward-sloping line or curve.
Ans b:
Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier? a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars) b. (200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars) c. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars) d. (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars)
Ans b:
Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is a. $60. b. $120. c. $160. d. $200.
Ans b: $120.
If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is a. 0.02. b. 0.33. c. 3. d. 4.
Ans b: 0.33 Ed = % change in quantity demanded / % change in price = 2/6 = 1/3 = 0.33
Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is a. 0.11. b. 0.47. c. 1.12. d. 2.11.
Ans b: 0.47
If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about a. 0.5, and supply is elastic. b. 0.5, and supply is inelastic. c. 2, and supply is inelastic. d. 2, and supply is elastic.
Ans b: 0.5, and supply is inelastic.
If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus will not change consumer surplus; only producer surplus changes. d. Consumer surplus depends on what event led to the increase in the price of oak lumber.
Ans b: Consumer surplus decreases.
Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then a. Dallas's consumer surplus would be unaffected. b. Dallas's consumer surplus would increase. c. Dallas's consumer surplus would decrease. d. Dallas would be wise to buy fewer strawberries than before.
Ans b: Dallas's consumer surplus would increase.
After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision? a. The marginal benefit of going to Spain increases. b. The marginal cost of going to Spain increases. c. The marginal benefit of going to Ireland increases. d. The marginal cost of going to Ireland decreases.
Ans b: We have chosen to go to Ireland rather than Spain for study program. This decision can be reversed in two cases - 1. The marginal cost of going to Ireland increases. In such case, net benefit of going to Ireland will reduces. 2. The marginal benefit of going to Spain increases. In such case, net benefit of going to Spain will increase. So, We would be induced to change our decision if the marginal benefit of going to Spain increases.
Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because a. the Federal Reserve is worried about inflation. b. the Federal Reserve is worried about unemployment. c. the Federal Reserve is hoping to reduce the demand for goods and services. d. the Federal Reserve is worried that the economy is growing too quickly.
Ans b: We know from phillips curve, there is an inverse relationship between inflation rate and unemployment rate. Thus unemployment rate can be decreased by increasing inflation which can be done by increasing money supply. Or an increase in money supply will decrease interest rate leading to increase in investment and thus more capital formation, due to which more labor is required and thus unemployment decreases.
If toast and butter are complements, then which of the following would increase the demand for toast? a. a decrease in the price of toast b. a decrease in the price of butter c. an increase in the price of butter d. Both a and b are correct.
Ans b: a decrease in the price of butter
The irregular and largely unpredictable fluctuations in economic activity are called a. market failure. b. business cycle. c. inflation. d. unemployment.
Ans b: business cycle. Business cycle refers to the fluctuations in economic output. Business cycle describes the cycle of fluctuations in production of goods and services and these cycles are irregular and largely unpredictable. The four phases of business cycle are expansion, peak, contraction, and trough.
If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the a. consumer has consumer surplus of $5 if he buys the good. b. consumer does not purchase the good. c. price of the good will rise due to market forces. d. market is out of equilibrium.
Ans b: consumer does not purchase the good.
Microeconomics is the study of a. how money affects the economy. b. how individual households and firms make decisions. c. how government affects the economy. d. how the economy as a whole works.
Ans b: how individual households and firms make decisions.
An increase in price causes an increase in total revenue when demand is a. elastic. b.inelastic. c. unit elastic. d. All of the above are possible.
Ans b: inelastic.
Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If we add the respective quantities that each shop would produce and sell at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we have found the a. market demand curve. b. market supply curve. c. equilibrium curve. d. surplus or shortage depending on market conditions.
Ans b: market supply curve.
Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for a. hair gel to increase. b. razors to increase. c. combs to increase. d. shampoo to increase.
Ans b: razors to increase.
For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a a. triangle. b. rectangle. c. trapezoid. d. None of the above is correct; government's tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers.
Ans b: rectangle.
The two words economists use most often are a. inflation and trade. b. supply and demand. c. competition and prices. d. markets and equilibrium.
Ans b: supply and demand
Suppose that a tax is placed on books. If the sellers pay the majority of the tax, then we know that the a. demand is more inelastic than the supply. b. supply is more inelastic than the demand. c. government has required that buyers remit the tax payments. d. government has required that sellers remit the tax payments.
