Question 1

Figure 2-5  
-Refer to Figure 2-5.If the economy is currently producing at point Y,what is the opportunity cost of moving to point W?

Accepted Answer

A) 2 million tons of steel 
B) zero 
C) 9 million tons of paper 
D) 16 million tons of paper 
A) 2 million tons of steel 
B) zero 
C) 9 million tons of paper 
D) 16 million tons of paper B

Question 2

Rayburn Reed is a highly talented photographer.He has chosen to specialize in photography because of all of the following except

Accepted Answer

A) he obviously has a comparative advantage in photography. 
B) his opportunity cost of pursuing another career is very low. 
C) for him,this is the most lucrative way to purchase the products that he wants to consume. 
D) his photographs are highly esteemed by art lovers who are willing to pay very high prices. 
A) he obviously has a comparative advantage in photography. 
B) his opportunity cost of pursuing another career is very low. 
C) for him,this is the most lucrative way to purchase the products that he wants to consume. 
D) his photographs are highly esteemed by art lovers who are willing to pay very high prices. B

Question 3

Table 2-8
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Possible Output } \
\text { Combinations }
\end{array} & \begin{array} { c } 
\text { Cashews } \
\text { (thousands of } \
\text { pounds) }
\end{array} & \begin{array} { c } 
\text { Almonds } \
\text { (thousands of } \
\text { pounds) }
\end{array} \
\hline \text { A } & 35 & 0 \
\hline \text { B } & 30 & 20 \
\hline \text { C } & 25 & 35 \
\hline \text { D } & 20 & 47 \
\hline \text { E } & 15 & 57 \
\hline \text { F } & 10 & 64 \
\hline \text { G } & 5 & 68 \
\hline \text { H } & 0 & 70 \
\hline
\end{array}$$
-Refer to Table 2-8.The Nut House produces only cashews and almonds.The table above shows the maximum possible output combinations of the two nuts using all resources and currently available technology.
a.Graph The Nut House's production possibilities frontier.Put almonds on the horizontal axis and cashews on the vertical axis.Be sure to identify the output combination points on your diagram.
b.Suppose The Nut House is currently producing at point C.What is the opportunity cost of producing an additional 12,000 pounds of almonds?
c.Suppose The Nut House is currently producing at point C.What happens to the opportunity cost of producing more and more almonds? Does it increase,decrease or remain constant? Explain your answer.
d.Suppose The Nut House is currently producing at point F.What happens to the opportunity cost of producing more and more cashews? Does it increase,decrease or remain constant? Explain your answer.
e.Suppose The Nut House is plagued by a variety of white root-rot disease,which destroys cashew trees but not almond trees.Show in a graph what happens to its PPF.

Accepted Answer

a.   b.5,000 pounds of cashews
c.It increases.For example to move to D,The Nut House has to give up 5,000 pounds of cashews to produce an additional 10,000 pounds of almonds.For each additional 5,000 pounds of cashews foregone,the payoff in terms of almonds gets progressively smaller.
d.It increases.Each time it wants to produce an additional 5,000 pounds of cashews,more and more almonds must be given up.
e.

Question 4

$$\begin{array} { | l | c | c | } 
\hline & \text { James } & \text { Lucy } \
\hline \text { Wagons } & 16 & 18 \
\hline \text { Tricycles } & 32 & 24 \
\hline
\end{array}$$ Table 2-17 shows the output per week of two people,James and Lucy.They can either devote their time to making wagons or making tricycles.
-Refer to Table 2-17.What is Lucy's opportunity cost of making a tricycle?

Accepted Answer

A) 3/4 of a wagon 
B) 3 wagons 
C) 1 1/3 tricycles 
D) 2 tricycles 
A) 3/4 of a wagon 
B) 3 wagons 
C) 1 1/3 tricycles 
D) 2 tricycles

Question 5

Figure 2-12 shows the production possibilities frontiers for Tahiti and Bora Bora.Each country produces two goods,milk and honey.
-Refer to Figure 2-12.What is the opportunity cost of producing one gallon of honey in Tahiti?

