Question 1

As an economyʹs capital stock increases, the economy

Accepted Answer

A)  generally experiences increased unemployment of other resources, such as labor. 
B)  experiences economic growth. 
C)  gains an absolute advantage in the production of capital goods. 
D)  generally decides to engage in international trade. 
A)  generally experiences increased unemployment of other resources, such as labor. 
B)  experiences economic growth. 
C)  gains an absolute advantage in the production of capital goods. 
D)  generally decides to engage in international trade.

Question 2

When we choose a particular option, we must give up alternative options. The highest-valued alternative forgone is the__________ of the option chosen.

Accepted Answer

A)  absolute advantage 
B)  opportunity cost 
C)  comparative advantage 
D)  nonmonetary cost 
A)  absolute advantage 
B)  opportunity cost 
C)  comparative advantage 
D)  nonmonetary cost

Question 3

$$\begin{array} { | l | l | l | } 
\hline \text { Point } & \begin{array} { l } 
\text { Production of } \
X
\end{array} & \begin{array} { l } 
\text { Production of } \
Y
\end{array} \
\hline \text { A } & 0 & 40 \
\hline B & 3 & 36 \
\hline \text { C } & 6 & 28 \
\hline \text { D } & 9 & 16 \
\hline \text { E } & 12 & 0 \
\hline
\end{array}$$
-The above table shows production combinations on a country?s production possibilities frontier. A movement from ________involves the greatest opportunity cost of increasing the production of good Y.

Accepted Answer

A)  point E to point D 
B)  point C to point B 
C)  point B to point A 
D)  point D to point C 
A)  point E to point D 
B)  point C to point B 
C)  point B to point A 
D)  point D to point C

Question 4

Marginal benefit is the benefit ________one more unit of the good and________ of the good increases.

Accepted Answer

A)  of producing; increases as production 
B)  of producing; decreases as production 
C)  from consuming; decreases as consumption 
D)  from consuming; increases as consumption 
A)  of producing; increases as production 
B)  of producing; decreases as production 
C)  from consuming; decreases as consumption 
D)  from consuming; increases as consumption

Question 5

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that

Accepted Answer

A)  Beth should produce both goods and Joe should produce sandwiches. 
B)  Beth should produce sandwiches and Joe should produce pizza. 
C)  Beth should produce both goods because she can produce more of both goods in an hour than can Joe. 
D)  Beth should produce pizza and Joe should produce sandwiches. 
A)  Beth should produce both goods and Joe should produce sandwiches. 
B)  Beth should produce sandwiches and Joe should produce pizza. 
C)  Beth should produce both goods because she can produce more of both goods in an hour than can Joe. 
D)  Beth should produce pizza and Joe should produce sandwiches.

Question 6

After Hurricane Katrina devastated parts of Mississippi and New Orleans in 2005, we can be sure that the production possibilities frontier for that area temporarily

Accepted Answer

A)  shifted outward, away from the origin. 
B)  became steeper. 
C)  shifted inward, toward the origin. 
D)  became flatter. 
A)  shifted outward, away from the origin. 
B)  became steeper. 
C)  shifted inward, toward the origin. 
D)  became flatter.

Question 7

Suppose that in an hour Joe can prepare 10 sandwiches or 5 pizzas. The opportunity cost of Joe producing one sandwich is

Accepted Answer

A)  1/2 pizza. 
B)  5 pizzas. 
C)  2 pizzas. 
D)  1 pizza. 
A)  1/2 pizza. 
B)  5 pizzas. 
C)  2 pizzas. 
D)  1 pizza.

Question 8

-Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point a and Beta produces at point b, then __________.

Accepted Answer

A)  Betaʹs future consumption will be greater than Alphaʹs 
B)  Alphaʹs and Betaʹs economic growth rates will be the same 
C)  Alpha consumes less than Beta today, but it will grow faster than Beta 
D)  Betaʹs economic growth rate will exceed Alphaʹs 
A)  Betaʹs future consumption will be greater than Alphaʹs 
B)  Alphaʹs and Betaʹs economic growth rates will be the same 
C)  Alpha consumes less than Beta today, but it will grow faster than Beta 
D)  Betaʹs economic growth rate will exceed Alphaʹs

Question 9

Production efficiency means that

Accepted Answer

A)  scarcity is no longer a problem. 
B)  producing more of one good is possible only if the production of some other good is decreased. 
C)  producing another unit of the good has no opportunity cost. 
D)  as few resources as possible are being used in production. 
A)  scarcity is no longer a problem. 
B)  producing more of one good is possible only if the production of some other good is decreased. 
C)  producing another unit of the good has no opportunity cost. 
D)  as few resources as possible are being used in production.

Question 10

-In the figure above, Joe is producing at point A. Joeʹs opportunity cost of producing one shirt is

Accepted Answer

A)  5 pairs of pants per shirt. 
B)  3/5 of a pair of pants per shirt. 
C)  2 pairs of pants per shirt. 
D)  5/3 of a pair of pants per shirt. 
A)  5 pairs of pants per shirt. 
B)  3/5 of a pair of pants per shirt. 
C)  2 pairs of pants per shirt. 
D)  5/3 of a pair of pants per shirt.

