Midterm 1 EC 252

What are the institutions that help foster the appropriate incentives for economic growth?

a dependable legal system, property rights, and competitive and open markets

invisible hand

a metaphorical hand that leads individuals to promote social interest by pursuing self interest

The ability of one producer to produce one good or service using fewer inputs than another producer is:

absolute advantage.

One benefit of trade is that it:

allows for increased specialization and mass-production techniques that lower per unit costs of production.

Susan quits her administrative job, which pays $40,000 a year, to finish her 4-year college degree. Her annual college expenses are $8,000 for tuition; $900 for books; and $2,500 for food. The opportunity cost of attending college for the year is:

$48,900

(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?

1/3

(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of nickel China can produce?

8 tons

(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of textiles China can produce?

8 tons

Example of invisible hand

A Vietnamese farmer grows rice, an exporter ships it to the United States, and, a grocer in New York sells it to a customer

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is TRUE? Cameron is the only one made better off by the trade. David and Cameron must have different preferences for the car. David is made better off by the trade, but Cameron is made worse off. This trade did not create value because Cameron is buying a car that David considers worthless

David and Cameron must have different preferences for the car.

Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that:

France should specialize in producing phones and import computers from Sweden

Thinking on the margin

Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity

The main incentive for business activity

Profit

(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, which of the following is TRUE? The United States has an absolute advantage in producing both iPhones and iPods. The United States has an absolute advantage in producing iPhones, and Canada has an absolute advantage in producing iPods. Canada has an absolute advantage in producing iPhones, and the United States has an absolute advantage in producing iPods. Canada has an absolute advantage in producing both iPhones and iPods.

The United States has an absolute advantage in producing both iPhones and iPods.

The Zimbabwean government printed money as fast as it could for years. As a result:

The Zimbabwean government printed money as fast as it could for years. As a result:

Which of the following explains why economic booms and busts cannot be avoided?

The economy is always being struck by unavoidable shocks.

Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE? The opportunity cost of painting a house is zero for Alex Rodriguez and is negative for the high school student. The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student. The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student. The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student

The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student

The opportunity cost of a choice

The value of the opportunities lost

The average starting salary of economics majors is just behind that of:

chemical and nuclear engineering majors.

Specialization and trade can _____ the per unit cost of production because _____ .

decrease; it creates economies of scale associated with large-scale production

Booms and busts refer to the:

fluctuations in economic activity over time.

A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6, and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:

greater than $3.

If the central bank creates too much money, _____ is the result. If the central bank doesn't create enough money, an economic _____ is the result.

inflation; slowdown

A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:

needs to know the causes of inflation, for example, the government's printing of too much money.

Division of knowledge refers to:

people learning different tasks in which they specialize.

Institutions that support economic growth are the ones that:

provide incentives for entrepreneurs to take risks and innovate.

The production possibilities frontier shows:

the combinations of outputs a country can produce given its resources and productivity.

The better Martha Stewart is at running her business:

the higher her opportunity cost of ironing her own shirts.

The historical rise in living standards of American workers is primarily a result of:

the rise in American productivity.

In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is

the value of studying economics.

The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because:

too much money or too little money might induce inflation or unemployment due to bad timing of decisions.