Ans b: supply is more inelastic than the demand.
Scenario 5-4Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The change in equilibrium quantity will be a. greater in the milk market than in the beef market. b. greater in the beef market than in the milk market. c. the same in the milk and beef markets. d. Any of the above could be correct.
Ans b:greater in the beef market than in the milk market.
When a supply curve is relatively flat, the a. sellers are not at all responsive to a change in price. b. equilibrium price changes substantially when the demand for the good changes. c. supply is relatively elastic. d. supply is relatively inelastic.
Ans c : supply is relatively elastic.
If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a a. 0.2 percent decrease in the quantity demanded. b. 5 percent decrease in the quantity demanded. c. 20 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.
Ans c : 20 percent decrease in the quantity demanded. Price elasticity is given by PED = % change in Q / % change in P so -2 = % change in Q / 10% or % change in Q = -20%
A rational decisionmaker a. ignores marginal changes and focuses instead on "the big picture." b. ignores the likely effects of government policies when he or she makes choices. c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action. d. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.
Ans c : A rational decisions makes focuses on logic and analysis against subjectivity and insight so they will take decisions only when marginal benefits are more than marginal cost for any decisions. So answer is c
Which of the following statements does not apply to a market economy? a. Firms decide whom to hire and what to produce. b. The "invisible hand" usually maximizes the income of society as a whole. c. Households decide which firms to work for and what to buy with their incomes. d. Government policies are the primary forces that guide the decisions of firms and households.
Ans c : Prices act as an invisible hand and not an visible hand to direct economic activities in allocating scarce resources.Price mechanism operates through demand and supply prices. At higher prices, consumers demand less so demand curve slopes downward showing inverse relationship between price and quantity demanded. However, suppliers are prompted to supply more if they can get higher prices so supply curve slopes upward due to the positive relationship between price and quantity supplied
Betty's Bakery bakes fresh bread every morning. Any bread not sold by the end of the day is thrown away. A loaf of bread costs Betty $2.00 to produce, and she prices loaves of bread at $3.50 per loaf. Suppose near the end of one day Betty still has 12 loaves of bread on hand. Which of the following is correct? a. Betty should only sell the remaining bread for $3.50 per loaf since that is the regular price. b. Betty should only sell the remaining bread for $2.00 per loaf or more since that is what the bread costs to make. c. Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw it away if she does not sell it for something. d. Betty should just throw the bread away and change the price of her bread starting tomorrow to make sure she sells all of her bread each day.
Ans c : Since Betty is throwing the remaining loaves of bread so by selling them, she would be able to recover some of its fixed costs whereas by just throwing them away she is incurring a fixed cost $3.50 per loaves of bread sp Betty should minimize her cost by selling them at any price above $0.
Which of the following is not an example of a group responding to an incentive? a. Students attend class because of an attendance policy that reduces their grade for absences. b. Consumers buy more of a product when it is on sale at a reduced price. c. Universities offer fewer online classes when they generate more revenue than traditional classes. d. Employees work harder to earn higher commissions.
Ans c : group responding to incentive = people trying to get better results given the conditions they face
The x-coordinate of an ordered pair specifies the a. diagonal location of the point. b. vertical location of the point. c. horizontal location of the point. d. quadrant location in which the point is located.
Ans c : horizontal location of the point.
Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the a. smaller is the response of quantity supplied to the tax. b. larger is the tax burden on sellers relative to the tax burden on buyers. c. larger is the deadweight loss of the tax. d. All of the above are correct
Ans c:
What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists discovered that lattés cause heart attacks? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous. d. The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.
Ans c: The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous.
Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for $3,000. Michael's willingness to pay is a. $500. b. $3,000. c. $3,500. d. $6,500.
Ans c: $3,500.
Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be a. $15. b. $30. c. $45. d. $90.
Ans c: $45
When demand is unit elastic, price elasticity of demand equals a. 1, and total revenue and price move in the same direction. b. 1, and total revenue and price move in opposite directions. c. 1, and total revenue does not change when price changes. d. 0, and total revenue does not change when price changes.
