Econ Test 1

If market failures exist, the market can become efficient when:

the government intervenes to improve society's welfare.

Why do economists use models?

to make forecasts

The equilibrium price of a good is the price:

at which there is no surplus and no shortage of the good.

Exchanges taking place in a market system:

are voluntary

An economic system is in __________ when no individual would be better off by making a different choice.

equilibrium

An equilibrium outcome is one in which:

no one has as incentive to change his or her decisions or behavior.

As an economy moves from point to point along its PPF, what is changing?

the allocation of resources within the economy

Economists typically depict the PPF as a bowed-out curve rather than as a straight line in order to show that:

the opportunity cost of producing a good rises as more is produced.

What is measured along the horizontal axis in a graph of the PPF?

the quantity of one good produced

What is one thing that economists generally agree on?

trade enhances welfare

An opportunity cost arises:

whenever a choice is made

Which of the following is a normative statement?

A camera makes a good wedding gift.

Which one of the following statements is not true of a market economy?

A central planning authority makes decisions about production and consumption.

Which of the following statements is true?

All countries can gain from trade if they all specialize in production according to comparative advantage.

Many firms compete in providing overnight delivery services. If the market for overnight delivery services experiences an increase in price, what must have happened?

An increase in demand and a decrease in supply.

Suppose you hear an economist make an assertion that, between the two countries, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea expressed in the assertion?

France can produce chocolate at a lower opportunity cost than Italy can.

Suppose that in Australia, it takes two hours of labor to harvest 10 bushels of apples and four hours of labor to harvest 10 bushels of tomatoes. Further, suppose that in Brazil it takes 4 hours of labor to harvest 10 bushels of apples and 5 hours of labor to produce 10 bushels of tomatoes. Which of the following statements is TRUE?

Of these two countries, Brazil has a comparative advantage in producing tomatoes.

Economists would most likely agree with which one of the following statements?

People usually exploit opportunities to make themselves better off

Picture a production possibility frontier. Point A lies inside (to the left) of the frontier. Points B and C are located along the frontier, and Point D is located outside (to the right) the frontier. Which of the following points represent feasible (attainable) production points?

Points A, B, and C are feasible.

Picture a production possibility frontier. Point A lies inside (to the left) of the frontier. Points B and C are located along the frontier, and Point D is located outside (to the right) the frontier. Which points represent efficient production points?

Points B and C are efficient.

If an economist argues that all countries gain from trade, what reasoning is most likely underlying her argument?

Production according to the principle of comparative advantage lowers overall costs and therefore allows both countries to have a higher standard of living.

1. Economists would most likely disagree with which of the following statements?

Resources and inputs used in production are unlimited

Which of the following would cause a surplus of newsprint?

The demand for newsprint decreases, and the price does not change.

Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly through the use of new technology?

The supply curve for kayaks will shift to the right.

Which of the following could account for the fact that ice cream prices have recently increased and that consumption of ice cream has declined?

The supply of ice cream has decreased.

What happens in the market for wheat when dry winter weather causes a poor harvest?

The supply of wheat decreases and the demand remains unchanged.

What best describes the competitive market?

There are many buyers and sellers of the same good.

Suppose that a single person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that a single person working in Turkey for the same length of time can produce either 15 yards of cloth or 30 baskets. Which of the following statements is then TRUE?

Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets.

The purpose of an economic system is to:

allocate scarce resources

Economists generally agree that people are most likely to change their behavior when they:

are given incentives to do so

What name is given to the form of exchange in which individuals trade goods and services directly, without money serving as a medium of exchange?

barter

The condition of scarcity means that:

choices must be made in the allocation of productive resources.

The downward slope of the demand curve indicates that, all else equal:

consumers will buy more of a good when its price decreases.

An economy is __________ if it has exploited all opportunities to benefit someone without making anyone else worse off.

efficient

Macroeconomics is the branch of economics studying:

fluctuations in the overall level of business activity

The result of free trade between nations is that:

goods can be produced in the location where their opportunity cost is the lowest.

Adam Smith used the idea of the invisible hand to refer to the ability of market economies to:

harness the power of individual self-interest for the good of society as a whole.

What are the two sectors represented in a simple circular-flow diagram of the economy?

households and firms

If the price of a bale of cotton increases from $0.80 to $1.20, and a pound of Kenyan coffee decreases from $12 a pound to $10 a pound, we can expect a(n):

increase in the quantity demanded of Kenyan coffee.

If coffee is a normal good, then an increase in consumer income will:

increase the demand for coffee.

The focal point of economic inquiry is:

individual choice

If a country specializes according to its own comparative advantage and then trades with other nations:

it can consume at a higher level than the domestic production possibility frontier.

What is traded in factor markets?

land, labor, capital, and human capital

Consider gas stations. As a result of an economic recession and a decrease in consumer incomes, there will be a:

leftward shift in the station's demand curve and lower gas prices.

After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by:

opportunity cost

The upward slope of the supply curve indicates that:

producers supply more of a good when its price increases.

When economists want to describe how much an economy can produce with a given amount of resources, they use a model known as:

production possibility frontier

Market failure results when the:

pursuit of individual self-interest leads to bad results for society as a whole.

Those points lying beyond the PPF:

represent outcomes unattainable with the current level of technology and resources.

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this?

trade

Economic theory asserts that people will behave in ways that:

will enhance their own overall well-being.