Micro Test 1

The economy makes great strides in eliminating discrimination

Eliminating discrimination would move the economy from a point inside its production possibilities curve toward a point on the curve.

The end of the cold war leads to cuts in military spending

If the curve is illustrating the tradeoff between private spending and government spending (or between military and consumer goods), then this should mean a movement along the curve in the direction of more private or consumer production and less military production. Government spending in general could decrease, but if that were not the case, then the government might simply shift some funds from the military to other types of government spending and the point would not necessarily move at all on a curve depicting the tradeoff between government and private spending.

The inflation rate in the United States hit its lowest level in the last twenty years

Macro

The nation's economy grew at an annual rate of 3.7 percent in the final quarter of the year

Macro

The trade deficit in the United States was $20 billion last month.

Macro

General Motors plans to spend $800 million on a new automobile plant.

Micro

Rains from El Nino again hit the California region causing severe flooding in farms. The prices for citrus and produce are expected to rise sharply.

Micro

The profits of Microsoft rose 20 percent during the past quarter

Micro

Congress significantly increases government spending for health and education

Movement depends on where the money is coming from. If the money comes from increased taxes or borrowing, then there is a movement along the curve away from private spending and toward public spending. If the money comes from other government programs and the curve is illustrating government versus private spending, the amount of total government production would not necessarily change, so the point could remain at the same spot on the curve.

The economy moves from full employment into a deep recession

The economy begins at a point on the curve but with recession there is unemployment and the economy now operates at a point in the area inside the curve, indicating that production is less than that which is possible because some resources are not being used.

Evaluate the statement: "The government should have no place in a capitalistic market system."

While having a large government presence in the economy like in a command market system can be detrimental to efficiency, innovation and growth, there is still a place for government in a capitalistic system. Government can work to promote economic stability and growth and provide rules for the market system to ensure fair business practices, all of which benefit the economy and society as a whole. The government can also work to provide goods and services that would be under-produced or not produced at all. The government also redistributes income. While market forces play the dominant role in determining what and how much is produced, the government still has a part in the system.

The downward slope of the demand curve indicates that, all else equal: a. consumers will buy more of a good when its price decreases. b. producers will supply more of a good when its price increases. c. producers will supply more of a good when its price decreases. d. a decrease in the equilibrium price of a good will cause a shortage

a. consumers will buy more of a good when its price decreases.

Economists typically depict the production possibilities frontier as a bowed out curve rather than as a straight line in order to show that: a. the opportunity cost of producing a good rises as more is produced. b. the opportunity cost of producing a good declines as more is produced. c. resources used in the production of one good cannot be used in the production of another. d. opportunity cost is always present.

a. the opportunity cost of producing a good rises as more is produced.

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this? a. trade b. equity c. scarcity d. opportunity cost

a. trade

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which of the following points represent feasible (attainable) production points? a. All points (A, B, C and D) are feasible. b. Points A, B and C are feasible. c. Points B and C are feasible. d. None of the points are feasible.

b. Points A, B and C are feasible.

Suppose that one person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that one person working in Turkey for the same length of time can produce either 15 yards of cloth or 30 baskets. Which of the following statements is then true? a. Between these two countries, Turkey has the absolute advantage in both goods. b. Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets. c. Turkey has a comparative advantage in baskets; Mexico has a comparative advantage in cloth. d. In both countries, the opportunity costs of producing cloth and baskets are the same

b. Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets.

Economists generally agree that people are most likely to change their behavior when they: a. are asked to do so voluntarily. b. are given incentives to do so. c. live in a world without scarcity. d. live in a world without opportunity costs.

b. are given incentives to do so.

The condition of scarcity means that: a. when the government produces something, there is no opportunity cost. b. choices must be made in the allocation of productive resources. c. you will not incur an opportunity cost if you make the right choice. d. only a command economy can make efficient use of resources.

b. choices must be made in the allocation of productive resources.