Question 11

Marginal cost is the ________one more unit of a good and ________of the good increases.

Accepted Answer

A)  opportunity cost of producing; increases as production 
B)  price that must be paid to consume; decreases as consumption 
C)  opportunity cost of producing; decreases as production 
D)  price that must be paid to consume; increases as consumption 
A)  opportunity cost of producing; increases as production 
B)  price that must be paid to consume; decreases as consumption 
C)  opportunity cost of producing; decreases as production 
D)  price that must be paid to consume; increases as consumption

Question 12

The more we have of a good or service, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it.

Accepted Answer

A) True 
 B)False

Question 13

-A PPF, such as the one above, that bows outward illustrates

Accepted Answer

A)  that productivity is falling. 
B)  that technology is improving. 
C)  decreasing opportunity cost. 
D)  increasing opportunity cost. 
A)  that productivity is falling. 
B)  that technology is improving. 
C)  decreasing opportunity cost. 
D)  increasing opportunity cost.

Question 14

Explain how the production possibilities frontier illustrates scarcity.

Accepted Answer

The PPF illustrates

Question 15

-In the figure above, suppose that Mac and Izzie specialize and trade to reach point c. Mac sends Izzie

Accepted Answer

A)  6 computers in exchange for 6 TVs. 
B)  12 computers in exchange for 6 TVs. 
C)  12 computers in exchange for 12 TVs. 
D)  6 computers in exchange for 12 TVs. 
A)  6 computers in exchange for 6 TVs. 
B)  12 computers in exchange for 6 TVs. 
C)  12 computers in exchange for 12 TVs. 
D)  6 computers in exchange for 12 TVs.

Question 16

A person has a comparative advantage in an activity whenever he or she

Accepted Answer

A)  has an absolute advantage in the activity. 
B)  can perform the activity at a lower opportunity cost than can anyone else. 
C)  can do everything better than anyone else. 
D)  can do the activity in less time than anyone else. 
A)  has an absolute advantage in the activity. 
B)  can perform the activity at a lower opportunity cost than can anyone else. 
C)  can do everything better than anyone else. 
D)  can do the activity in less time than anyone else.

Question 17

$\quad\quad\quad\quad\text { Country A }$$\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Country B }$
$\begin{array}{|l|l|l|l|}
\hline \begin{array}{l}
\text { Good } X \
(\text { units of } X)
\end{array} & \begin{array}{l}
\text { Good } Y \
(\text { units of } Y)
\end{array} & \begin{array}{l}
\text { Good } X \
\text { (units of } X)
\end{array} & \begin{array}{l}
\text { Good } Y \
(\text { units of } Y)
\end{array} \\hline 0 & 16 & 0 & 12 \
\hline 2 & 12 & 2 & 9 \
\hline 4 & 8 & 4 & 6 \
\hline 6 & 4 & 6 & 3 \
\hline 8 & 0 & 8 & 0 \
\hline
\end{array}$
-In the table above, country B is producing 4 units of X and 6 units of Y. For country B, the opportunity cost of producing an additional unit of X is

Accepted Answer

A)  4 units of Y per unit of X. 
B)  3/2 units of Y per unit of X. 
C)  2 units of Y per unit of X. 
D)  1 unit of Y per unit of X. 
A)  4 units of Y per unit of X. 
B)  3/2 units of Y per unit of X. 
C)  2 units of Y per unit of X. 
D)  1 unit of Y per unit of X.

Question 18

-In the figure above, point E could be obtained if

Accepted Answer

A)  resources were shifted from education to health care. 
B)  societyʹs resources increased. 
C)  resources were shifted from health care to education. 
D)  resources were used more efficiently. 
A)  resources were shifted from education to health care. 
B)  societyʹs resources increased. 
C)  resources were shifted from health care to education. 
D)  resources were used more efficiently.

