Macroeconomics Chapter 3

The role of the entrepreneur always involves: a) taking risks b) playing it safe c) working for others d) high impact sales

a) taking risks

In what type of economy does the government decide how economic resources will be allocated? a) a market economy b) a centrally planned economy c) a mixed economy

b) a centrally planned economy

___________ occurs when a domestic firm shifts production to a different country. a) Insourcing b) Exporting c) Outsourcing

c) Outsourcing

Which of these is NOT a source of market failure? a) Imperfect information b) Full costs not borne by the consumer and producer c) Perfect competition

c) Perfect competition

In a market system, which of the following provides the information that individuals need to make decisions about resource allocation? a) The government b) Production costs c) Prices d) Public libraries

c) Prices

Whenever markets do not produce the most efficient outcomes on their own, we call this phenomenon: a) absolute disaster b) the invisible hand c) market failure d) diminishing returns

c) market failure

In his 1776 book, "An Inquiry into the Nature and Causes of the Wealth of Nations," Adam Smith notes that specialization increases productivity. Which of the following was the cause of this phenomenon? a) Combining production steps b) Increasing factory size C) The division of labor

C) The division of labor

Which of these government policies can help economic growth? a) Ensuring political stability and relatively little corruption b) Central planning that can direct resources more efficiently c) Public ownership of all physical capital

a) Ensuring political stability and relatively little corruption

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources is known as: a) absolute advantage b) international trade c) comparative advantage

a) absolute advantage

Ms. Boulware is the best lawyer and the best secretary in town. She has: a) an absolute advantage in both jobs b) has a comparative advantage in being a secretary c) a comparative advantage in both jobs

a) an absolute advantage in both jobs

A patent is government protection that gives an inventor exclusive rights to profit from their invention __________. a) for a period of 20 years b) until they have recovered development costs c) for a period of 17 years

a) for a period of 20 years

If a country has a comparative advantage in the production of a good, then that country: a) has a lower opportunity cost in the production of that good b) should allow another country to specialize in the production of that good c) has an absolute advantage in producing that good

a) has a lower opportunity cost in the production of that good

When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of? a) Normative economics b) A market c) Marginal analysis d) Rationality

b) A market

According to the theory of comparative advantage, specialization and free trade will benefit: a) only the trading party with an absolute advantage in the production of a good b) only those countries that have a monopoly in a particular resource c) all trading partners who specialize in goods where they have comparative advantage d) only the party that specializes the most

c) all trading partners who specialize in goods where they have comparative advantage

When nations specialize in their comparative advantage and engage in trade: a) 100 percent of the population will benefit b) the variety of goods for sale declines c) overall standards of living increase d) overall poverty levels increase

c) overall standards of living increase

An electric power producer generates an external cost by emitting high levels of pollutants when it uses coal to generate power. The presence of this externality leads to: a) efficiency b) underproduction c) overproduction

c) overproduction

A product produced in a foreign country and purchased by residents of the home country is called: a) self-sufficiency b) an export c) outsourcing d) an import

d) an import

Countries gain from specializing in producing goods in which they have a(n) __________ advantage and trading for goods in which other countries have a(n) __________ advantage. a) Comparative, absolute b) Comparative, comparative c) Absolute, comparative

b) Comparative, comparative

You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor can, which of the following is true? a) You have a comparative advantage in picking cherries. b) You have a comparative advantage in picking apples. c) You should specialize in picking cherries.

b) You have a comparative advantage in picking apples.

Goods and services produced domestically but sold to other countries are called __________. a) tariffs b) exports c) imports

b) exports

Contracts, insurance, patents and accounting rules are: a) enforced only in centrally planned economies b) inventions that make a market work better c) ideas that are unnecessary in a free market d) things that came naturally with the creation of markets

b) inventions that make a market work better

Absolute advantage is the ability of an individual, firm, or country to: a) produce a good or service at a lower opportunity cost than other producers b) reach a higher production possibilities frontier by adding additional resources c) consume more goods or services than others at lower costs d) produce more of a good or service than competitors using the same amount of resources

d) produce more of a good or service than competitors using the same amount of resources