Econ midterm Practice test 2

A production possibility frontier that is a straight line sloping down from left to right suggests that:

the opportunity costs of the products are constant.

If an economy has to sacrifice only one unit of good X for each unit of good Y produced throughout the relevant range, then its production possibility frontier has:

a constant negative slope.

Look at the figure Strawberries and Submarines. Suppose the economy now operates at point C. Moving to point E would require that the

eliminate its production of strawberries.

The simplest circular-flow model shows the interaction between households and firms. In this model:

firms supply goods and services to households, which in turn supply factors of production to firms.

The importance of an economic model is that it allows us to:

focus on the effects of only one change at a time.

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

Look at the figure Comparative Advantage. Eastland has a comparative advantage in producing:

oranges only.

Look at the figure Comparative Advantage. Westland has a comparative advantage in producing:

peaches only.

Look at the figure Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram capital that used to flow to firms producing coconuts now flows to firms producing fish. This adjustment in the economy would be best represented in the production possibilities figure by a move from point A toward:

point B (a decrease in coconut production and an increase in fish production).

Look at the figure Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram there is a significant decrease in the amount of labor flowing to the firms that produce coconuts. If all other variables remain unchanged, this adjustment in the economy would be best represented in the production possibilities figure by a move from point A toward:

point C (a decrease in coconut production).

Look at the figure Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram most firms undergo a significant increase in productivity. This results in a significant increase in the output of both coconuts and fish. If all other variables remain unchanged, then the adjustment in this economy would be best represented in the production possibilities figure by a movement from point A toward:

point D (an outward shift of the entire curve).

Quality of Quantity of hours of hours of study time leisure time _____________________________________ 16 0 12 4 8 8 4 12 0 16 Look at the table Trade-off of Study Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining time between study time and leisure time. The table shows the combinations of study and leisure time that can be produced in the 16 waking hours of each day. If a student decides to consume one additional hour of leisure time, how many hours of study time must she give up?

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Alternatives: Consumer goods per purchase: Capital goods per period: A B C D E F 0 1 2 3 4 5 30 28 24 18 10 0 Look at the table Production Possibilities Schedule I. If the economy produces two units of consumer goods per period, it also can produce at most _____ units of capital goods per period.

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Alternatives: Consumer goods per purchase: Capital goods per period: A B C D E F 0 1 2 3 4 5 30 28 24 18 10 0 Look at the table Production Possibilities Schedule I. If the economy produces 10 units of capital goods per period, it also can produce at most _____ units of consumer goods per period.

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Alternatives: Consumer goods per purchase: Capital goods per period: A B C D E F 0 1 2 3 4 5 30 28 24 18 10 0 Look at the table Production Possibilities Schedule I. The opportunity cost of producing the fourth unit of consumer goods is _____ units of capital goods.

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In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. His friend Ava can make 10 cookies or 10 glasses of lemonade. His other friend, Ian, can make 10 cookies or 20 glasses of lemonade. Who has the lowest opportunity cost in cookie production?

Ava

In a single day, George can bake 10 cakes and Greta can bake 5 cakes. We know that _____ has a(n) _____ advantage in baking cakes.

George; absolute

If they bake only cakes, in a single day George can bake 10 cakes and Greta can bake 5 cakes. If they make only pies, in a single day George can bake 10 pies while Greta can bake 4 pies. We know that _____ has an absolute advantage and a comparative advantage in making _____.

George; pies

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. We know that _____ has a comparative advantage in _____.

Laurence; programs

Which of the following is FALSE about the circular-flow diagram?

Money flows from households to firms as households offer factors of production for sale.

In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. Therefore, _____ has a(n) _____ advantage in making hamburgers.

Sarah; absolute

If they produce only hamburgers, in a single day Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. If they make milkshakes only, in a single day Sarah can produce 10 milkshakes, and Abe can produce 4 milkshakes. Therefore, _____ has an absolute advantage and a comparative advantage in making _____.

Sarah; milkshakes

US Wheat production: 100 0 US Aluminum product: 0 100 Grmny wheat product: 50 0 Grmny Aluminum product: 0. 100 Look at the table Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows, in tonnage, the maximum annual output combinations of wheat and aluminum that can be produced. Which of the following choices represents a possible trade based upon specialization and comparative advantage?

The United States would trade 1 ton of wheat to Germany for 1.5 tons of aluminum.

Which of the following is a normative statement?

The best way to encourage growth in the economy is through government spending.

Which of the following is an example of a positive statement?

The federal government pays for 46% of U.S. health care costs.

The production possibility frontier will shift outward for all of the following reasons EXCEPT:

an increase in the unemployment rate

The effect of a natural disaster can be shown by _____ the production possibility frontier.

an inward shift of

An economy is said to have a comparative advantage in the production of a good if it can produce that good:

at a lower opportunity cost than another economy.

The production possibility frontier will shift outward because of:

better technology that improves worker productivity

If an economy has to sacrifice increasing amounts of good X for each additional unit of good Y produced, then its production possibility frontier is:

bowed out.

Jim is being paid $7.25 an hour to work at a restaurant. In the circular flow this is an example of a:

business buying resources in the factor market.

The _____ illustrates the trade-offs facing an economy that produces only two goods.

production possibility frontier

Because of trade, a country may:

consume outside its production possibility frontier.

Quality of Quantity of hours of hours of study time leisure time _____________________________________ 16 0 12 4 8 8 4 12 0 16 Look at the table Trade-off of Study Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining time between study and leisure time. Suppose this student is studying 4 hours and spending 10 hours doing leisure activities. This point is

inside the production possibility frontier.

In movement along a production possibility frontier, the opportunity cost to society of getting more of one good:

is measured by the amount of the other good that must be given up.

A simplified representation that is used to study a real situation is called a(n):

model

Quality of Quantity of hours of hours of study time leisure time _____________________________________ 16 0 12 4 8 8 4 12 0 16 Look at the table Trade-off of Study Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining time between study time and leisure time. The table shows the combinations of study and leisure time that can be produced in the 16 waking hours of each day. Suppose the student completes a speed-reading course that allows him to do the same amount of studying in half as many hours. His opportunity cost:

of leisure has increased

As long as people have different _____, everyone has a comparative advantage in something.

opportunity costs

Look at the figure Strawberries and Submarines. As the economy moves from point A toward point D, it will find that the opportunity cost of each additional submarine:

rises.

Abe starts exercising regularly, and after a few months he can do twice as much of everything. In a single day Abe can now make 10 hamburgers or 8 milkshakes rather than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe's production possibility frontier has _____, but his opportunity costs of making milkshakes _____.

shifted right; are unchanged

Greta starts using a new baking technique, and she can now do twice as much of everything. In a single day Greta can now make 10 cakes or 8 pies, rather than the 5 cakes and 4 pies she could previously bake. Greta's production possibility frontier has _____, but her opportunity costs of making pies _____.

shifted right; are unchanged

When building a model, economists:

simplify reality to highlight what really matters.

In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that:

the United States has a comparative advantage in the production of automobiles

US Wheat production: 100 0 US Aluminum product: 0 100 Grmny wheat product: 50 0 Grmny Aluminum product: 0. 100 Look at the table Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table:

the United States has a comparative advantage in wheat and an absolute advantage in wheat.

Look at the figure Strawberries and Submarines. Suppose the economy is operating at point G. This implies that:

the economy has unemployment and/or inefficiently allocates resources.