econ unit 1

As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements? 1)Allocation of domestic resources 2)Standard of living 3)Self-sufficiency

1 & 2

Based on the information provided above, which of the following are mutually beneficial terms of trade at which both Home and Foreign Nation will be willing to specialize and exchange?

1 auto for 17 computers

The diagram above shows the production possibilities curve for the production of peaches and apples in Fruitland. Between points X and Y on the PPC, the opportunity cost of one unit of peaches is which of the following?

1 unit of apples

The data above indicates labor-hours needed to produce a single unit of each of two commodities in each of two countries. If labor is the only factor used to produce the commodities, which of the following statements must be correct? 1)Country A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of wheat. 2)Country B has an absolute advantage in the production of both commodities, but a comparative advantage in the production of fish. 3)Mutually advantageous trade can occur between the two countries when 2.5 units of fish are exchanged for 1 unit of wheat.

1&3

Which of the following concepts can be illustrated using the production possibilities curve? I. Choice II. Scarcity III. Price level IV. Opportunity cost

1,2,4

If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the production of good A from 10 units to 20 units is how many units of good B?

10

At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?

1G = 1.5S

To protect high-cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run? 1)A decrease in domestic production of Y 2)An increase in domestic production of Y 3)An increase in foreign output of Y

2

A leftward shift of the supply curve for computers could be caused by which of the following in the short run?

A decrease in the number of computer manufacturers

Which of the following will cause a movement along the demand curve for chicken, a normal good, resulting in an increase in the quantity demanded?

A decrease in the price of chicken

Which of the following would best explain an inward shift of the production possibilities curve?

A decrease in the quality of human capital

Assume an economy produces two goods, capital goods and consumer goods. If the production of capital goods increases in the current period, which of the following will occur for the current and future production possibilities curve (PPC) for consumer goods and capital goods?

A movement along the current PPC and a rightward shift of the future PPC

The graph above shows the production possibilities curves (PPC) for an economy. The concept of opportunity cost is best represented by which of the following?

A movement from point B to point C

Which of the following would shift a country's production possibilities curve inward?

A reduction in the size of the country's labor force

Which of the following changes will most likely cause a shift of the demand curve from D1 to D2 as shown in the diagram?

An increase in consumers' income, assuming that video games are a normal good

Which of the following describes the law of supply?

An increase in the price of a good will increase the quantity supplied.

Suppose countries Alphania and Betania produce electronics and apparel using identical resources. Which of the following is true if Alphania exports electronics to and imports apparel from Betania within a free-trade system ?

Betania has a comparative advantage in producing apparel, and Alphania has a comparative advantage in producing electronics.

Suppose two countries are each capable of individually producing two given commodities. Instead, each specializes by producing the commodity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result?

Both countries will become better off.

If two nations specialize according to their individual comparative advantages and engage in trade, then which of the following must be true?

Both nations can consume beyond their individual production possibilities

Using equal amounts of labor hours, Country X and Country Y can each produce the number of watches and radios shown in the production possibilities curves above. Based on the information, which of the following is true?

Countries X and Y can engage in a mutually advantageous trade by exchanging 1 watch for 1 radio.

Which of the following would cause the production possibilities curve shown above to shift outward?

Developing a more efficient steelmaking process

If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true?

Each nation would increase its consumption possibilities.

Country A both imports and produces tea. If Country A imposes a tariff on imported tea, which of the following will occur?

Employment in the domestic tea industry will increase.

If there is a decrease in the price of the coffee beans used to make brewed coffee, how will this affect the equilibrium price and quantity of brewed coffee?

Equilibrium price will decrease and equilibrium quantity will increase

If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur?

Equilibrium quantity will increase.

The diagram above shows the production possibilities curve for the production of peaches and apples in Fruitland. The production possibilities curve illustrates which of the following relationships?

Fruitland cannot produce a combination of 5 units of peaches and 10 units of apples.

Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement?

Mary Jane has a comparative advantage in law so she should specialize in law and hire a carpenter to make her cabinets.

The table above indicates the production alternatives of two countries, A and B, which produce computers and steel using equal amounts of resources. If both countries always produce at full employment, which of the following statements must be correct?

