Question 1

China's State Council has encouraged more spending to "improve transportation links and other infrastructure... ." It will also "step up its spending on vocational training and other educational programs for adults."
HYPERLINK "http://www.nytimes.com/" www.nytimes.com, Keith Bradsher, October 19, 2008
Suppose that capital goods are on the vertical axis while consumption goods are on the horizontal axis of China's PPF. As a result of enacting the policies, we would expect
i. an expansion of China's production possibilities.
ii. capital accumulation.
iii. an increase in human capital

Accepted Answer

A)  i and iii only. 
B)  i and ii only. 
C)  ii and iii only. 
D)  i, ii and iii.

Question 2

Draw and describe a marginal cost curve for slices of pizza where the opportunity cost of producing a slice of pizza is measured as tacos forgone.

Accepted Answer

The answer of Draw and describe a marginal cost curve...

Question 3

" 
-The Hobbits of the Shire are trying to decide how much bread and how much wine to produce. They ask you to be their economic consultant and give you the information in the first table above about different combinations of wine and bread that they can produce if they are fully employed and doing their best. The Hobbits also give you the information in the second table above about their willingness to pay for wine depending on how much wine they already have. To help the Hobbits solve their problem:
a) Draw the Shire's production possibilities frontier. Put wine on the horizontal axis.
b) What is the opportunity cost of the first two thousand bottles of wine? What is the marginal cost of the 3000t of wine? What is the marginal cost of the 3,000th loaf of bread?
c) Draw the marginal cost of wine curve. What happens to the marginal cost if production of wine increases? W
d) Draw the marginal benefit from wine curve on the same figure on which you put the marginal cost curve. D the relationship between the quantity of wine produced and the marginal benefit from wine.
e) What combination of bread and wine will you recommend the Hobbits to produce? Why? Explain to the Ho why they would be worse off by producing a different combination of bread and wine.

Accepted Answer

The answer of " 
-The Hobbits of the Shire are...

Question 4

What economic concepts are represented in the production possibilities model?

Accepted Answer

The answer of What economic concepts are represented in the...

Question 5

-If the United States can increase its production of automobiles without decreasing its production of any other good, the United States must have been producing at a point

Accepted Answer

A)  beyond its PPF. 
B)  within its PPF. 
C)  on its PPF. 
D)  None of the above is correct because increasing the production of one good without decreasing the production of another good is impossible.

Question 6

In one day, Sue can change the oil on 20 cars or change the tires on 20 cars. In one day, Fred can change the oil on 20 cars or change the tires on 10 cars. Sue and Fred can gain from trade if Sue changes the and Fred changes the .

Accepted Answer

A)  oil; tires 
B)  oil; oil 
C)  tires; tires 
D)  tires; oil

Question 7

An increase in the nation's capital stock will

Accepted Answer

A)  move the nation from producing within the PPF to producing at a point closer to the PPF. 
B)  shift the PPF outward. 
C)  cause a movement along the PPF upward and leftward. 
D)  cause a movement along the PPF downward and rightward.

Question 8

-In the figure above, an economy would grow fastest if it produces at point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 9

A choice is made. The value of the highest- valued alternative given up is the _ of the choice made.

Accepted Answer

A)  accounting cost 
B)  total cost 
C)  monetary cost 
D)  opportunity cost

Question 10

A country that must decrease production of one good in order to increase the production of another

Accepted Answer

A)  must be producing on its production possibilities frontier. 
B)  must not have private ownership of property. 
C)  must be using resources inefficiently. 
D)  must be producing beyond its production possibilities frontier.

Question 11

Suppose that a typical German factory can produce 20 cameras or 1 computer in an hour, and that a typical American factory can produce 10 cameras or one computer in an hour. Germany wishes to purchase computers from the United States in exchange for cameras. What is the maximum number of cameras per computer that Germany would be willing to pay the United States?

Accepted Answer

A)  20 cameras 
B)  10 cameras 
C)  2 cameras 
D)  1 camera

Question 12

The social arrangements that govern the ownership, use, and disposal of property are referred to as

Accepted Answer

A)  capitalism. 
B)  property rights. 
C)  the double coincidence of wants. 
D)  private enterprise.

Question 13

A person has a comparative advantage in an activity if that person can

Accepted Answer

A)  perform the activity at a lower opportunity cost than anyone else. 
B)  perform that activity at a higher opportunity cost than anyone else. 
C)  produce fewer goods in a given amount of time than another person. 
D)  produce more goods in a given amount of time than another person.

Question 14

Betty and Ann live on a desert island. With a day's labor, Ann can produce 6 fish or 4 coconuts; Betty can produce 3 fish or 1 coconut. Betty's opportunity cost of producing 1 fish is _, and she should specialize in the production of .

Accepted Answer

A)  1 coconut; fish 
B)  2/3 coconut; coconuts 
C)  4 coconuts; fish 
D)  1/3 coconut; fish

Question 15

-An economy produces at point a on the PPF shown in the above figure. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat .

Accepted Answer

A)  increases 
B)  is impossible to calculate without numbers on the axes 
C)  decreases 
D)  remains the same

Question 16

In goods markets

Accepted Answer

A)  households sell to firms. In factor markets firms sell to households. 
B)  and in factor markets households sell to firms. 
C)  and in factor markets firms sell to households. 
D)  firms sell to households. In factor markets households sell to firms.

Question 17

-Joe's hot dog stand can produce hot dogs and hamburgers. The table gives Joe's production possibilities. The opportunity cost of _.

Accepted Answer

A)  the 20th hot dog is 0 hamburgers 
B)  the first 20 hot dogs is 20 hamburgers 
C)  the 40th hamburger is 20 hot dog 
D)  1 hamburger is 10 hot dogs

Question 18

Suppose that you have a choice between video games and movies. If the marginal benefit of a video game, in terms of movies forgone, exceeds the marginal cost, then your resources would be used most efficiently by

Accepted Answer

A)  decreasing video games and movies. 
B)  decreasing video games and increasing movies. 
C)  increasing video games and decreasing movies. 
D)  keeping the status quo, that is, making no change.

Question 19

Intellectual property

Accepted Answer

A)  is protected by people's sense of decency rather than by written laws. 
B)  belongs to everyone with the necessary human capital to use it. 
C)  is often protected by copyrights and patents. 
D)  is protected by common law rather than by written laws.

Question 20

One of the opportunity costs of economic growth is

Accepted Answer

A)  the gain in future consumption. 
B)  capital accumulation. 
C)  technological change. 
D)  reduced current consumption.

Exam 2: The Economic Problem