If a country specializes according to its own comparative advantage and then trades with other nations: a. it will operate at a point inside its production possibilities frontier. b. it can consume at a higher level than the domestic production possibilities frontier. c. its production possibilities frontier will shift or rotate inward. d. it can consume at the same level as the domestic production possibilities frontier

b. it can consume at a higher level than the domestic production possibilities frontier.

Suppose you hear an economist make an assertion that, between the two countries, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea expressed in the assertion? a. French chocolate is better tasting than Italian chocolate. b. French wine is better tasting than Italian wine. c. France can produce chocolate at a lower opportunity cost than Italy can. d. France can produce wine at a lower opportunity cost than Italy can.

c. France can produce chocolate at a lower opportunity cost than Italy can.

With which one of the following statements would economists be most likely to agree? a. When transactions occur voluntarily, the seller gains and the buyer loses. b. Market economies generate economic growth, but they do not promote efficiency. c. People usually exploit opportunities to make themselves better off. d. If people make wise decisions, they can avoid incurring any opportunity cost.

c. People usually exploit opportunities to make themselves better off.

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which points represent efficient production points? a. All points (A, B, C and D) are efficient. b. Points A, B and C are efficient. c. Points B and C are efficient. d. Points B, C and D are efficient.

c. Points B and C are efficient.

The purpose of an economic system is to: a. eliminate scarcity. b. protect the environment. c. allocate scarce resources. d. create an equal distribution of wealth.

c. allocate scarce resources.

The equilibrium price of a good is the price: a. that consumers prefer. b. that producers prefer. c. at which there is no surplus and no shortage of the good. d. there is no opportunity cost associated with producing the good

c. at which there is no surplus and no shortage of the good.

The focal point of economic inquiry is: a. the stock market. b. the value of the dollar. c. individual choice. d. business ethics.

c. individual choice.

The upward slope of the supply curve indicates that: a. consumers seek to buy goods that are relatively less expensive. b. consumers do not take price into consideration when deciding whether to purchase a good. c. producers supply more of a good when its price increases. d. firms do not take price into consideration when deciding how much of a good to produce.

c. producers supply more of a good when its price increases.

Those points lying beyond the production possibilities frontier: a. are inefficient. b. represent outcomes in which resources would be unemployed. c. represent outcomes unattainable with the current level of technology and resources. d. represent outcomes that are attainable with the current level of technology and resources, but are less desirable than those on the frontier.

c. represent outcomes unattainable with the current level of technology and resources.

What is measured along the horizontal axis in a graph of the production possibilities frontier? a. the amount of labor input b. the amount of capital input c. the quantity of one good produced d. the quantity of one good exported

c. the quantity of one good produced

With which one of the following statements would economists be most likely to disagree? a. People respond to incentives. b. Making a choice involves an opportunity cost. c. Markets move towards equilibrium. d. Resources and inputs used in production are unlimited.

d. Resources and inputs used in production are unlimited.

Exchanges taking place in a market system: a. are voluntary. b. are inefficient. c. will benefit one party at the expense of another. d. are monitored by the government to ensure that scarce resources are being used wisely.

d. are monitored by the government to ensure that scarce resources are being used wisely.

An economic system is in ________ when no individual would be better off by making a different choice. a. chaos b. decline c. jeopardy d. equilibrium

d. equilibrium

The result of free trade between nations is that: a. wealthy countries benefit; developing nations lose. b. developing nations benefit; wealthy countries lose. c. the worldwide level of unemployment increases. d. goods can be produced in the location where their opportunity cost is the lowest

d. goods can be produced in the location where their opportunity cost is the lowest

When economists want to describe how much an economy can produce with a given amount of resources, they use a model known as: a. the positive model. b. the normative model. c. comparative advantage. d. the production possibilities frontier.

d. the production possibilities frontier.

An opportunity cost arises: a. only when a monetary cost is incurred. b. only when a time cost is incurred. c. only when the wrong decision is made. d. whenever any choice is made.

d. whenever any choice is made.