Microeconomics Unit 1 Test

A student who attends college would pay $10,000 annually for tuition, books, and fees. If the student's next best alternative is to work and earn $15,000 a year, the opportunity cost of a year in college would be equal to -zero, since the lost opportunity to earn income is offset by the opportunity to attend college -$5,000, representing the difference between forgone income and college costs · -$10,000, since opportunity costs include only actual cash outlays -$15,000, representing forgone income, since the costs of tuition, books, and fees will be more than offset by additional income earned after graduation -$25,000, representing the sum of tuition, books, fees, and forgone income

$25,000, representing the sum of tuition, books, fees, and forgone income

Economic growth can be depicted using a production possibilities curve by which of the following? -A rightward shift of the curve -A movement upward on an existing curve -A movement downward on an existing curve -A movement from a point outside the curve to a point on the curve -A movement from a point on the curve to a point inside the curve

A rightward shift of the curve

The diagram below shows the production possibilities curves for two countries. Country X and Country Y. Assume that both countries use equal amounts of resources in production. If the two countries engage in trade, both would be better off under which of the following conditions? -Country X produced both cars and planes, because it has an absolute advantage in the production of both goods. -Country Y produced both cars and planes, because it has a comparative advantage in the production of both goods. -Country X specialized in the production of cars, because it has an absolute advantage in the production of cars. -Country Y specialized in the production of cars, because it has a comparative advantage in the production of cars.

Country Y specialized in the production of cars, because it has a comparative advantage in the production of cars.

Which of the following best states the thesis of the law of comparative advantage? -Differences in relative costs of production are the key to determining patterns of trade. -Differences in absolute costs of production determine which goods should be traded between nations. -Tariffs and quotas are beneficial in increasing international competitiveness. -Nations should not specialize in the production of goods and services. -Two nations will not trade if one is more efficient than the other in the production of all goods.

Differences in relative costs of production are the key to determining patterns of trade.

Problems faced by all economic systems include which of the following? I. How to allocate scarce resources among unlimited wants II. How to decentralize markets III. How to decide what to produce, how to produce, and for whom to produce IV. How to set government production quotas -I only -I and III only -II and III only -I, II, and III only -I, II, III, and IV

I and III only

The allocation of resources in a market economy is described by which of the following statements? I. The government decides which goods will be produced and which consumers will receive them. II. Buyers and sellers exchange goods and services on a voluntary basis. III. Prices and costs help producers decide whether they are producing too little or too much of a good. I only II only III only I and III only II and III only

II and III only

The study of economics is primarily concerned with which of the following? -The testing of hypotheses under controlled conditions. -The allocation of scarce resources, given unlimited wants. -The fair and equal treatment of all households. -The provision of conclusive answers to public policy issues. -The development of the dynamics of group behavior.

The allocation of scarce resources, given unlimited wants.

The basic economic problem of all countries is the existence of -tax increases and budgets deficits -limited resources and unlimited wants -unemployment and inflation -government and private industry -unions and monopoly firms

limited resources and unlimited wants

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the -marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner -marginal benefit from cleaner water is maximized -marginal benefit from cleaner water is zero -total benefit from cleaner water is equal to the total cost of making the water cleaner -total benefit from cleaner water is maximized

marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner

All of the following are included in computing the opportunity cost of attending college EXCEPT -interest paid on student loans -wages the student gave up to attend college -money spent on college tuition -money spent on clothing expenses -money spent on books and supplies

money spent on clothing expenses

An outward shift in the production possibilities curve of an economy can be caused by an increase in -unemployment -the labor force -inflation -output demand -scarcity

the labor force