Economics Test 2

Product A B C D E F Tanks 0 1 2 3 4 5 Autos 1000 950 850 650 350 0 2. Refer to the above table. In moving from possibility C to D, the cost of a tank in terms of autos is: A) 200 B) 100 C) 300 D) 50

A) 200

19. Say that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 24 units of food per year or 12 units of clothing. Which of the following is true? A) Iceland has an absolute advantage in producing both food and clothing. B) Iceland has a comparative advantage, but not an absolute advantage in producing food. C) Lavaland has both a comparative and absolute advantage in producing clothing. D) Lavaland has a comparative advantage, but not an absolute advantage in producing food. E) None of the above are true.

A) Iceland has an absolute advantage in producing both food and clothing.

17. Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 16 units of food per year or 8 units of clothing. Which of the following is true? A) Iceland has an absolute advantage, but not a comparative advantage in producing food. B) Iceland has a comparative advantage, but not an absolute advantage in producing food. C) Lavaland has both a comparative and absolute advantage in producing clothing. D) Lavaland has a comparative advantage, but not an absolute advantage in producing clothing. E) Both a. and d. are true.

A) Iceland has an absolute advantage, but not a comparative advantage in producing food.

29. In 2005, Ernie was willing to sell 1000 bushels of apples at a price of $5 per bushel. In 2006, Ernie is willing to sell the same number of bushels at a price of $4 per bushel. From 2005 to 2006, Ernie has experienced: A) an increase in productive efficiency and an increase in supply. B) an increase in productive efficiency and a decrease in supply. C) a price reduction because of an increase in demand. D) a price reduction because of a decrease in demand.

A) an increase in productive efficiency and an increase in supply.

1. The circular flow diagram presented in class shows the: A) flow of goods, services, and payments between households and firms. B) influence of government on business behavior. C) role of unions and government in the economy. D) interaction among taxes, prices, and profits. E) only the economy's banking system.

A) flow of goods, services, and payments between households and firms.

45. An increase in demand and a decrease in supply will: A) increase price and affect the equilibrium quantity in an questionable way. B) increase price and increase the equilibrium quantity. C) decrease price and affect the equilibrium quantity in an questionable way. D) affect price in a questionable way and decrease the equilibrium quantity.

A) increase price and affect the equilibrium quantity in an questionable way.

Product A B C D E F Tanks 0 1 2 3 4 5 Autos 1000 950 850 650 350 0 5. Given the production possibilities table above, a combination of three tanks and 350 autos: A) is attainable but involves the unemployment or inefficient use of some of society's resources. B) cannot be produced by society, given its current level of resources and production technology. C) is not attainable because this combination is not listed in the schedule. D) illustrates the tradeoff between tanks and autos.

A) is attainable but involves the unemployment or inefficient use of some of society's resources.

Product A B C D E F Tanks 0 1 2 3 4 5 Autos 1000 950 850 650 350 0 4. According to the production possibilities schedule, a combination of four tanks and 650 autos is: A) not attainable because society does not have sufficient resources to produce this combination. B) attainable, but involves an efficient use of society's resources. C) attainable, but would not be in the best interests of a strong national defense. D) not attainable because it is not listed in the schedule.

A) not attainable because society does not have sufficient resources to produce this combination.

28. If the price of a product increases, we would expect: A) quantity supplied to increase. B) quantity demanded to increase. C) supply to decrease. D) demand to decrease.

A) quantity supplied to increase.

22. Consider the demand for product X. If average income increases, while consumer preferences and prices of related goods remain unchanged, then the demand curve for product X will : A) shift to the right. B) remain stationary because income is not a determinant of demand. C) remain stationary and the price of X will fall. D) shift to the left.

A) shift to the right.

10. Ernie makes $150 a day as a bank clerk. He takes off two days of work without pay to fly to another city to attend the concert of his favorite music group. The cost of transportation, hotel, and food for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Ernie's trip to the concert in monetary terms is: A) $450. B) $600. C) $500. D) $300.

B) $600.

20. Which is consistent with the law of demand? A) An increase in the price of pizza causes an increase in the quantity of pizza demanded. B) An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded. C) A decrease in the price of tacos causes no change in the quantity of tacos demanded. D) A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded.

B) An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded.

15. Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples. Which of the following is true? A) Adam has an absolute advantage in oranges and a comparative advantage in apples. B) Karl has an absolute advantage in oranges and a comparative advantage in oranges. C) Karl has an absolute advantage in both apples and oranges. D) Karl has an absolute advantage and a comparative advantage in apples. E) Adam has an absolute advantage in both apples and oranges.

B) Karl has an absolute advantage in oranges and a comparative advantage in oranges.

42. If demand for a good decreases while supply remains unchanged, equilibrium price: A) and quantity will both increase. B) and quantity will both decrease. C) will increase, and equilibrium quantity will decrease. D) will decrease, and equilibrium quantity will increase.

B) and quantity will both decrease.

41. A television station reports that the price of orange juice has declined but the quantity sold has increased. This situation would be caused by a(n): A) decrease in supply B) increase in supply. C) decrease in demand. D) increase in demand.

B) increase in supply.

Product A B C D E F Tanks 0 1 2 3 4 5 Autos 1000 950 850 650 350 0 3. The opportunity cost of each additional tank in terms of autos: A) cannot be measured because there is no currency. B) increases as more tanks are produced. C) falls as more tanks are produced. D) remains constant.

B) increases as more tanks are produced.

11. The effects of technological improvement on total production is illustrated graphically by: A) declines in output and resource productivity. B) a leftward or inward shift of the production possibilities curve. C) a rightward or outward shift of the production possibilities curve. D) shifts in production and reallocation of limited resources.

