Module 3 Quiz

A downward sloping straight-line production possibilities curve implies: A. an inefficient use of resources. B. an efficient use of resources. C. a constant opportunity cost. D. an increasing opportunity cost.

C. a constant opportunity cost.

An individual has a comparative advantage in production if that individual: A. can produce at the highest opportunity cost. B. is more self-sufficient than others. C. can produce at the lowest opportunity cost. D. both a. and b. E. both b. and c.

C. can produce at the lowest opportunity cost. An individual has a comparative advantage in production if that individual can produce at the lowest opportunity cost.

The opportunity cost of an action is equal to:

the highest valued opportunity that must be sacrificed in order to take the action. The opportunity cost of an action is equal to the highest valued opportunity that must be sacrificed in order to take the action. It includes monetary and non-monetary costs.

Which of the following statements is most consistent with the rule of rational choice? A. "When evaluating new prescription drugs, the Food and Drug Administration should weigh each drug's potential health benefits against the potential health risks posed by known side effects." B. "The Environmental Protection Agency should strive to eliminate virtually all air and water pollution." C. "Manufacturers of automobiles should seek to make cars safer, no matter the costs involved." D. "Police forces should be enlarged until virtually all crime is eliminated."

A. "When evaluating new prescription drugs, the Food and Drug Administration should weigh each drug's potential health benefits against the potential health risks posed by known side effects." The statement clearly contemplates comparing marginal health benefits with the marginal cost due to side effects. That is very much consistent with the rule of rational choice. The rule of rational choice implies that marginal benefits have to be weighed against marginal costs to take a rational decision.

To obtain the greatest gains from trade, a country should specialize in and ____ those goods for which it has a comparative advantage and ____ those goods for which other countries have a comparative advantage. A. export; import B. import; export C. import; import D. export; export

A. export; import To obtain the greatest gains from trade, a country should specialize in and export those goods for which it has a comparative advantage and import those goods for which other countries have a comparative advantage.

Lance's boss offers him twice his usual wage rate to work tonight instead of taking his girlfriend on a date. This offer will likely: A. increase the opportunity cost of going on the date. B. reduce the opportunity cost of working. C. reduce the opportunity cost of going on the date because giving up the additional work dollars will make his girlfriend feel even more appreciated. D. not affect the opportunity cost of going on the date.

A. increase the opportunity cost of going on the date. That monetary opportunity cost is now twice the usual wage rate, so the monetary cost has increased, if fact, it has doubled. The monetary cost of going on the date is the forgone income of the highest valued alternative, which for Lance is going to work.

When a person possesses a comparative advantage in the production of one good or service, it: A. permits gains from trade to be realized due to a more efficient use of resources. B. discourages specialization. C. promotes greater self-sufficiency. D. means that the person's opportunity cost is higher than for that of other goods.

A. permits gains from trade to be realized due to a more efficient use of resources. Resources are used more efficiently if people specialize in producing those goods for which they have a lower opportunity cost, that is, for which they enjoy a comparative advantage in production. That, in turn, permits gains from trade.

Which of the following is true? A. By putting unemployed resources to work or by putting already employed resources to better uses, we could expand output in an economy. B. All of the other answers are true C. To generate increased economic growth, a society would produce fewer consumer goods and more capital goods in the present. D. Increases in a society's output do not make scarcity disappear. E. If the production possibility curve is concave from below (that is, bowed outward from the origin), it reflects increasing opportunity costs of producing additional amounts of a good.

B. All of the other answers are true

The marginal benefit to you of drinking bottled iced tea is $1.50. The price of a bottle of iced tea is $1.25. A. You will not purchase iced tea if you are acting rationally. B. If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents. C. If you are acting rationally, you will purchase iced tea until the marginal benefit falls to 25 cents. D. If you purchase iced tea you will suffer a net loss of 25 cents per bottle.

B. If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents. Since marginal benefit is $ 1.50 and marginal cost is $ 1.25, the net gain is the difference or $ 0.25

Which of the following is true with regard to production possibilities curves? A. Underutilized resources or those not being put to their best uses are illustrated by output combinations along the production possibilities curve. B. Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future. C. From a point inside the production possibilities curve, in order to get more of one thing, an economy must give up something else. D. Economic growth means a movement along an economy's production possibilities curve in the direction of producing more consumer goods.

B. Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future. 'Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future.'

Gallons of milk at a local grocery store are priced at one for $4.00, or two for $6.00. The marginal cost of buying a second gallon of milk:

B. equals $2.00. The marginal cost of buying a second gallon of milk is $ 2.00. The marginal cost is the change in total cost resulting from purchasing one additional extra unit (gallon of milk).

You lose $20 from your wallet and decide to miss an hour from work in order to search for it. To an economist, this means that: A. you place no value on your time. B. in your estimation the expected value of searching for the lost $20 for an hour exceeds your hourly wage. C. you must earn more than $20 per hour. D. you are irrational, since it is always a waste of time to search for lost money. E. you estimate the expected cost of searching for one hour to be greater than $20.

B. in your estimation the expected value of searching for the lost $20 for an hour exceeds your hourly wage. The decision to take off an hour from work to search for the missing $ 20 implies that the marginal benefit of that action has to exceed its marginal cost. Since, your marginal benefit is the expected value of searching for the lost $ 20, whereas your marginal cost is the hourly wage rate, then, the expected value has to exceed your hourly wage.

The fact that some resources and skills cannot be easily adapted from their current uses to alternative uses is the basic reason for the law of A. comparative advantage. B. consumer sovereignty. C. increasing opportunity cost. D. decreasing opportunity cost.

