Eco 157 Midterm Review

If a nation has a comparative advantage in the production of a good,

a. it can produce that good at a lower opportunity cost than its trading partner.

Refer to Figure 2-4, Graph (a) . Production is

a. possible at points J, K, L, and M, but efficient only at points J, L, and M.

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent,

a. students will shift majors from education to accounting.

Which of the following is not part of the opportunity cost of going on vacation?

a. the money you spent on food

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

a. the opportunity cost of 1 watch is 3 rings.

If the price of a good is above the equilibrium price,

a. there is a surplus and the price will fall.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

b. flatter the demand curve will be.

Peru will export

b. fruit.

If a nation has an absolute advantage in the production of a good,

b. it can produce that good using fewer resources than its trading partner.

If there is excess capacity in a production facility, it is likely that the firm's supply curve is

b. price elastic.

An increase in a good's price reduces the total amount consumers spend on the good if the ________ elasticity of demand is ________ than one.

b. price, greater

Trade-offs are required because wants are unlimited and resources are

b. scarce.

Korea should

b. specialize in electronics production, export electronics, and import food.

All of the following topics fall within the study of microeconomics EXCEPT

b. the influence of the government budget deficit on economic growth.

Which of the following involve a trade-off?

e. All of the above involve trade-offs.

Economics is the study of how

e. society manages its scarce resources.

As we move from point A to point D,

e. the opportunity cost of eggs in terms of bacon rises.

Refer to Figure 4-5. If these are the only two sellers in the market, then the market quantity supplied at a price of $4 is

a. 14 units.

The opportunity cost of producing 1 metric ton of beef in Peru is

a. 3 tons of fruit.

The opportunity cost of 1 unit of electronics in Australia is

a. 4 units of food.

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

a. 40 percent.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

a. A is a luxury and B is a necessity.

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.)

a. Yes.

Foriegn trade

a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home.

Which of the following moves the pizza market up along a given supply curve?

a. an increase in the price of pizza

Refer to Figure 4-6 . The shift from S to S' could be caused by an

a. improvement in production technology.

Which of the following products would be least capable of producing an externality?

Food

The ability of firms to enter and exit a market over time means that, in the long run,

b. the supply curve is more elastic.

The opportunity cost of 1 unit of food in Australia is

b. 1/4 of a unit of electronics.

If the economy is operating at point C, the opportunity cost of producing an additional 15 units of bacon is

b. 20 units of eggs.

Refer to Table 2-1. If the production possibilities frontier is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced?

b. 4,500.

Refer to Figure 2-3 . If this economy devotes all of its resources to the production of dryers, then it will produce

b. 80 dryers and 0 washers.

Which of the following statements is true?

b. A self-sufficient country at best can consume on its production possibilities frontier.

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these nations trade?

b. China will export shirts, and the United States will export aircraft.

Suppose the world consists of two countries—the United States and Mexico. Furthermore, suppose there are only two goods—food and clothing. Which of the following statements is true?

b. If the United States has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing.

Which of the following events would cause the price of oranges to fall?

b. The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges.

Which of the following statements about microeconomics and macroeconomics is not true?

b. The study of very large industries is a topic within macroeconomics.

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1,000 units of food and 47 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 1,050 units of food and 47 machines. Which of the following statements is correct?

b. The technological advance reduced the amount of resources needed to produce 47 machines, so these resources could be used to produce more food.

Which of the following statements about trade is true?

b. Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.

International trade benefits a nation when

b. all nations are specializing in producing what they do best.

Before Frank and Ruby engage in trade, each of them

b. consumes at a point on his or her production possibilities frontier.

An inferior good is one for which an increase in income causes a(n)

b. decrease in demand.

Equilibrium price must decrease when demand

b. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

Refer to Table 4-2 . If these are the only four buyers in the market, then when the price increases from $1.00 to $1.50, the market quantity demanded

b. decreases by 7 units.

The law of demand states that an increase in the price of a good

b. decreases the quantity demanded for that good.

A decrease in supply (shift to the left) will increase total revenue in that market if

b. demand is price inelastic.

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "That's ridiculous. Inflation is the greatest social evil." These economists

b. disagree because they have different values.