Ans c: 1, and total revenue does not change when price changes.
Suppose that demand for a good decreases and, at the same time, supply of the good decreases. What would happen in the market for the good? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
Ans c: Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
Which of the following is correct? a. Studies of the effects of the minimum wage typically find that a 10 percent increase in the minimum wage raises the average wage of teenagers by 10 percent. b. The drop in teenage employment caused by a 10 percent increase in the minimum wage is not significant. c. The minimum wage is more often binding for teenagers than for other members of the labor force. d. All firms consistently enforce minimum-wage laws.
Ans c: The minimum wage is more often binding for teenagers than for other members of the labor force.
Which of these statements best represents the law of supply? a. When input prices increase, sellers produce less of the good. b. When production technology improves, sellers produce less of the good. c. When the price of a good decreases, sellers produce less of the good. d. When sellers' supplies of a good increase, the price of the good increases.
Ans c: When the price of a good decreases, sellers produce less of the good.
A price ceiling is binding when it is set a. above the equilibrium price, causing a shortage. b. above the equilibrium price, causing a surplus. c. below the equilibrium price, causing a shortage. d. below the equilibrium price, causing a surplus
Ans c: below the equilibrium price, causing a shortage.
The goal of an economist who formulates new theories is to a. provide an interesting framework of analysis, whether or not the framework turns out to be of much use in understanding how the world works. b. provoke stimulating debate in scientific journals. c. contribute to an understanding of how the world works. d. demonstrate that economists, like other scientists, can formulate testable theories.
Ans c: contribute to an understanding of how the world works
If the government levies a $5 tax per MP3 player on buyers of MP3 players, then the price paid by buyers of MP3 players would likely a. increase by more than $5. b. increase by exactly $5. c. increase by less than $5. d. decrease.
Ans c: increase by less than $5
In the early 1980s, U.S. economic policy was directed toward reducing inflation. What would you have expected to observe during this short period of time? a. Inflation fell and unemployment fell. b. Inflation and unemployment were both unaffected. c. Inflation fell and unemployment increased. d. Inflation fell and unemployment was unchanged.
Ans c: inflation fell and unemployment increased This is because to counter inflation government has to either increase interest rates or curb money supply both of which will damage economy leading to unemployment
When a surplus exists in a market, sellers a. raise price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated. b. raise price, which decreases quantity demanded and increases quantity supplied, until the surplus is eliminated. c. lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated. d. lower price, which decreases quantity demanded and increases quantity supplied, until the surplus is eliminated.
Ans c: lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated.
The North American Free Trade Agreement a. is an example of the unilateral approach to free trade. b. eliminated tariffs on imports to North America from the rest of the world. c. reduced trade restrictions among Canada, Mexico and the United States. d. All of the above are correct.
Ans c: reduced trade restrictions among Canada, Mexico and the United States.
The argument that purchases of minivans cause large families is an example of a. omitted variables. b. normative statements. c. reverse causality. d. bias.
Ans c: reverse causality. Reverse causality means that X and Y are associated but in way we would expect .Instead of X is causing changes in Y , Y is causing changes in X.
If a price floor is not binding, then a. there will be a surplus in the market. b. there will be a shortage in the market. c. there will be no effect on the market price or quantity sold. d. the market will be less efficient than it would be without the price floor.
Ans c: there will be no effect on the market price or quantity sold
We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.
Ans c: total surplus is maximized.
