Econ Ch2
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
The division of labor
A product produced in a foreign country and purchased by residents of the home country is called
an import
In the circular flow model of the economy, __________ are the suppliers of goods and services
firms
The knowledge, skills, and education a worker has is known as
human capital
In the diagram to the right, point Upper F indicates an
inefficient result
According to Adam Smith, which of the following is necessary for the proper functioning of the market system According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity
For markets to work, people must be free to pursue their self-interest prices
In the above graph, which of the following combinations of pies and cakes is unattainable given the existing resources
Four cakes and seven pies
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost
According to the theory of comparative advantage, specialization and free trade will benefit
all trading partners who specialize in goods where they have comparative advantage
Fred and Ann both decide to see the same movie when they are given free movie tickets. We know that
both bear an opportunity cost since they could have done other things instead of see the movie
Steve and Karen decide to attend the same concert when they are each given free tickets to it. We know that
both bear an opportunity cost that depends on what each person is giving up to attend the concert.
A free market is a market with ________ government restrictions on how a good or service can be produced or sold and with ________ government restrictions on how a factor of production can be employed
few; few
What is the outcome of enforcing contracts and property rights in a market system If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights
increased economic activity an independent court system
Contracts, insurance, patents and accounting rules are
inventions that make a market work better
Adam Smith observed that people pursuing their own self-interest in a free market will actually result in the best interest of society as if these actions were guided by a(n):
invisible hand
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
Absolute advantage is the ability of an individual, a firm, or a country to If a country has a comparative advantage in the production of a good, then that country
produce more of a good or service than competitors using the same amount of resources has a lower opportunity cost in the production of that good
Farmer McDonald has 100 acres of land on which he can grow soybeans or corn. An acre of land yields 200 bushels of soybeans or 100 bushels of corn or some combination of both. The accompanying figure refers to farmer McDonald's
production possibilities curve
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
The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource limitations, the extent to which security is enhanced will most likely be determined by
society's willingness to forego other goods and services, both public and private
The role of the entrepreneur always involves
taking risks
A freelance singer-songwriter is planning the restoration of a recently purchased civil war-era farmhouse. While he professes an enjoyment of, and talent in the construction trades, the theory of comparative advantage implies that
the income lost while away from music will likely exceed the savings realized by doing the work himself, thus, he should hire professionals to do the restoration work.
Jennie is buying something for dinner. She can choose between chicken, steak, and salmon. She doesn't like salmon, and after some thought, she chooses chicken. What is the opportunity cost of this choice
the steak
Bill Bonecrusher graduates from college with a choice of playing professional football at $2 million a year or coaching for $50,000 a year. He decides to play football, but eight years later he quits football to make movies for $3 million a year. His opportunity cost at graduation was ________ and eight years later was ________
$50,000; $2 million
Which of the following events would create economic growth, that is, shift the production possibilities frontier outward
-An increase in the available labor. -An increase in technology that affects the production of both goods. -An increase in the available natural resources
In the previous circular flow diagram, which arrow shows the flow of goods and services
B
In what type of economy does the government decide how most economic resources will be allocated
Centrally planned economy
In the above graph, which of the following combinations is unattainable with the current resources available in this country
Combination G
In the graphs shown, which country has a comparative advantage in the production of shirts
Country B
If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other
False
Refer to the previous graph. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and producing hybrids
Moving from point B to point C
What is the name given to the highest-valued alternative that must be given up to engage in any activity
Opportunity cost
Which of the following statements is FALSE about opportunity cost
Opportunity cost exists only for goods with monetary values
In the circular flow model, which of the following refers to markets where goods such as computers or services such as medical treatment are offered
Product markets
As part of their budget tightening process, many states are cutting aid to colleges and universities, with students being asked to pick up a bigger part of the escalating tab of higher education. Which of the following would do the most to enable you to cope with those higher expenses without impairing your progress toward a degree?
Reducing your consumption of goods and services not essential to your education
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy Refer to the graph to the right. What is the opportunity cost of moving from point B to point C
The country is operating on its production possibilities frontier 20 sedans
The basis for trade is comparative advantage, not absolute advantage
True
The outward shift of the production possibilities frontier from point A to point B in the above graph would most likely be caused by
a technological advance that affects both the production of automobiles and aircraft carriers
Ms. Boulware is the best lawyer and the best secretary in town. She has
an absolute advantage in both jobs
In the United States, property rights
are guaranteed by two amendments to the U.S. Constitution
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
When nations specialize in their comparative advantage and engage in trade
overall standards of living increase
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
A student has a job that pays a wage rate of $10 per hour. The night before an economics exam, the student has set aside four hours to study for the exam, estimating that for each hour spent studying, her grade will rise by 5 points. That night, she gets a call from her employer to come to work for a wage rate of $15 per hour for that night. She decides to work for three hours and earn an extra $45.00. The next day she takes the test and gets a grade of 75. The opportunity cost for her work is
the 15 extra points she estimates that she could have earned on the exam if she had studied the extra three hours
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
Using information in the previous table, what is country A's opportunity cost of producing 1 unit of clothing
2 units of food
Which of the following are the two key groups of participants in the circular flow of income In a simple circular-flow model, there are flows of _________ and flows of _________
households and firms -factors of production; goods and services -funds received from the sale of factors of production; spending on final goods and services
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
When a firm can produce more output from the same level of inputs it is due to
technological change
For every choice a person makes it can be assumed that
some opportunity cost was involved.
What is the role of an entrepreneur
-to operate a business that produces a good or service -to bring together the factors of productionlong dash—labor, capital, and natural resources -to take risks
The graph shows a production possibilities curve for a student who currently spends 8 hours a week studying. How could the student get a B in both classes?
The student could study more than 8 hours a week
Suppose that your grade point average and academic record are the most important thing to you. What is the opportunity cost of spending 2 hours studying for a biology exam
Time spent studying for one of your other classes
Which of the following is critical to the success of the market system
To allow individuals or firms to have exclusive use of their property
What are copyrights designed to accomplish
Protect intellectual property rights
Opportunity cost
is the value of the next best alternative as a result of choosing some given alternative