Accepted Answer

A) 5/6 of a gallon of milk 
B) 0.9 gallons of milk 
C) 1.2 gallons of milk 
D) 1 1/3 gallons of milk 
A) 5/6 of a gallon of milk 
B) 0.9 gallons of milk 
C) 1.2 gallons of milk 
D) 1 1/3 gallons of milk

Question 6

Consider a country that produces only two goods: kayaks and coconuts.Suppose it is possible for this country to increase its production of kayaks without producing fewer coconuts.In this case,its current output combination is efficient.

Accepted Answer

A) True 
 B)False

Question 7

$$\begin{array} { | l | c | c | } 
\hline & \text { Wristwutch } & \text { Rice (bushels) } \
\hline \text { Japan } & 200 \text { hours } & 10 \text { hours } \
\hline \text { Thailand } & 180 \text { hours } & 6 \text { hours } \
\hline
\end{array}$$
-Refer to Table 2-30.This table shows the number of labor hours required to produce a wristwatch and a bushel of rice in Japan and Thailand.
a.Which country has an absolute advantage in the production of wristwatches?
b.Which country has an absolute advantage in the production of rice?
c.What is Japan's opportunity cost of producing one wristwatch?
d.What is Thailand's opportunity cost of producing one wristwatch?
e.What is Japan's opportunity cost of producing one bushel of rice?
f.What is Thailand's opportunity cost of producing one bushel of rice?
g.If each country specializes in the production of the product in which it has a comparative advantage,who should produce wristwatches?
h.If each country specializes in the production of the product in which it has a comparative advantage,who should produce rice?

Accepted Answer

a.Thailand has an absolute advantage in

Question 8

$$\begin{array} { | l | c | c | } 
\hline & \text { Minnie } & \text { Mickey } \
\hline \text { Hats } & 40 & 50 \
\hline \text { Urrbrellas } & 10 & 5 \
\hline
\end{array}$$ Table 2-18 shows the output per week of two people,Minnie and Mickey.They can either devote their time to making hats or making umbrellas.
-Refer to Table 2-18.Which of the following statements is true?

Accepted Answer

A) Mickey has an absolute advantage in making both products. 
B) Minnie has an absolute advantage in making both products. 
C) Minnie has an absolute advantage in making hats and Mickey in making umbrellas. 
D) Minnie has an absolute advantage in making umbrellas and Mickey in making hats. 
A) Mickey has an absolute advantage in making both products. 
B) Minnie has an absolute advantage in making both products. 
C) Minnie has an absolute advantage in making hats and Mickey in making umbrellas. 
D) Minnie has an absolute advantage in making umbrellas and Mickey in making hats.

Question 9

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

Accepted Answer

A) of inefficient production. 
B) of ineffective management by entrepreneurs. 
C) some factors of production are not equally suited to producing both goods or services. 
D) of the scarcity of factors of production. 
A) of inefficient production. 
B) of ineffective management by entrepreneurs. 
C) some factors of production are not equally suited to producing both goods or services. 
D) of the scarcity of factors of production.

Question 10

The slope of a production possibilities frontier measures the ________ of producing one more unit of a good.

Accepted Answer

A) marginal revenue 
B) total revenue 
C) marginal cost 
D) opportunity cost 
A) marginal revenue 
B) total revenue 
C) marginal cost 
D) opportunity cost

Question 11

Without an increase in the supplies of factors of production,how can a nation achieve economic growth?

