ECON 2010 Chapter 2

Which of the following would create economic growth; that is, shift the production possibilities frontier outward?

All

What is the role of an entrepreneur?

All of the above

If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?

An independent court system

In the circular-flow diagram, which arrow shows the flow of factors of production?

D

In the circular-flow diagram, which arrow shows the flow of income paid to the factors of production?

D

What are patents and copyrights designed to do?

Not all of the above

According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?

Price

Absolute advantage is the ability of an individual, firm, or country to

Produce more of a good or service than competitors using the same amount of resources

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the ______ the payoff to devoting additional resources to that activity.

Smaller

Generally speaking, for a market system to work, individuals must

Take risks and act in rational, self-interested ways

Refer to the graph below. Which of the following combinations of pies and cakes is unattainable given existing resources?

4 cakes and 7 pies

In the circular-flow diagram, which arrow shows the flow of goods and services?

B

Refer to the graphs below. Which graph best represents the concept of economic growth?

Both

Fill in the blanks. In a simple circular-flow model, there are flows of .

Both a and B

Refer to the graph below. Which of the following combinations is inefficient?

Combination F

Refer to the graph below. Which of the following combinations is unattainable with the current resources available in this economy

Combination G

Refer to the graphs below. Each graph represents one country. Which country should specialize in the production of chips?

Country A

In a free market system, which of the following groups brings together the factors of production— labor, capital, and natural resources—in order to produce goods and services?

Enrepreneurs

In which markets are factors of production, such as labor, capital, natural resources, and entrepreneurial ability traded?

Factor Markets

Refer to the graphs below. Which graph represents the concept of economic growth?

Graph on the left

Which of the following refers to markets where goods such as computers or services such as medical treatment are offered?

Product market

What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?

The country is operating on its production possibilities frontier

A production possibilities frontier will be linear instead of bowed out if

The opportunity cost of producing more of either of the two good is constant

Refer to the graph below. How many roadsters are produced at the point where BMW produces 800 SUVs?

0

Refer to the graph below. What is the opportunity cost of moving from point B to point C?

150 aircraft carriers

Refer to the graph below. What is the opportunity cost of moving from point B to point C?

200 Roadsters

The table below shows the quantity of two goods that a worker in Country A and a worker in Country B can produce per day. Which country has an absolute advantage in the production of each good?

Country A has an absolute advantage in the production of each good

According to Adam Smith, which of the following is necessary for the proper functioning of the market system?

For markets to work, people must be free to pursue their self-interest

Which of the following comprises the two key groups of participants in the circular flow of income?

Households and firms

What is the outcome of enforcing contracts and property rights in a market system?

Increased economic activity

According to Adam Smith, which of the following is true?

Individuals usually act in a rational, self-interested way

Refer to the graph below. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and producing roadsters?

Moving B to C

Consider the table below. What is country A's opportunity cost of producing 1 unit of clothing?

Not 1/2 unit of food

Refer to the graph below. What is the opportunity cost of producing 400 aircraft carriers?

Not 200 automobiles

In the circular-flow diagram, which arrow shows the flow of spending by households?

Not C

Refer to the graphs below. If you have a comparative advantage in the production of apples, what point would best represent your production with trade?

Not D

Refer to the graph below. As you move from point A to point B and then to point C on this graph, what happens to the marginal opportunity cost?

Not Decreases

Refer to the graphs below. What is point B' on your neighbor's PPF curve?

Not Point B' is your neighbor's production after trade

Which of the following statements is most consistent with positive economic analysis?

Not US should produce at home the goods that it now imports - the way the nation can generate additional jobs here at home

Refer to the graphs below. Which of the following could have caused the outward shift of the curve in the graph on the left side?

Not a change in the cost of producing automobiles

Which of the following is critical to the success of a market system?

Not both a and b

Refer to the graphs below. Each graph represents one country. Which country has a comparative advantage in the production of shirts?

Not country A

Consider the table below. Which country has a comparative advantage in the production of each good?

Not country A has a comparative advantage in the production of both good

Refer to the graph below. What does the term "increasing marginal opportunity cost" mean in this graph?

Not increasing the production of either aircraft carriers or automobiles creates more opportunities in the economy

Refer to the graph below. In this problem, what is the opportunity cost of producing five cakes?

Not zero pies

Refer to the graph below. The graph shows the data from Solved Problem 2-1. What is the opportunity cost of switching from Choice D to Choice E?

One cake

What is the name given to the highest-valued alternative that must be given up to engage in any activity?

Opportunity Cost

If a country has a comparative advantage in the production of a good, then that country

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

Refer to the graphs below. Which graph better represents an improvement only in the technology used to make automobiles?

Graph on the right