Question 1

Why is trade an important source of economic progress?

Accepted Answer

A)  It allows the trading partners to produce a larger joint output through specialization in the areas where they have a comparative advantage. 
B)  It allows the trading partners to produce a larger joint output as the result of greater realization of cost reductions that accompany the adoption of mass production methods. 
C)  It makes it possible to realize gains from the discovery and dissemination of innovative products and production processes. 
D)  All of the above are correct. 
A)  It allows the trading partners to produce a larger joint output through specialization in the areas where they have a comparative advantage. 
B)  It allows the trading partners to produce a larger joint output as the result of greater realization of cost reductions that accompany the adoption of mass production methods. 
C)  It makes it possible to realize gains from the discovery and dissemination of innovative products and production processes. 
D)  All of the above are correct.

Question 2

Creative destruction refers to the process where

Accepted Answer

A)  new products and methods of production are continuously replacing old ones 
B)  producing more of one good causes you to produce less of another 
C)  everybody involved is made worse off 
D)  new ways to destroy buildings are employed 
A)  new products and methods of production are continuously replacing old ones 
B)  producing more of one good causes you to produce less of another 
C)  everybody involved is made worse off 
D)  new ways to destroy buildings are employed

Question 3

Dr. Jones, a dentist, is choosing between driving and flying from Pittsburgh to New York City. If Jones drove, she would have to close her office four hours earlier than if she flew by airplane. Her expected income (after taxes) from her practice is $50 per hour. Assuming all other factors are equal, if Jones was a rational decision maker, she would drive if the price differential (air cost minus driving) was greater than

Accepted Answer

A)  $50. 
B)  $100. 
C)  $150. 
D)  $200. 
A)  $50. 
B)  $100. 
C)  $150. 
D)  $200.

Question 4

Figure 2-1  
In Figure 2-1, point A is

Accepted Answer

A)  unattainable. 
B)  inefficient. 
C)  efficient. 
D)  preferable to point B. 
A)  unattainable. 
B)  inefficient. 
C)  efficient. 
D)  preferable to point B.

Question 5

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,

Accepted Answer

A)  the stranded motorist must not understand that four quarters are worth $1. 
B)  economic theory is unable to explain this transaction. 
C)  both parties have gained from this exchange. 
D)  the passerby was made better off and the motorist worse off. 
A)  the stranded motorist must not understand that four quarters are worth $1. 
B)  economic theory is unable to explain this transaction. 
C)  both parties have gained from this exchange. 
D)  the passerby was made better off and the motorist worse off.

Question 6

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

Accepted Answer

A)  The production possibilities curves for these countries would have shifted outward. 
B)  The production possibilities curves for these countries would have shifted inward. 
C)  The production possibilities curves for these countries would have been unaffected. 
D)  This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them. 
A)  The production possibilities curves for these countries would have shifted outward. 
B)  The production possibilities curves for these countries would have shifted inward. 
C)  The production possibilities curves for these countries would have been unaffected. 
D)  This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them.

Question 7

Which of the following appropriately applies the law of comparative advantage?

Accepted Answer

A)  Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities. 
B)  Since Mexican labor is cheaper than American labor, trade between the countries results in exploitation of American workers. 
C)  Since workers in countries such as the United States utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries. 
D)  Countries that are low cost producers of agricultural products should trade those products for goods they can produce only at a high opportunity cost. 
A)  Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities. 
B)  Since Mexican labor is cheaper than American labor, trade between the countries results in exploitation of American workers. 
C)  Since workers in countries such as the United States utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries. 
D)  Countries that are low cost producers of agricultural products should trade those products for goods they can produce only at a high opportunity cost.

Question 8

With voluntary exchange,

Accepted Answer

A)  both the buyer and seller will be made better off. 
B)  the buyer will be made better off, while the seller will be made worse off. 
C)  the seller will be made better off, while the buyer will be made worse off. 
D)  both the buyer and the seller will be made worse off. 
A)  both the buyer and seller will be made better off. 
B)  the buyer will be made better off, while the seller will be made worse off. 
C)  the seller will be made better off, while the buyer will be made worse off. 
D)  both the buyer and the seller will be made worse off.