C. increasing opportunity cost. The law of increasing opportunity costs states that as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of extra units of that good will increase. That is, to get additional units of one good more and more of the other good must be given up. The grounds for the law is that some resources and skills cannot be easily modified from their present uses. The law is represented by the productions possibilities curve's slope getting steeper and steeper, as more units of good X and less of good Y are produced.

If a student enrolls in an additional course at the university, an economist would conclude that:

C. the expected marginal benefit of an additional course must exceed the expected marginal cost of the course. Yes, indeed. The expected marginal benefit of an additional course must exceed the expected marginal cost of the course. Marginal analysis involves comparing the additional benefit from an action to its additional cost. The marginal principle states that the level of an activity should be increased as long as its marginal benefit exceeds its marginal cost. The decision is taken at the margin.

The expected marginal benefit to you from purchasing a new sport utility vehicle is $20,000. The price of the new sport utility vehicle is $22,000. A. If you do not purchase the new sport utility vehicle, your net loss will be $2,000. B. If you are acting rationally, you will purchase sport utility vehicles until the marginal cost of doing so falls to $20,000. C. If you are acting rationally, you will borrow $2,000 and purchase a new sport utility vehicle. D. You will not purchase the new sport utility vehicle at this time if you are acting rationally.

D. You will not purchase the new sport utility vehicle at this time if you are acting rationally. If you are acting rationally you would not buy the new SUV since the marginal cost outweighs the marginal benefit. Marginal analysis involves comparing the additional benefit from an action to its additional cost. The marginal principle states that the level of an activity should be increased as long as its marginal benefit exceeds its marginal cost. The decision is taken at the margin.

The completely private ownership of property and the exclusive use of the market system to direct and coordinate economic activity are most characteristic of: A. a mixed economy. B. a traditional economy. C. a command economy. D. a market economy.

D. a market economy. The completely private ownership of property and the exclusive use of the market system to direct and coordinate economic activity are most characteristic of market economy.

A student has a chance to see Green Day in concert. The student also has a major economics exam in the morning. If the student goes to the concert: A. the opportunity cost of the concert is the value of the time spent studying. B. she may receive a lower grade on the economics exam. C. the decision involves a trade-off. D. all of the other answers are correct.

D. all of the other answers are correct.

Marginal analysis involves: A. comparing the total benefits of all actions to the total costs incurred as a result of those actions B. abstract thinking, which is never actually utilized by consumers when making purchasing decisions. C. holding all other variables constant when isolating the relationship between two variables. D. comparing the additional benefit from an action to the additional cost.

D. comparing the additional benefit from an action to the additional cost. Marginal analysis involves comparing the additional benefit from an action to its additional cost. The marginal principle states that the level of an activity should be increased as long as its marginal benefit exceeds its marginal cost. The decision is taken at the margin.

Some political leaders have proposed that parents be granted a substantially larger reduction in their annual personal income taxes for each child that they parent. The economic way of thinking indicates that legislation of this type would: A. reduce the value of children to their parents and therefore lead to a reduction in the birth rate. B. exert no impact on either the cost of raising children or the birth rate since parenting children is a non-economic activity. C. make it more expensive for parents to provide for their children. D. reduce the after-tax cost of raising children and therefore increase the birth rate.

D. reduce the after-tax cost of raising children and therefore increase the birth rate. It would reduce the after-tax cost of raising children and therefore probably increase the birth rate.

Which of the following policies would be most effective in promoting monthly water conservation? A. A $200 fee for all households with zero charge per gallon of consumption B. A $125 fee for all households in addition to a $0.50 per gallon fee for all consumption C. A $100 flat fee for any household that uses over 1500 gallons D. A $50 fee for all households with zero charge per gallon of consumption E. A per gallon fee that escalates from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons

E. A per gallon fee that escalates from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons The policy that would be most effective in promoting monthly water conservation is the one that implies higher marginal costs. This alternative has the highest marginal cost of all alternatives and one that escalates as water usage increases over 1000 gallons, so it would be the most effective in promoting monthly water conservation.

Resources and goods are free to move across state lines. If Oregon producers choose to specialize in producing honey and California producers choose to specialize in growing almonds, then we could reasonable conclude that: A. California has a comparative advantage in producing almonds. B. the opportunity cost of growing almonds is lower in California than in Oregon. C. Oregon has a comparative advantage in producing honey. D. the opportunity cost of producing honey is lower in Oregon than in California. E. All of the other answers are true.

E. All of the other answers are true.

Which of the following is true? A. An advanced market economy would tend to use both labor intensive and capital intensive production methods. B. An economy in which labor is relatively scarce would tend to use capital intensive production methods. C. An increase in the availability of labor relative to capital in an economy would tend to increase how labor intensive the production processes in that economy would be. D. All of the above are true. E. Both b. and c. are true.

E. Both b. and c. are true.

Which of the following is true? A. In the product markets, firms are buyers and households are sellers. B. In the factor markets, firms are sellers and households are buyers. C. Firms receive money payments from households for labor, land, capital, and entrepreneurship. D. All of the above are true. E. None of the above is true.

E. None of the above is true.

In a market economy how do we determine who will get the goods and services that have been produced?

Whoever can afford them In a market economy whoever can afford them determines who will get the goods and services that have been produced.

Marginal thinking is best demonstrated by: A. choosing to purchase beer until there is no additional enjoyment from the consumption of beer. B. acquiring the information relevant to a choice before making that choice. C. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time. D. measuring all of the costs of a meal against all of the benefits when deciding whether to order a second milkshake. E. deciding to never purchase a coat made with animal skins or furs.

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time. Precisely. Marginal thinking indicates that an activity (one more hour studying economics) should be carried on as long as its marginal benefit (the score improvement) outweighs its marginal cost (the sacrifice of time or one less hour of rest).