Econ Exam 2

Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?

He should sell the car now for $3,800.

Refer to Table 3-11. Jamaica's opportunity cost of one cooler is

0.5 radios, and Norway's opportunity cost of one cooler is 0.125 radios.

Refer to Table 3-11. At which of the following prices would both Jamaica and Norway gain from trade with each other?

1 radio for 4 coolers

Refer to Table 2-3. Which of the following combinations of corn and wheat is not currently attainable but would be attainable if there was an improvement in overall production technology?

1,000 bushels of corn and 2,200 bushels of wheat

Refer to Figure 3-3. If Dina must work 0.25 hour to produce each taco, then her production possibilities frontier is based on how many hours of work?

100 hours

Refer to Table 3-11. Jamaica and Norway would not be able to gain from trade if Norway's opportunity cost of one radio changed to

2 coolers

Refer to Table 3-6. Which of the following points would not be on Max's production possibilities frontier, based on a 36-hour production period?

2 mittens, 6 hats

Refer to Figure 3-2. If the production possibilities frontier shown is for two months of production, then which of the following combinations of peanuts and cashews could Brazil produce in two months?

3 pounds of peanuts and 150 pounds of cashews

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by

340 bushels of corn and 500 bushels of oats.

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?

4,500

Refer to Table 3-8. If the production possibilities frontier is a straight line, then which of the following could represent the number of coats produced when 12 blankets are produced?

400

Refer to Table 3-4. Which of the following combinations of toothbrushes and hairbrushes could Zimbabwe not produce in 120 minutes?

5 toothbrushes and 11 hairbrushes

Refer to Table 3-8. If the production possibilities frontier is bowed outward, then which of the following could represent the number of coats produced when 12 blankets are produced?

500

Refer to Table 3-2. Which of the following combinations of cheese and wine could France produce in 40 hours?

6 units of cheese and 5 units of wine

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,

A decrease in the number of unskilled jobs available

Which of the following is correct?

A horizontal line has a zero slope, and a vertical line has an infinite slope

Which of these activities will most likely impose an external cost?

A postal worker smokes a cigarette in a crowded break room.

Which of the following firms is likely to have the greatest market power?

A utility company

Refer to Figure 2-3. Efficient production is represented by which point(s)?

A, B

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Adam Smith

Which of these activities will most likely result in an external benefit?

An elderly woman plants a flower garden on the vacant lot next to her house.

Ryan produces hair clips and earrings. Celia also produces hair clips and earrings, but Ryan is better at producing both goods. In this case, trade could

Benefit both Celia and Ryan

Refer to Figure 3-2. The fact that the line slopes downward reflects the fact that

Brazil faces a trade-off between producing peanuts and producing cashews.

Refer to Figure 2-3 . I t is not possible for this economy to produce at point

C- above the line

The outer loop of the circular-flow diagram represents the flow of dollars in the economy. Which of the following is not measured in dollars and therefore does not appear on the outer loop?

Capital

Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step?

Collect and analyze data

Which of the following statements about comparative advantage is NOT true?

Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources

The most obvious benefit of specialization and trade is that they allow us to

Consume more goods than we otherwise could be able to consume

Which of the following statements best represents the principle represented by the adage, "There ain't no such thing as a free lunch"?

Dani must decide between going to Florida or Brazil for spring break

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between

Efficiency and equality

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

Externalities

Yvette buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Yvette purchased. As a result of the city's announced plan, Yvette is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can forgo the repairs and sell the house as it is for $250,000. She should

Forgo the repairs and sell the house as it is for $250,000

Central planning refers to

Government guiding economic activity. Today many countries that had this system have abandoned it

If an externality is present in a market, economic efficiency may be enhanced by

Government intervention

Which of the following statements does not apply to a market economy?

Government policies are the primary forces that guide the decisions of firms and households.

Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches depends on how many chairs and couches are being produced in

Graph A only

Which of the following claims is consistent with the views of mainstream economists?

If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily fall.

Which of the following statements is correct about the roles of economists?

In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.

Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible?

Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.

In the circular-flow diagram,

Labor flows from households to firms

Which of the following statements about models is correct?

Models assume away irrelevant details.

In the circular-flow diagram, which of the following is not a factor of production?

Money

Refer to Figure 2-9. Which of the following conclusions should not be drawn from observing this graph?

No other factors besides the frequency of service affect the number of passengers.

Sometimes economists disagree because their scientific judgments differ. Which of the following instances best reflects this source of disagreement?

One economist believes the government should tax a household's income; another economist believes the government should tax a household's consumption because it will cause households to save more.

What must be given up to obtain an item is called

Opportunity Cost

The adage, "There ain't no such thing as a free lunch," means

People face trade offs

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

People face trade offs

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

People face tradeoffs

In the short run, which of the following is not correct?

Policies that encourage higher employment will also induce a lower rate of inflation.

Refer to Figure 2-4, Graph (a) and Graph (b) . Which of the following is not a result of the shift of the economy's production possibilities frontier from Graph (a) to Graph (b) ?

Production of one donut and four cups of coffee becomes efficient.

The phenomenon of scarcity stems from the fact that

Resources are limited

The overriding reason why households and societies face many decisions is that

Resources are scarce

A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions. Which of the following is not one of those propositions?