Question 9

When private ownership of a resource is clearly defined and enforced, the private owner

Accepted Answer

A)  has a strong incentive to consider the wishes of others when deciding how to employ the resource. 
B)  has little incentive to use the resource wisely. 
C)  has a strong incentive to consume the resource during the period rather than conserving it for the future. 
D)  has little incentive to consider the wishes of others when deciding how to employ the resource. 
A)  has a strong incentive to consider the wishes of others when deciding how to employ the resource. 
B)  has little incentive to use the resource wisely. 
C)  has a strong incentive to consume the resource during the period rather than conserving it for the future. 
D)  has little incentive to consider the wishes of others when deciding how to employ the resource.

Question 10

Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if

Accepted Answer

A)  she also spends more time doing other things. 
B)  she spends less time doing other things. 
C)  Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour. 
D)  none of the above. 
A)  she also spends more time doing other things. 
B)  she spends less time doing other things. 
C)  Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour. 
D)  none of the above.

Question 11

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who

Accepted Answer

A)  have the highest opportunity cost. 
B)  have a comparative advantage in the productive activity. 
C)  can complete the productive activity most rapidly. 
D)  least enjoy performing the productive activity. 
A)  have the highest opportunity cost. 
B)  have a comparative advantage in the productive activity. 
C)  can complete the productive activity most rapidly. 
D)  least enjoy performing the productive activity.

Question 12

Which of the following is true?

Accepted Answer

A)  The production possibilities curve indicates that it will be impossible to expand total output with the passage of time. 
B)  As long as resources are scarce, output cannot be increased. 
C)  The size of the economic pie is fixed, and therefore, if one individual has more income, others must have less. 
D)  Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things. 
A)  The production possibilities curve indicates that it will be impossible to expand total output with the passage of time. 
B)  As long as resources are scarce, output cannot be increased. 
C)  The size of the economic pie is fixed, and therefore, if one individual has more income, others must have less. 
D)  Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things.

Question 13

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday.
 
If Crusoe and Friday want to maximize their consumption possibilities,

Accepted Answer

A)  Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed. 
B)  Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption. 
C)  Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption. 
D)  Not enough information is provided to conclusively answer this question. 
A)  Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed. 
B)  Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption. 
C)  Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption. 
D)  Not enough information is provided to conclusively answer this question.

Question 14

The following question(s) relate(s) to the material in the addendum to Chapter 2. Use the production possibilities data for Lebos and Slavia below to answer the question(s).
Table 2-4
 
Refer to Table 2-4. Which of the following is correct?

Accepted Answer

A)  In Lebos, the opportunity cost of producing one unit of food is equal to one unit of clothing. 
B)  In Slavia, the opportunity cost of producing one unit of food is equal to two units of clothing. 
C)  The opportunity cost of producing food in Lebos is less than the opportunity cost of producing food in Slavia. 
D)  All of the above are correct. 
A)  In Lebos, the opportunity cost of producing one unit of food is equal to one unit of clothing. 
B)  In Slavia, the opportunity cost of producing one unit of food is equal to two units of clothing. 
C)  The opportunity cost of producing food in Lebos is less than the opportunity cost of producing food in Slavia. 
D)  All of the above are correct.

Question 15

Opportunity costs differ among nations primarily because

Accepted Answer

A)  nations employ different currencies. 
B)  nations have different amounts of land, labor skills, capital, and technology. 
C)  nations have different religious, political, and economic institutions. 
D)  the work-leisure preferences of people vary considerably from one nation to another. 
A)  nations employ different currencies. 
B)  nations have different amounts of land, labor skills, capital, and technology. 
C)  nations have different religious, political, and economic institutions. 
D)  the work-leisure preferences of people vary considerably from one nation to another.

Question 16

Which of the following is true of the production possibilities curve?