Question 19

Harry usually spends 10 hours a week playing Quidditch. However, his Defense Against the Dark Arts exam is coming and he needs more time to study for the exam. If he does not study at all, the lowest grade he will receive is 55. But Harry realizes that this grade is unacceptable and so he has to give up some of his Quidditch time. But how much? He asks his friend Hermione, who is very good at Magical Economics, to help him figure this out. Together, they come up with the schedules of Harryʹs possibilities and values in the tables above. Then Hermione quickly finds the solution. But Harry still looks puzzled. Help Hermione to explain her solution to Harry.
a) Draw Harryʹs production possibilities frontier with the Quidditch hours on the horizontal axis and Harryʹs grade, starting at 55, on the vertical axis.
b) What is the opportunity cost of the first two hours of Quidditch? What is the marginal cost of the 5th hour?
c) What is Harryʹs opportunity cost of raising his grade from 82 points to 87 points?
d) Draw Harryʹs marginal cost of playing Quidditch curve. What happens to the marginal cost if Harry spends more time playing Quidditch?
e) Draw Harryʹs marginal benefit from playing Quidditch curve. Describe the relationship between Harryʹs time spent playing Quidditch and the marginal benefit from playing Quidditch.
f) For how many extra hours did Hermione recommend Harry to study? Why? If Harry follows her advice, what grade will he expect? What do you think Hermione said when Harry asked why he should not spend more time playing Quidditch? $$\begin{array} { | l | l | l | } 
\hline \text { Combination } & \begin{array} { l } 
\text { Wine } \
\text { (thousands of } \
\text { bottlesperyear) }
\end{array} & \begin{array} { l } 
\text { Bread } \
\text { (thousands of } \
\text { loaves peryear) }
\end{array} \
\hline A & 0 & 21 \
\hline B & 2 & 20 \
\hline C & 4 & 18 \
\hline D & 6 & 15 \
\hline E & 8 & 11 \
\hline F & 10 & 6 \
\hline G & 12 & 0 \
\hline
\end{array}$$ 
 $$\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Wine } \
\text { (thousands } \
\text { of bottles per } \
\text { year) }
\end{array} & \begin{array} { l } 
\text { Willingness to } \
\text { pay } \
\text { (loaves of } \
\text { bread per } \
\text { bottle of wine) }
\end{array} \
\hline 1 & 25 \
\hline 3 & 20 \
\hline 5 & 1.5 \
\hline 7 & 1.0 \
\hline 9 & 0.5 \
\hline
\end{array}$$

Accepted Answer

The figure above shows Harryʹs productio

Question 20

Allocative efficiency occurs when

Accepted Answer

A)  we cannot produce more of any one good without giving up some other good. 
B)  opportunity costs are decreasing. 
C)  marginal benefit exceeds marginal cost. 
D)  we cannot produce more of any good without giving up some other good that we value more highly. 
A)  we cannot produce more of any one good without giving up some other good. 
B)  opportunity costs are decreasing. 
C)  marginal benefit exceeds marginal cost. 
D)  we cannot produce more of any good without giving up some other good that we value more highly.

As an economyʹs capital stock increases, the economy

When we choose a particular option, we must give up alternative options. The highest-valued alternative forgone is the__________ of the option chosen.

Point Production of X Production of Y A 0 40 B 3 36 C 6 28 D 9 16 E 12 0 -The above table shows production combinations on a country?s production possibilities frontier. A movement from ________involves the greatest opportunity cost of increasing the production of good Y.

Marginal benefit is the benefit one more unit of the good and of the good increases.

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that

After Hurricane Katrina devastated parts of Mississippi and New Orleans in 2005, we can be sure that the production possibilities frontier for that area temporarily

Suppose that in an hour Joe can prepare 10 sandwiches or 5 pizzas. The opportunity cost of Joe producing one sandwich is

-Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point a and Beta produces at point b, then __________.

Production efficiency means that

-In the figure above, Joe is producing at point A. Joeʹs opportunity cost of producing one shirt is

Marginal cost is the one more unit of a good and of the good increases.

The more we have of a good or service, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it.

-A PPF, such as the one above, that bows outward illustrates

Explain how the production possibilities frontier illustrates scarcity.

-In the figure above, suppose that Mac and Izzie specialize and trade to reach point c. Mac sends Izzie

A person has a comparative advantage in an activity whenever he or she

-In the figure above, point E could be obtained if

Allocative efficiency occurs when

What Is Economics

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 2: The Economic Problem

As an economyʹs capital stock increases, the economy

When we choose a particular option, we must give up alternative options. The highest-valued alternative forgone is the__________ of the option chosen.

Point Production of X Production of Y A 0 40 B 3 36 C 6 28 D 9 16 E 12 0 -The above table shows production combinations on a country?s production possibilities frontier. A movement from ________involves the greatest opportunity cost of increasing the production of good Y.

Marginal benefit is the benefit ________one more unit of the good and________ of the good increases.

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that

After Hurricane Katrina devastated parts of Mississippi and New Orleans in 2005, we can be sure that the production possibilities frontier for that area temporarily

Suppose that in an hour Joe can prepare 10 sandwiches or 5 pizzas. The opportunity cost of Joe producing one sandwich is

-Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point a and Beta produces at point b, then __________.

Production efficiency means that

-In the figure above, Joe is producing at point A. Joeʹs opportunity cost of producing one shirt is

Marginal cost is the ________one more unit of a good and ________of the good increases.

The more we have of a good or service, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it.

-A PPF, such as the one above, that bows outward illustrates

Explain how the production possibilities frontier illustrates scarcity.

-In the figure above, suppose that Mac and Izzie specialize and trade to reach point c. Mac sends Izzie

A person has a comparative advantage in an activity whenever he or she

-In the figure above, point E could be obtained if

Allocative efficiency occurs when

What Is Economics

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Marginal benefit is the benefit one more unit of the good and of the good increases.

Marginal cost is the one more unit of a good and of the good increases.