The United States should withdraw from the North American Free Trade Agreement

In most societies, resources are allocated by

The combined actions of millions of households and firms

Some, but not all, government economists are employed within the administrative branch of government. Which of the following government agencies employ economists outside of the administrative branch?

The congressional budget office

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise.

Which of the following areas of study typifies macroeconomics as opposed to microeconomics?

The effect on the economy of changes in the nation's unemployment rate

Mina decides to spend 3 hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

The enjoyment she would have received had she gone to the park

Which of the following is not correct?

The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

The marginal cost of the 25th house, if it built, will equal $250,000

Refer to Table 2-2. Which of the following statements is correct?

The opportunity cost of an additional 200 shoes increases as more shoes are produced.

Refer to Table 3-1. Assume that John and Jane each work 24 hours. What happens to total production if instead of each person spending 12 hours producing each good, Jane spends 21 hours producing wine and 3 hours producing bread and John spends 3 hours producing wine and 21 hours producing bread?

The total production of bread and wine each rise.

How are economists not like mathematicians, physicists, and biologists?

They cannot run lab experiments in the same way that other scientists can

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is

This cannot be determined from the information given

Which is the most accurate statement about trade?

Trade can make every nation better off.

Which of the following is not an example of a group responding to an incentive?

Universities offer fewer online classes when they generate more revenue at the same cost than traditional classes.

Economics is the study of how society manages its

Unlimited wants and limited resources

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of

a market failure caused by an externality.

The term market failure refers to

a situation in which the market on its own fails to allocate resources efficiently.

When society requires that firms reduce pollution, there is

a tradeoff because of reduced incomes to the firms' owners and workers

When the government prevents prices from adjusting naturally to supply and demand, it

adversely affects the allocation of resources.

Duties of the Council of Economic Advisers include

advising the president and writing the annual Economic Report of the President.

Trade

allows specialization, which reduces costs.

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,

an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal

benefit of leaving was greater than the marginal cost.

Communist countries worked under the premise that

central planners were in the best position to determine the allocation of scarce resources in the economy.

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

compare the cost of staying one more semester to the benefits of staying one more semester.

Eva wants to create a graph containing the prices of concert tickets and the corresponding quantities of concert tickets demanded by customers. She should use a

coordinate system.

The property of society getting the most it can from its scarce resources is called

efficiency.

When society gets the most it can from its scarce resources, then the outcome is called

efficient

The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

Large or persistent inflation is almost always caused by

excessive growth in the quantity of money.

Refer to Figure 3-4. Both Alice and Betty

face a constant trade-off between producing pitchers of lemonade and pizzas.

Economists make assumptions to

focus their thinking on the essence of the problem at hand.

Emily and Betsey are economists. Emily thinks that the wealthiest 10 percent of the U.S. population should be taxed a rate higher than the rest of society because they can better afford it. Betsey thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Emily and Betsey

have different normative views about tax policy.

A popular celebrity that is paid highly for her time should probably not mow her own lawn because

her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.

The "invisible hand" refers to

how the decisions of households and firms lead to desirable market outcomes.

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

increased by 6.25 percent between 1998 and 2008.

An economy's production of two goods is efficient if

it is impossible to produce more of one good without producing less of the other.

In a market economy, economic activity is guided by

self-interest and prices

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

sell the ticket because the marginal benefit exceeds the marginal cost.

You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.

When a relevant variable that is not named on either axis changes,

the curve will shift.

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

the nations is not using all available resources or is using inferior technology or both

When computing the opportunity cost of attending a concert you should include

the price you pay for the ticket and the value of your time.

A production possibilities frontier is bowed outward when

the rate of trade-off between the two goods being produced depends on how much of each good is being produced.

Elena's aunt gave her $100 for her birthday with the condition that Elena buys herself something. In deciding how to spend the money, Elena narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally, she decides on Option B. The opportunity cost of this decision is

the value to Elena of the option she would have chosen had option B not been available

In the ordered pair (20, 30), 20 is the

the x-coordinate and the horizontal location of the point

When a country has a comparative advantage in producing a certain good,

then specializing in the production of that good and trading for other goods could allow that country to consume at a point beyond its production possibilities frontier .

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

they choose not to trade with one another.

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that

they would do better charging $15 than $10.

The opportunity cost of an item is

what you give up to get that item.

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

80 dryers and 0 washers.

Refer to Figure 2-1. Morgan buys a refrigerator for his new home. To which of the arrows does this transaction directly contribute?

A and B

Refer to Table 3-9. The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade?

Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of lemonade and 10 pizzas.

Refer to Figure 3-4. If point A represents Alice's current production and point B represents Betty's current production, under what circumstances can both Alice and Betty benefit from specialization and trade?

Alice produces more lemonade and Betty produces more pizzas.

When the government redistributes income from the wealthy to the poor,

People work less and produce fewer goods and services

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?

The amount you value the first movie + $3

Prices direct economic activity in a market economy by

influencing the actions of buyers and sellers

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

The business cycle is the

irregular fluctuations in economic activity

A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton

is equal to 1

Suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay

more than $40; because the marginal benefit will exceed the marginal cost.

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

possible but inefficient.

Fundamentally, economics deals with

scarcity