C) a rightward or outward shift of the production possibilities curve.

38. If the market price is above the equilibrium price: A) a shortage will occur and firms will eventually manufacture more units and reduce prices. B) producers will make extremely high profits. C) a surplus will occur and firms will eventually manufacture less and reduce prices. D) a surplus will result and consumers will bid up prices.

C) a surplus will occur and firms will eventually manufacture less and reduce prices.

43. An increase in demand and an increase in supply will: A) decrease price and increase the equilibrium quantity. B) increase price and increase the equilibrium quantity. C) affect price in a questionable way and increase the equilibrium quantity. D) affect price in a questionable way and decrease the equilibrium quantity.

C) affect price in a questionable way and increase the equilibrium quantity.

6. Points C, D, E, and H on the above graph show: A) a constant tradeoff between food and clothing. B) unattainable production levels of food and clothing. C) attainable and efficient production levels of food and clothing. D) an inefficient allocation of limited resources.

C) attainable and efficient production levels of food and clothing.

23. A normal good is one: A) which all people like. B) for which demand increases when price decreases. C) for which demand increases when income increases. D) for which demand increases when income decreases.

C) for which demand increases when income increases.

8. The production of food and clothing shown by point F on the above graph: A) is not attainable with current resources and technology. B) is an efficient use of society's resources because it is below the production possibilities curve. C) is attainable but involves the unemployment and inefficient use of some resources. D) would represent desirable output levels only if there was no international trade.

C) is attainable but involves the unemployment and inefficient use of some resources.

30. An improvement in the technology of production for a specific good is expected to cause: A) lower prices and decreased quantity sold. B) higher prices and decreased quantity sold. C) lower prices and increased quantity sold. D) higher prices and increased quantity sold.

C) lower prices and increased quantity sold.

27. Which is a factor that can cause a change in supply? A) number of consumers B) tastes and preferences C) technology D) consumer income

C) technology

47. What combination of changes would most likely decrease the equilibrium price? A) when supply decreases and demand increases B) when demand increases and supply increases C) when supply increases and demand decreases D) when demand decreases and supply decreases

C) when supply increases and demand decreases

14. Janis mows the lawn in 1 hour and types a paper in 1 hour. Kristen mows the lawn in 2 hours and types a paper in 1 hour. Which of the following statements is true? A) Kristen has an absolute advantage in typing and a comparative advantage in mowing. B) Janis has an absolute advantage in both activities and a comparative advantage in typing. C) Janis has an absolute advantage in both activities and a comparative advantage in mowing. D) The opportunity cost of mowing the lawn is greater for Kristen than it is for Janis. E) Neither Janis nor Kristen would gain from specialization.

D) The opportunity cost of mowing the lawn is greater for Kristen than it is for Janis.

24. People demand more of product X when the price of product Y decreases. This means X and Y are: A) both inexpensive. B) substitutes. C) not related. D) complements.

D) complements.

44. A decrease in demand and an increase in supply will: A) increase the equilibrium quantity and decrease price. B) increase price and affect the equilibrium quantity in an questionable way. C) decrease the equilibrium quantity and affect price in an questionable way. D) decrease price and affect the equilibrium quantity in an questionable way.

D) decrease price and affect the equilibrium quantity in an questionable way.

21. Which is a factor that can cause a change in demand? A) number of suppliers B) production costs C) technology D) income

D) income

31. Milk is a major ingredient of ice cream. A reduction in the milk price will: A) cause a downward movement along the supply curve of ice cream. B) have no effect on the supply of ice cream. C) decrease the supply of ice cream, causing the supply curve of ice cream to shift to the left. D) increase the supply of ice cream, causing the supply curve of ice cream to shift to the right.

D) increase the supply of ice cream, causing the supply curve of ice cream to shift to the right.

7. The production of food and clothing shown by point G on the above graph: A) suggests that the law of increasing relative costs is not relevant in this case. B) can be attained only if some of society's resources are unemployed. C) results only because society allocates its resources inefficiently. D) is not attainable, given society's available resources and technology.

D) is not attainable, given society's available resources and technology.

9. The law of increasing opportunity costs indicates that: A) resources are perfectly mobile except for transportation costs. B) if the prices of all the resources involved in the production of goods increase, the cost of producing those goods will increase at the same rate. C) the sum of all costs cannot rise above the market price of a product. D) to produce more of one good, other goods must be sacrificed by larger and larger amounts.

D) to produce more of one good, other goods must be sacrificed by larger and larger amounts.

46. What combination of changes in supply and demand would most likely increase the equilibrium quantity? A) when supply decreases and demand increases B) when supply decreases and demand decreases C) when supply increases and demand decreases D) when supply increases and demand increases

D) when supply increases and demand increases

16. Iceland can produce 32 units of food per person per year or 8 units of clothing per person per year, but Lavaland can produce 16 units of food per year or 8 units of clothing. Which of the following is true? A) Iceland has both a comparative and absolute advantage in producing food. B) Iceland has a comparative advantage, but not an absolute advantage in producing food. C) Lavaland has both a comparative and absolute advantage in producing clothing. D) Lavaland has a comparative advantage, but not an absolute advantage in producing clothing. E) Both a. and d. are true.

E) Both a. and d. are true.

18. Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 24 units of food per year or 12 units of clothing. Which of the following is true? A) Iceland has both a comparative and absolute advantage in producing food. B) Iceland has a comparative advantage, but not an absolute advantage in producing food. C) Lavaland has both a comparative and absolute advantage in producing clothing. D) Lavaland has a comparative advantage, but not an absolute advantage in producing clothing. E) None of the above are true.

E) None of the above are true.