Figure 3-9 Uzbekistan's Production Possibilities FrontierAzerbaijan's Production Possibilities Frontier Refer to Figure 3-9. If the production possibilities frontiers shown are each for two days of production, then which of the following combinations of bolts and nails could Uzbekistan and Azerbaijan together not make in a given 2-day production period? a. 9 bolts and 122 nails b. 21 bolts and 98 nails c. 36 bolts and 56 nails d. 47 bolts and 18 nails
Ans d : 47 bolts and 18 nails We can see from above production function that both functions opportunity cost of producing 30 bolts for Uzbekistan is 60 nails. Hence, opportunity cost of producing 1 bolts for Uzbekistan is 60/30 = 2 nails. Similarly opportunity cost of producing 1 bolts for Azerbaijan is 80/20 = 4 nails. Hence As opportunity cost of producing 1 bolts in Uzbekistan < opportunity cost of producing 1 bolt in Azerbaijan. Hence Uzbekistan will specialize in Bolts and Azerbaijan will specialize in nails. (a) 9 bolts and 122 nails - As Azerbaijan will specialize in nails, It will use its entire time on Nails and will produce 80 nails. We can see from the PPF that Uzbekistan can produce 9 bolts and 42 nails. Hence Option (a) is achievable (b) 21 bolts and 98 nails - As Azerbaijan will specialize in nails, It will use its entire time on Nails and will produce 80 nails. We can see from the PPF that Uzbekistan can produce 21 bolts and 18 nails. Hence Option (b) is achievable (c) 36 bolts and 56 nails - Uzbekistan will specialize in Bolts, It will use its entire time on bolts and will produce 30 bolts. We can see from the PPF that Azerbaijan can produce 6 bolts and 56 nails. Hence Option (c) is achievable (d) 47 bolts and 18 nails - Uzbekistan will specialize in Bolts, It will use its entire time on bolts and will produce 30 bolts. We can see from the PPF that Azerbaijan can produce 17 bolts and 12 nails. Hence Option (d) is not achievable. Hence option (d) is incorect. Note : PPF equation of Uzbekistan is N + 2B = 60 PPF equation of Azerbaijan is N + 4B = 80
If the price of gasoline rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increases b. one month after the price increase c. three months after the price increase d. one year after the price increase
Ans d : one year after the price increase
In the ordered pair (5, 3), 3 is the a. horizontal location of the point. b. the slope. c.the x-coordinate. d.the y-coordinate.
Ans d : the y-coordinate.
Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $150. Rebecca and Susan agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Rebecca and Susan worse off by a total of a. $50. b. $40. c. $20. d. $10.
Ans d:
When a country allows trade and becomes an exporter of a good, a. consumer surplus and producer surplus both increase. b. consumer surplus and producer surplus both decrease. c. consumer surplus increases and producer surplus decreases. d. consumer surplus decreases and producer surplus increases.
Ans d:
When a country that imports a particular good imposes a tariff on that good, a. consumer surplus increases and total surplus increases in the market for that good. b. consumer surplus increases and total surplus decreases in the market for that good. c. consumer surplus decreases and total surplus increases in the market for that good. d. consumer surplus decreases and total surplus decreases in the market for that good.
Ans d:
US citizens have better nutrition, better healthcare, and a longer life expectancy than citizens of Ghana. Which of the following conclusions can be drawn from this statement? a. Average income in the US is higher than the average income in Ghana. b. The US has a higher standard of living than Ghana. c. Productivity in the US is higher than productivity in Ghana. d. All of the above are correct
Ans d: All of the above are correct such as -Average income in the US is higher than the average income in Ghana. -The US has a higher standard of living than Ghana. -Productivity in the US is higher than productivity in Ghana
A binding minimum wage tends to a. cause a labor surplus. b. cause unemployment. c. have the greatest impact in the market for teenage labor. d. All of the above are correct.
Ans d: All of the above are correct.
A common argument in favor of restricting trade a. concerns the strategy of bargaining. b. is that efforts should be made to get new industries started. c. emphasizes the belief that all countries should play by the same rules. d. All of the above are correct.
Ans d: All of the above are correct.
When a tax is placed on the sellers of a product, the a. size of the market decreases. b. effective price received by sellers decreases, and the price paid by buyers increases. c. supply of the product decreases. d. All of the above are correct.
Ans d: All of the above are correct.
When an economist evaluates a positive statement, he or she is primarily a. examining evidence. b. acting as a scientist. c. concerned with verifying how the world is. d. All of the above are correct.
Ans d: All of the above are correct. such as -examining evidence. -acting as a scientist. -concerned with verifying how the world is.