A point inside the production possibilities frontier is

b. feasible but not efficient.

In the markets for goods and services in the circular-flow diagram,

b. firms provide households with output.

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is

c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

c. 1.5.

The opportunity cost of 1 unit of electronics in Korea is

c. 2 units of food.

Refer to Figure 5-5 . Using the midpoint method, the price elasticity of demand between point X and point Y is

c. 2.5.

Joe is a tax accountant. He receives $100 per hour doing tax returns. He can type 10,000 characters per hour into spreadsheets. He can hire an assistant who types 2,500 characters per hour into spreadsheets. Which of the following statements is true?

c. Joe should hire the assistant as long as he pays the assistant less than $25 per hour.

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

c. Prices and quantities both rise.

Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?

c. The demand curve shifts to the right.

Which of the following events would cause a movement upward and to the left along the demand curve for olives?

c. The price of olives rises.

When constructing a production possibilities frontier, which of the following assumptions is not made?

c. The quantities of the factors of production that are available are increasing over the relevant time period.

Which of the following is not a determinant of the price elasticity of demand for a good?

c. The steepness or flatness of the supply curve for the good

Point F represents

c. a combination of production that can be reached if there is a sufficient advance in technology.

Argentina has a comparative advantage in the production of

c. beef.

Demand is said to be price elastic if

c. buyers respond substantially to changes in the price of the good.

A perfectly competitive market has

c. many buyers and sellers.

Goods with many close substitutes tend to have

c. more elastic demands.

A nation will typically import those goods in which

c. other nations have a comparative advantage.

Adam Smith's "invisible hand" refers to

c. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

c. the domestic price of 1 ring is 3 watches.

The price elasticity of demand is defined as

c. the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

If an increase in the price of a good has no impact on the total revenue in that market, demand must be

c. unit price elastic.

Refer to Figure 4-8. All else equal, the premature deaths of thousands of turkeys would cause a move from

c. x to y.

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than

d. $800.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

d. 2.33.

Which of the following is an example of a capital input?

d. A computer

Economists may disagree because they have different

d. All of the above.

Governments may intervene in a market economy in order to

d. All of the above.

Which of the following statements about absolute advantage is true?

d. Australia has an absolute advantage in the production of both food and electronics.

Which of the following statements is true about a market economy?

d. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being.

Which of the following situations describes the greatest market power?

d. Microsoft's impact on the price of desktop operating systems

Which of the following would shift the supply of Green Bay Packers football jerseys to the left?

d. The cost of the fabric used to make the jerseys increases.

Most economists believe that tariffs are

d. a poor way to raise general economic well-being.

Which of the following is most likely to produce scientific evidence about a theory?

d. a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending

If the cross-price elasticity between two goods is negative, the two goods are likely to be

d. complements.

Refer to Figure 4-1 . It is apparent from the figure that the

d. demand for the good conforms to the law of demand.

An increase in ________ will cause a movement along a given supply curve, which is called a change in ________.

d. demand, quantity supplied

In competitive markets, farmers adopt new technologies that will eventually reduce their revenue because

d. each farmer is a price taker.

In a perfectly competitive market,

d. every seller takes the price of its product as set by market conditions.

High and persistent inflation is caused by

d. governments increasing the quantity of money too much.

Raising taxes and increasing welfare payments

d. improves equality at the expense of efficiency.

Productivity can be increased by

d. improving the education of workers.

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

d. in order to consume beyond its PPF, the United States should produce more pork than what it requires and export some of it to Mexico.

A linear, downward-sloping demand curve is

d. inelastic at some points, and elastic at others.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

d. inelastic.

An increase in the price of beef provides

d. information that tells producers to produce more beef.

Refer to Figure 2-3. This economy cannot currently produce 70 washers and 70 dryers because

d. it does not have the resources and technology to produce that level of output.

Which of the following is not a factor of production?

d. money

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the

d. supply of bicycles will shift to the left.

A rational person does not act unless

d. the action produces marginal benefits that exceed marginal costs.

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

d. the nation is not using all available resources or is using inferior technology or both.

If the price elasticity of supply is zero, the supply curve is

d. vertical.