Practice Exam 1

When Tesla, a U.S. company, purchases Italian-made Pirelli tires for its automobiles, the purchase is...

A U.S. import and an Italian export.

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania...

Will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want.

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

Each faces the problem of scarcity which necessitates trade-offs in making economic decisions

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

Quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

A critical function of the government in facilitating the operation of a market economy is

Setting up and enforcing private property rights.

Increasing opportunity cost along a bowed out production possibilities frontier occurs because

Some factors of production are not equally suited to producing both goods or services.

For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

Switzerland has the comparative advantage in watches.

The terms of trade refers to

The ratio at which a country can trade its exports for imports from other countries.

The term "market" in economics refers to

A group of buyers and sellers of a product and the arrangement by which they come together to trade.

Which of the following will not shift the demand curve for a good?

An increase in the price of the good

In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?

The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars?

The supply curve would shift to the right.

Which of the following best describes an assumption economists make about human behavior?

They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country

Total consumption of goods is greater.