The country of Gerance produces two goods, cars and wine. Last year, it produced 1,000 cars and 15,000 cases of wine. This year, it produced 1,300 cars and 20,000 cases of wine. Given no other information, which of the following events could not explain this change? a. Gerance experienced a reduction in unemployment. b. Gerance experienced an improvement in car-making technology. c. Gerance acquired more resources. d. Any of these events could explain the change
Ans d: Any of these events could explain the change such as - Gerance experienced a reduction in unemployment. -Gerance experienced an improvement in car-making -Gerance acquired more resources.
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
Ans d: Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
Yi and Avik are both economists. Yi thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Avik does not think that household saving would respond much to a change in the tax laws. In this example, Yi and Avik a. hold different normative views about the tax system. b. disagree about the validity of a positive theory. c. have a fundamental misunderstanding of the tax system. d. More than one of the above is correct
Ans d: More than one of the above is correct -consumption tax is a positive theory. It exists in various countries including India (Goods and Services Tax, GST). Therefore, its impact is verifiable. Both Yi and Avik just disagree about the validity of a positive theory.
It once took 90 percent of our population to grow our food. It now takes only 3 percent of the population to grow our food. Which of the following statements is true? a. This loss of jobs has been detrimental to our economy. b. The government should provide subsidies to encourage more people to become farmers. c. The reduction in the number of farmers explains the increase in the price of food. d. This is progress because freed-up labor is used to produce other goods
Ans d: This is progress because freed-up labor is used to produce other goods
Which of the following is not an example of a graph of a single variable? a. a pie chart b. a bar graph c. a time-series graph d. a scatterplot
Ans d: a scatterplot
A tax on the sellers of coffee will increase the price of coffee paid by buyers, a. increase the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. b. increase the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee. c. decrease the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. d. decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
Ans d: decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffe
As a rationing mechanism, discrimination according to seller bias is a. efficient and fair. b. efficient, but potentially unfair. c. inefficient, but fair. d.inefficient and potentially unfair.
Ans d: inefficient and potentially unfair
Production possibilities frontiers are usually bowed outward. This is because a. the more resources a society uses to produce one good, the fewer resources it has available to produce another good. b. the opportunity cost of producing a good decreases as more and more of that good is produced. c. of the effects of technological change. d. resources are specialized; that is, some are better at producing particular goods rather than other goods.
Ans d: resources are specialized; that is, some are better at producing particular goods rather than other goods.
If sellers do not adjust their quantities supplied at all in response to a change in price, a. advances in technology must be prevalent. b. the time period under consideration must be very long. c. supply is perfectly elastic. d. supply is perfectly inelastic.
Ans d: supply is perfectly inelastic.
Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a a. shortage to exist and the market price of roses to increase. b. shortage to exist and the market price of roses to decrease. c. surplus to exist and the market price of roses to increase. d. surplus to exist and the market price of roses to decrease.
Ans d: surplus to exist and the market price of roses to decrease.
The price of sugar that prevails in international markets is called the a. export price of sugar. b. import price of sugar. c. comparative-advantage price of sugar. d. world price of sugar.
Ans d: world price of sugar.
In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy? a. 3 percent per year b. 5 percent per year c. 7 percent per year d. 9 percent per year
Ans d:9 percent per year The higher the growth of money supply leads to lower the unemployment This is because that the supply if money increases then that means the money is exchanging more hands SO the unemployment rate is getting reduced Money chain goes through employed peoples Hence 9 percent per year increase in money supply leads to lowest level of unemployment
When a tax is imposed on a good, the a. supply curve for the good always shifts. b. demand curve for the good always shifts. c. amount of the good that buyers are willing to buy at each price always remains unchanged. d. equilibrium quantity of the good always decreases.
Ans d:equilibrium quantity of the good always decreases.
Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? a. the cost of tuition and books to attend the graduate program b. the $30,000 salary that you could have earned if you retained your job at the bank c. the $45,000 salary that you will be able to earn after having completed your graduate program d. the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank
Ans: c. Option C will not be added in the computation of opportunity cost because it is not the amount that is sacrificed in order to attend a graduate program. The other three costs are the opportunity cost of attending.
Resources are a. scarce for households but plentiful for economies. b. plentiful for households but scarce for economies. c. scarce for households and scarce for economies. d. plentiful for households and plentiful for economies
Ans: c.: Resources are limited or scarce for households as well as economy. Option c is correct.
