Macroeconomics Test 2: Chapter 3.2

Suppose that in the British compound of a prisoner of war​ (POW) camp, the price of cheese is 18 cigarettes per cheese ration and the price of coffee beans is 6 cigarettes per coffee ration. In the French​ compound, the price of coffee beans is 24 cigarettes per ration. a. Is there an opportunity for beneficial​ exchange? b. A British prisoner could exchange his cheese ration for ???cigarettes, then exchange the cigarettes for ??? coffee rations in the British compound. If he travels to the French​ compound, he could exchange the coffee for ??? cigarettes. When he returns to the British​ compound, he can exchange the cigarettes for ??? cheese rations. In other​ words, his net gain from trade is ??? cheese rations.

18 3 72 4 3

Simon Paper has a large mill outside of​ Garfunkel, Indiana. The plant has emitted fumes into the​ air, and on​ average, the air quality within a​ 5-mile radius of the plant rates​ 33% lower on an air quality scale than the air outside of that​ 5-mile radius. What is a potential solution that the government can provide for the people of​ Garfunkel? A. A tax on Simon Paper for exceeding certain levels of pollution. B. To force Simon Paper to hire pollution reduction specialists. C. To force Simon Paper to move to a new​ "green" facility in​ Greenville, SC. D. To force Simon Paper out of business.

A. A tax on Simon Paper for exceeding certain levels of pollution.

What of the following projects would be considered a public​ good? A. Building a new road. B. Running new power lines. C. Laying​ fiber-optic cable for broadband internet. D. Maintaining telephone service.

A. Building a new road.

Entrepreneurs play a key role in a market economy by A. entering a very profitable market and driving down the price until there is just enough profit for them to remain in business. B. producing unusual products that no other firm would produce. C. making sure that market profits stay high while prices stay low. D. persuading the government to stay out of private markets so they will be free.

A. entering a very profitable market and driving down the price until there is just enough profit for them to remain in business.

In a market​ system, the price is a signal for A. the relative scarcity of a product. B. the environmental impacts of a product. C. the style of a product. D. the effectiveness of a product.

A. the relative scarcity of a product.

Which of the following must be true for markets to operate​ efficiently? A. Consumers and producers must face no uncertainty. B. People must bear the full cost and reap the full reward from their decisions. C. Property rights must be divided equally between consumers and producers. D. All of the above.

B. People must bear the full cost and reap the full reward from their decisions.

The market has recently seen a massive uptick in demand for widgets. An expected reaction of an entrepreneur would be to A. promote a new product called a wicket. B. enter the widget business. C. mark down the price of a given quantity of widgets. D. do nothing.

B. enter the widget business.

Some markets are dominated by a few large​ firms, leading to A. high prices and many choices. B. high prices and small quantities. C. large quantities and high profits. D. intense competition and low profits.

B. high prices and small quantities.

The establishment of property rights for urban squatters in Peru increased A. inventory investment. B. investment in housing. C. consumption of durable goods. D. production of vegetables.

B. investment in housing.

Why might pollution from a paper mill be an example of a market​ failure? A. The paper mill is ignoring property rights by polluting. B. People living near the paper mill are not offered jobs there. C. People living downwind of the mill bear part of the cost of production. D. None of the above.

C. People living downwind of the mill bear part of the cost of production.

Given the uncertainty of market​ economies, most governments A. require its citizens to buy employment insurance. B. require its citizens to buy private insurance for​ home, life, and cars. C. fund a​ "social safety​ net" that provides for citizens who fare poorly in markets. D. require its citizens to buy private insurance for health and cars.

C. fund a​ "social safety​ net" that provides for citizens who fare poorly in markets.

Economic​ pioneer, Adam​ Smith, said that when people act in their own economic​ self-interests, it A. promotes the interest of the individual only. B. promotes greed and selfishness. C. promotes the interest of society as a whole. D. helps only certain aspects of society.

C. promotes the interest of society as a whole.

Which of the following is not a function of government in the​ market? A. requiring firms to provide information about the features of their​ products, including warnings about potentially harmful uses of the product B. fostering competition through the use of​ anti-trust policy C. helping to enforce contracts by maintaining a legal system that punishes people who violate them D. controlling the entry and exit of firms into a market to ensure that markets are orderly

D. controlling the entry and exit of firms into a market to ensure that markets are orderly

To explain the virtues of​ markets, Adam Smith used the metaphor of the invisible pancreas. True or False?

False

The government protects intellectual property rights by enforcing copyright rules on textbooks. Suppose Google scans the pages of this and other introductory economics textbooks and makes them available for downloading at no charge. a. Supposing you are a current textbook​ consumer, you would be ??? b. What are the implications for the next generation of economics​ students? A. Fewer textbook titles will be available for copy over the internet. B. Textbook producers will not supply as many textbooks. C. Textbook publishers will not create as many new textbooks. D. All of the above.

better off D. All of the above.

Four social inventions that support markets are ??? which specify the terms of​ exchange; ??? which reduces the risk of​ entrepreneurs; ???which increase the profitability of​ inventions; and ??? which provide potential investors with reliable information about the financial performance of firms.

contracts insurance patents accounting rules

By promoting​ competition, the government generates ??? product prices. - higher, lower, unchanged

lower

The government protects intellectual property rights by enforcing patents on new pharmaceutical drugs. Suppose the​ government, by enforcing patent​ laws, prevents a new drug by Merck from being copied by another company and made available at a dramatically reduced price. If you were a current consumer of this new pharmaceutical​ drug, you would initially be ??? as a result of the​ government's action. What are the implications for the next generation of pharmaceutical drug​ users? A. Fewer pharmaceutical drugs will be available in the future. B. Pharmaceutical companies will have more revenue to cover research and development costs. C. Pharmaceutical companies will no longer face pressure to​ create, test, and bring to market new drugs. D. All of the above.

worse off B. Pharmaceutical companies will have more revenue to cover research and development costs.