Accepted Answer

A) by producing more high-value goods and fewer low-value goods 
B) through technological advancement which enables more output with the same quantity of resources 
C) by lowering the prices of factors of production 
D) by increasing the prices of factors of production 
A) by producing more high-value goods and fewer low-value goods 
B) through technological advancement which enables more output with the same quantity of resources 
C) by lowering the prices of factors of production 
D) by increasing the prices of factors of production

Question 12

$$\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { One Digital } \
\text { Camera }
\end{array} & \begin{array} { c } 
\text { Wheat } \
\text { (per pound) }
\end{array} \
\hline \text { China } & 100 \text { hours } & 4 \text { hours } \
\hline \text { South Korea } & 60 \text { hours } & 3 \text { hours } \
\hline
\end{array}$$ Table 2-11 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea.
-Refer to Table 2-11.China has a comparative advantage in the production of

Accepted Answer

A) wheat. 
B) digital cameras. 
C) both products. 
D) neither product. 
A) wheat. 
B) digital cameras. 
C) both products. 
D) neither product.

Question 13

You have an absolute advantage whenever you

Accepted Answer

A) are better educated than someone else. 
B) can produce more of something than others with the same resources. 
C) prefer to do one particular activity. 
D) can produce something at a lower opportunity cost than others. 
A) are better educated than someone else. 
B) can produce more of something than others with the same resources. 
C) prefer to do one particular activity. 
D) can produce something at a lower opportunity cost than others.

Question 14

A decrease in the unemployment rate may be represented as a movement from a point inside the production possibilities frontier to a point on the frontier.

Accepted Answer

A) True 
 B)False

Question 15

Increasing marginal opportunity cost implies that

Accepted Answer

A) the more resources already devoted to any activity,the payoff from allocating yet more resources to that activity increases by progressively smaller amounts. 
B) the more resources already devoted to any activity,the benefits from allocating yet more resources to that activity decreases by progressively larger amounts. 
C) that rising opportunity costs makes it inefficient to produce beyond a certain quantity. 
D) the law of scarcity. 
A) the more resources already devoted to any activity,the payoff from allocating yet more resources to that activity increases by progressively smaller amounts. 
B) the more resources already devoted to any activity,the benefits from allocating yet more resources to that activity decreases by progressively larger amounts. 
C) that rising opportunity costs makes it inefficient to produce beyond a certain quantity. 
D) the law of scarcity.

Question 16

All of the following countries come close to the free market benchmark except

Accepted Answer

A) Canada. 
B) North Korea. 
C) Germany. 
D) Singapore. 
A) Canada. 
B) North Korea. 
C) Germany. 
D) Singapore.

Question 17

Table 2-1
Production choices for Tomaso's Trattoria
 $$\begin{array} { | c | c | c | } 
\hline \text { Choice } & \begin{array} { l } 
\text { Quantity of } \
\text { Pizzas } \
\text { Produced }
\end{array} & \begin{array} { l } 
\text { Quantity of } \
\text { Calzones } \
\text { Produced }
\end{array} \
\hline \text { A } & 48 & 0 \
\hline \text { B } & 36 & 15 \
\hline \text { C } & 24 & 30 \
\hline \text { D } & 12 & 45 \
\hline \text { E } & 0 & 60 \
\hline
\end{array}$$
-Refer to Table 2-1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 24 pizzas and 30 calzones would appear

Accepted Answer

A) along Tomaso's production possibilities frontier. 
B) inside Tomaso's production possibilities frontier. 
C) outside Tomaso's production possibilities frontier. 
D) at the horizontal intercept of Tomaso's production possibilities frontier. 
A) along Tomaso's production possibilities frontier. 
B) inside Tomaso's production possibilities frontier. 
C) outside Tomaso's production possibilities frontier. 
D) at the horizontal intercept of Tomaso's production possibilities frontier.