Accepted Answer

A)  It assumes a fixed quantity of resources. 
B)  It assumes the prices of the products considered are equal. 
C)  A point inside the curve is efficient. 
D)  All of the above are correct. 
A)  It assumes a fixed quantity of resources. 
B)  It assumes the prices of the products considered are equal. 
C)  A point inside the curve is efficient. 
D)  All of the above are correct.

Question 17

Which of the following is not a basic question that each economy must answer?

Accepted Answer

A)  Which resources are scarce? 
B)  For whom shall the goods be produced? 
C)  How shall goods be produced? 
D)  What goods shall be produced? 
A)  Which resources are scarce? 
B)  For whom shall the goods be produced? 
C)  How shall goods be produced? 
D)  What goods shall be produced?

Question 18

The president of a large public university proclaims, "If we can get the state government to fund our new football stadium, it will not cost us anything." Evaluate this view from an economic perspective.

Accepted Answer

While it may not directly affect the uni

Question 19

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday.
 
If Crusoe and Friday want to maximize their consumption possibilities,

Accepted Answer

A)  Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed. 
B)  Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption. 
C)  Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption. 
D)  both individuals should strive for self-sufficiency, which always maximizes output. 
A)  Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed. 
B)  Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption. 
C)  Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption. 
D)  both individuals should strive for self-sufficiency, which always maximizes output.

Question 20

Because private owners are held responsible for damages their property causes to the property of others, private owners have

Accepted Answer

A)  a strong incentive to take steps to reduce the chance that they will harm the property of others. 
B)  a strong incentive to use their property now rather than conserving it for the future. 
C)  little incentive to take good care of the property. 
D)  little incentive to consider the harm their property may do to the property of others. 
A)  a strong incentive to take steps to reduce the chance that they will harm the property of others. 
B)  a strong incentive to use their property now rather than conserving it for the future. 
C)  little incentive to take good care of the property. 
D)  little incentive to consider the harm their property may do to the property of others.

Why is trade an important source of economic progress?

Creative destruction refers to the process where

Figure 2-1 In Figure 2-1, point A is

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

Which of the following appropriately applies the law of comparative advantage?

With voluntary exchange,

When private ownership of a resource is clearly defined and enforced, the private owner

Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who

Which of the following is true?

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. If Crusoe and Friday want to maximize their consumption possibilities,

The following question(s) relate(s) to the material in the addendum to Chapter 2. Use the production possibilities data for Lebos and Slavia below to answer the question(s). Table 2-4 Refer to Table 2-4. Which of the following is correct?

Opportunity costs differ among nations primarily because

Which of the following is true of the production possibilities curve?

Which of the following is not a basic question that each economy must answer?

The president of a large public university proclaims, "If we can get the state government to fund our new football stadium, it will not cost us anything." Evaluate this view from an economic perspective.

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. If Crusoe and Friday want to maximize their consumption possibilities,

Because private owners are held responsible for damages their property causes to the property of others, private owners have

The Economic Approach

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 2: Some Tools of the Economist

Why is trade an important source of economic progress?

Creative destruction refers to the process where

Figure 2-1 In Figure 2-1, point A is

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

Which of the following appropriately applies the law of comparative advantage?

With voluntary exchange,

When private ownership of a resource is clearly defined and enforced, the private owner

Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who

Which of the following is true?

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. If Crusoe and Friday want to maximize their consumption possibilities,

The following question(s) relate(s) to the material in the addendum to Chapter 2. Use the production possibilities data for Lebos and Slavia below to answer the question(s). Table 2-4 Refer to Table 2-4. Which of the following is correct?

Opportunity costs differ among nations primarily because

Which of the following is true of the production possibilities curve?

Which of the following is not a basic question that each economy must answer?

The president of a large public university proclaims, "If we can get the state government to fund our new football stadium, it will not cost us anything." Evaluate this view from an economic perspective.

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. If Crusoe and Friday want to maximize their consumption possibilities,

Because private owners are held responsible for damages their property causes to the property of others, private owners have

The Economic Approach

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters