Exam 2: Thinking Like an Economist

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1000 units of food and 47 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 1050 units of food and 47 machines. Which of the following statements is correct?

The production possibilities frontier shows the opportunity cost of one good as measured in terms of the other good.

Economic models can help us understand reality only when they include all details of the economy.

Figure 2-4 -Refer to Figure 2-4. If this economy devotes all of its resources to the production of notepads, then it will produce

Figure 2-8 -Refer to Figure 2-8, Panel (a). The opportunity cost of moving from point K to point L is

The opportunity cost of something is what you give up to get it.

Which of the following is an example of a normative, as opposed to positive, statement?

Figure 2-9 -Refer to Figure 2-9, Panel (a). The opportunity cost of one computer is highest when the economy produces

Almost all economists agree that local and state governments should

Figure 2-2 -Refer to Figure 2-2. Boxes C and D of this circular-flow diagram represent

Efficiency is illustrated by

When an economy is operating at a point on its production possibilities frontier, then

When constructing a production possibilities frontier, which of the following assumptions is not made?

The Council of Economic Advisers

Economists make assumptions in order to

Assumptions can simplify the complex world and make it easier to understand.

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

Economists who are primarily responsible for advising Congress on economic matters work in which agency?

Positive statements are

Figure 2-6 -Refer to Figure 2-6. Inefficient production is represented by which point(s)?