Question 18

Table 2-3
Production Choices for Dina's Diner
 $$\begin{array} { | c | c | c | } 
\hline \text { Choice } & \begin{array} { l } 
\text { Quantity of } \
\text { Sliders } \
\text { Produced }
\end{array} & \begin{array} { l } 
\text { Quantity of } \
\text { Hot Wings } \
\text { Produced }
\end{array} \
\hline \text { A } & 160 & 0 \
\hline \text { B } & 120 & 50 \
\hline \text { C } & 80 & 100 \
\hline \text { D } & 40 & 150 \
\hline \text { E } & 0 & 200 \
\hline
\end{array}$$
-Refer to Table 2-3.Assume Dina's Diner only produces sliders and hot wings.A combination of 80 sliders and 50 hot wings would appear

Accepted Answer

A) along Dina's production possibilities frontier. 
B) inside Dina's production possibilities frontier. 
C) outside Dina's production possibilities frontier. 
D) at the vertical intercept of Dina's production possibilities frontier. 
A) along Dina's production possibilities frontier. 
B) inside Dina's production possibilities frontier. 
C) outside Dina's production possibilities frontier. 
D) at the vertical intercept of Dina's production possibilities frontier.

Question 19

The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources.

Accepted Answer

A) minimum attainable 
B) maximum attainable 
C) only 
D) equitable 
A) minimum attainable 
B) maximum attainable 
C) only 
D) equitable

Question 20

Figure 2-1  
-Refer to Figure 2-1.Point B is

Accepted Answer

A) technically efficient. 
B) unattainable with current resources. 
C) inefficient in that not all resources are being used. 
D) the equilibrium output combination. 
A) technically efficient. 
B) unattainable with current resources. 
C) inefficient in that not all resources are being used. 
D) the equilibrium output combination.

Exam 2: Trade-Offs, comparative Advantage, and the Market System

Figure 2-5 -Refer to Figure 2-5.If the economy is currently producing at point Y,what is the opportunity cost of moving to point W?

Rayburn Reed is a highly talented photographer.He has chosen to specialize in photography because of all of the following except

James Lucy Wagons 16 18 Tricycles 32 24 Table 2-17 shows the output per week of two people,James and Lucy.They can either devote their time to making wagons or making tricycles. -Refer to Table 2-17.What is Lucy's opportunity cost of making a tricycle?

Figure 2-12 shows the production possibilities frontiers for Tahiti and Bora Bora.Each country produces two goods,milk and honey. -Refer to Figure 2-12.What is the opportunity cost of producing one gallon of honey in Tahiti?

Consider a country that produces only two goods: kayaks and coconuts.Suppose it is possible for this country to increase its production of kayaks without producing fewer coconuts.In this case,its current output combination is efficient.

Minnie Mickey Hats 40 50 Urrbrellas 10 5 Table 2-18 shows the output per week of two people,Minnie and Mickey.They can either devote their time to making hats or making umbrellas. -Refer to Table 2-18.Which of the following statements is true?

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

The slope of a production possibilities frontier measures the ________ of producing one more unit of a good.

Without an increase in the supplies of factors of production,how can a nation achieve economic growth?

One Digital Camera Wheat (per pound) China 100 hours 4 hours South Korea 60 hours 3 hours Table 2-11 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. -Refer to Table 2-11.China has a comparative advantage in the production of

You have an absolute advantage whenever you

A decrease in the unemployment rate may be represented as a movement from a point inside the production possibilities frontier to a point on the frontier.

Increasing marginal opportunity cost implies that

All of the following countries come close to the free market benchmark except

Table 2-1 Production choices for Tomaso's Trattoria Choice Quantity of Pizzas Produced Quantity of Calzones Produced A 48 0 B 36 15 C 24 30 D 12 45 E 0 60 -Refer to Table 2-1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 24 pizzas and 30 calzones would appear

Table 2-3 Production Choices for Dina's Diner Choice Quantity of Sliders Produced Quantity of Hot Wings Produced A 160 0 B 120 50 C 80 100 D 40 150 E 0 200 -Refer to Table 2-3.Assume Dina's Diner only produces sliders and hot wings.A combination of 80 sliders and 50 hot wings would appear

The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources.

Figure 2-1 -Refer to Figure 2-1.Point B is

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