Mutually advantageous trade can occur between the two countries when 2 units of steel from Country B are exchanged for 1 computer from Country A.

Nations A and B produce only chairs and bicycles. If each laborer in Nation A can produce twice as many chairs as each laborer in Nation B, then which of the following is necessarily true?

Nation A has an absolute advantage in chairs.

Brazil and Peru produce both coffee and wheat using labor as the only input. The table below shows the labor hours required to produce a unit of coffee and a unit of wheat in each country

Peru has a comparative advantage in producing coffee.

The diagram above shows the production possibilities curve for an economy that produces only consumption and capital goods. All of the following statements about this economy are true EXCEPT:

Point X represents the most efficient combination of the two goods that can be produced by this economy.

Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price?

Price will increase to eliminate the shortage and restore equilibrium.

If a certain combination of goods or services lies outside the production possibilities curve of an economy, which of the following is true?

Resources are not available to achieve that combination of goods or services.

All societies face a trade-off for every decision for which of the following reasons?

Resources are scarce.

Which of the following would be most likely to occur if the United States placed high tariffs on imported goods?

The United States economy would become less efficient.

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true?

The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn.

Which of the following best explains why many United States economists support free international trade?

The long-run gains to consumers and some producers exceed the losses to other producers.

If the wage rate of workers producing a good decreases, then which of the following will most likely occur?

The supply of the good will increase.

Which of the following best describes human capital?

The training and education of workers

At a price of P2 in the diagram above which of the following will happen in the market?

There will be a surplus of 60 units and 30 units will be exchanged.

Which of the following is the most fundamental issue that economics addresses

Use of scarce resources

Which of the following describes scarcity

Wants exceed resources.

Given this information, which of the following statements is correct?

X has a comparative advantage in food production, whereas Y has a comparative advantage in clothing production.

When an economy producing two goods is operating efficiently and at full employment, increasing the production of one good will result in

a decrease in the amount of the other good that can be produced

Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following?

alpha =1 beta =2

An economy is operating at a point inside its production possibilities curve (PPC). Which of the following will most likely cause the economy to move toward the current PPC in the short run?

an increase in employment

Any point inside a production possibilities curve is

associated with inefficient use or unemployment of some resources

If producing each additional unit of good X required giving up ever-increasing amounts of good Y, the production possibilities curve between X and Y would be

bowed outward

Which of the following is an example of a factor of production?

capital

The table shows the production possibilities for Country X in producing shirts and chairs when it uses all its available resources. The opportunity cost of producing one additional chair is

constant

The main benefit of free trade between two countries is that

each country can consume beyond its constraints of resources and productivity

The theory of comparative advantage implies that Alpha would find it advantageous to

export grain and import steel

Tariffs are different from assigned import quotas in that tariffs will

generate additional revenue for the domestic government

Scarcity exists because

human wants exceed the productive capacity of the economy

A production possibilities curve that is concave to the origin (bowed out) implies that as more of a good is produced, the opportunity cost

increases

The best combination of belts and coats for this economy to produce is

indeterminate with the available information

For an economy that is operating inside its production possibilities curve, which of the following is true?

it can increase production of both goods

Which of the following is always true of an economy operating on its production possibilities frontier?

its resources are fully employed

In a mixed economy, what to produce and how much to produce are determined by

markets and the government

Unlike a market economy, a command economy uses

more centralized planning in economic decision making

A country's infrastructure refers to its

public capital goods such as highways

A simultaneous increase in both the demand for and the supply of a good in a market will lead to which of the following changes in the equilibrium price and quantity of the good?

quality increase and price indeterminate

The shifting of a country's production possibilities curve to the right will most likely cause

the long-run aggregate supply curve to shift to the right

The concept of opportunity cost would no longer be relevant if

the supply of all resources were unlimited

The opportunity cost of an activity is

the value of the forgone benefit of the next best alternative

The graph above shows the demand for and supply of a good. If the market price is P1, then

there is a surplus, and the price will fall

Comparative advantage implies that

two countries should benefit from trade unless both have equal opportunity costs in every good