Exam 2: Thinking Like an Economist

In economics, graphs serve two purposes: they offer a way to visually express ideas, and they provide a way of finding and interpreting patterns when analyzing economic data.

A demand curve shows the relationship between price and

Draw a production possibilities frontier showing increasing opportunity cost of hammers in terms of horseshoes. a.On the graph, identify the area of feasible outcomes and the area of infeasible outcomes. b.On the graph, label a point that is efficient and a point that is inefficient. c.On the graph, illustrate the effect of the discovery of a new vein of iron ore, a resource needed to make both horseshoes and hammers, on this economy. d.On a second graph, illustrate the effect of a new computerized assembly line in the production of hammers on this economy.

Figure 2-2 -Refer to Figure 2-2. If Box A of this circular-flow diagram represents firms, then which box represents households?

In the circular-flow diagram,

In a certain economy, jam and bread are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more jam and more bread, relative to the quantities of those goods that are being produced now?

The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

Almost all economists agree that rent control

In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are sellers.

Figure 2-14 Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two -Refer to Figure 2-14. If this society is producing at point T,

The "broken window fallacy"

When a variable that is named on an axis of a graph changes, the curve shifts.

When an economy is operating inside its production possibilities frontier, we know that

Figure 2-6 -Refer to Figure 2-6. The opportunity cost of this economy moving from point K to point H is

Figure 2-1 -Refer to Figure 2-1. Which arrow represents the flow of income payments?

Suppose an economy only produces two goods, robots and ice cream. Last month, the economy produced 10 robots and 200 gallons of ice cream. This month, the same economy produced 15 robots and 240 gallons of ice cream. Which of the following statements could explain this change?

Because almost all economists oppose policies that restrict trade among nations, policymakers do not restrict imports of certain goods.

In the circular-flow diagram,

The goal of an economist who formulates new theories is to

Using the outline below, draw a circular-flow diagram representing the interactions between households and firms in a simple economy. Explain briefly the various parts of the diagram.