Microeconomics Chapter 2

Which of the following does NOT constitute an act of "investment" as economists use the term? 1. A retiree buys 50 shares of a stock at $10 a share and then sells the stock at a profit for $20 per share 2. A department store increases its inventory of football jerseys before the Super Bowl 3. The city council authorizes the construction of a new fire station 4. An accountant attends a seminar on changes in the federal tax code

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Which is FALSE? 1. In a command economy the gov't answers the questions of what to produce, how to produce it, and how to distribute it 2. In command economies consumers still exercise choice 3. Command economies operate the most efficiently because the gov't makes all the production decisions 4. Many planned economies have not fared very well in recent years; many of these economies have almost completely collapsed

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You are an intern to the editor of a small-town newspaper in Mallsburg, Pennsylvania. Your boss, the editor, asks you to write the first draft of an editorial for this week's paper. Your assignment is to describe the costs and benefits of building a new bridge across the railroad tracks in the center of town. Currently, most people who live in this town must drive 2 miles through thickly congested traffic to the existing bridge to get to the main shopping and employment center. The bridge will cost the citizens of Mallsburg $25 million, which will be paid for with a tax on their incomes over the next 20 years. What are the opportunity costs of building this bridge? Construction costs such as noise, additional (temporary) traffic, and other delays Revenue lost by shopkeepers near the old bridge Any economic inefficiencies associated with the new income tax The value of goods and services that the city could have purchased with the tax revenue had it not built the bridge What are the benefits that citizens will likely receive if the bridge is built? Reduced travel time for commuters and shoppers The value of the goods and services that citizens could have purchased with the additional tax burden Less pollution from idling traffic Issues of income distribution

All of the above Reduced travel time for commuters and shoppers Less pollution from idling traffic

T/F: Comparative advantage refers to the ability to produce better quality goods than a competitor

False

The economic problem can be best stated as

Given scarce resources, how exactly do societies go about deciding what to produce, how to produce it, and for whom to produce

Dr. Falk is a dentist who performs two basic procedures: filling cavities and whitening teeth. He charges $50 per cavity filled, a process that takes him 15 min/tooth and requires no help or materials. For tooth whitening, a process requiring 30 min, Falk charges $150 net of materials. Again, no help is required. What do you suggest Dr. Falk do to make the most efficient use of his resources?

He should either raise the price of filling cavities or concentrate on whitening teeth

Do any economic systems in the world reflect the purest forms of command or laissez-faire economies?

No, in most economies either the government plays a major role or there is some government involvement

The process of converting inputs into useful output is called ______. These inputs are also known as ________. Which of the following is not included in this list of inputs?

Production The factors of production Energy

T/F: The notion that buyers determine what will be produce by choosing what they purchase is called consumer sovereignty

TRUE

A command economy is one in which:

The basic economic questions are answered by a central government

Explain how the following situation would affect a nation's production possibilities curve: A prolonged recession increases the number of unemployed workers in the nation

This would be a point inside the production possibilities curve

Suppose that your GPA 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

According to the theory of comparative advantage, specialization and free trade will benefit

all trading parties, even when some are absolutely more efficient producers than others

Because resources are scarce, the opportunity cost of investment in capital is

forgone present consumption

Economic system in the United States

mixed economy

Which of the following is NOT a resource as the term is used by economists?

money

The basic coordinating mechanism in a free market system is

price

Capital, as economists use the term,

refers to things that have already been produced that are in turn used to produce other goods and services

The concept of opportunity cost is based on the principle of

scarcity

During the Iraq War many of Iraq's oil refineries were destroyed. This would best be represented by a

shift of Iraq's production possibility frontier toward the origin

In economics, investment always refers to

the creation of capital

If someone has a comparative advantage in growing pineapples

they can grow pineapples at a lower opportunity cost than other pineapple growers

According to the theory of comparative advantage, ______ rise(s) productivity by lowering opportunity costs

trade and specilization