Question 1

If Sam is producing at a point on his production possibilities frontier, then he

Accepted Answer

A)  will be unable to gain from trade. 
B)  cannot produce any more of either good. 
C)  is not subject to scarcity. 
D)  can produce more of one good only by producing less of the other.

Question 2

Intellectual property

Accepted Answer

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

Question 3

Production possibilities
 $$\begin{array} { | l | l | l | } 
\hline \text { Possibility } & \begin{array} { l } 
\text { Pizza (per } \
\text { hour) }
\end{array} & \begin{array} { l } 
\text { Soda } \
\text { (cases per } \
\text { hour) }
\end{array} \
\hline \text { A } & 0 & 100 \
\hline \text { B } & 1 & 95 \
\hline \text { C } & 2 & 80 \
\hline \text { D } & 3 & 60 \
\hline \text { E } & 4 & 35 \
\hline \text { F } & 5 & 0 \
\hline
\end{array}$$
-Based on the above table, as the production of pizza increases, the opportunity cost of pizza in terms of forgone cases of soda

Accepted Answer

A)  initially increases then decreases. 
B)  increases. 
C)  decreases. 
D)  does not change.

Question 4

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has

Accepted Answer

A)  lower wages for producers of pop culture. 
B)  a lower opportunity cost of producing pop culture. 
C)  a higher opportunity cost of producing pop culture. 
D)  higher wages for producers of pop culture.

Question 5

Capital accumulation definitely

Accepted Answer

A)  makes the production possibilities frontier steeper. 
B)  shifts the production possibilities frontier outward. 
C)  has no impact on the production possibilities frontier. 
D)  shifts the production possibilities frontier inward.

Question 6

If property rights are not clearly defined and enforced, then

Accepted Answer

A)  some potential gains from specialization and trade are lost. 
B)  resources are devoted to protecting possessions rather than to production. 
C)  incentives for specialization based on comparative advantage are weakened. 
D)  All of the above answers are correct.

Question 7

A key factor that leads to economic growth is

Accepted Answer

A)  human capital accumulation. 
B)  avoiding the opportunity cost of investment. 
C)  increasing current consumption. 
D)  Both answers A and B are correct.

Question 8

$$\begin{array} { | l | l | l | } 
\hline \text { Point } & \begin{array} { l } 
\text { Production of grain } \
\text { (tons) }
\end{array} & \begin{array} { l } 
\text { Production of cars } \
\text { (cars) }
\end{array} \
\hline \text { A } & 0 & 30 \
\hline \text { B } & 2 & 28 \
\hline \text { C } & 4 & 24 \
\hline \text { D } & 6 & 18 \
\hline \text { E } & 8 & 10 \
\hline \text { F } & 10 & 0 \
\hline
\end{array}$$
-The table above lists six points on the production possibilities frontier for grain and cars. From this information you can conclude that production is inefficient if this economy produces

Accepted Answer

A)  8 tons of grain and 10 cars. 
B)  2 tons of grain and 27 cars. 
C)  6 tons of grain and 18 cars. 
D)  4 tons of grain and 26 cars.

Question 9

To obtain the gains available from comparative advantage, individuals or countries must do more than specialize; they must also

Accepted Answer

A)  engage in research and development. 
B)  trade. 
C)  invest. 
D)  save.

Question 10

$$\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { U.S. production } \
\text { possibilities }
\end{array} & \begin{array} { l } 
\text { France's production } \
\text { possibilities }
\end{array} \
\hline \text { Steel } & 100 & 25 \
\hline \text { Concrete } & 200 & 100 \
\hline
\end{array}$$
-Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of X is

Accepted Answer

A)  1 unit of Y per unit of X for Agnes and 1/2 unit of Y per unit of X for Brenda. 
B)  1 hour for Agnes and 2 hours for Brenda. 
C)  1 unit of Y per unit of X for Agnes and 2 units of Y per unit of X for Brenda. 
D)  1 hour for Agnes and 1/2 hour for Brenda.

Question 11

The production possibilities frontier is the boundary between those combination of goods and services that can be

Accepted Answer

A)  consumed and those that cannot be produced. 
B)  consumed domestically and those that can be consumed by foreigners. 
C)  produced and those that cannot be produced. 
D)  produced and those that can be consumed.

Question 12

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Tom has a comparative advantage in______________ and Jerry has a comparative advantage in__________ .

Accepted Answer

A)  making sandwiches; cooking eggs 
B)  cooking eggs; making sandwiches 
C)  neither of these activities; both activities 
D)  both activities; neither of these activities

Question 13

A PPF bows outward because

Accepted Answer

A)  consumers prefer about equal amounts of the different goods. 
B)  resources are used inefficiently. 
C)  not all resources are equally productive in all activities. 
D)  entrepreneurial talent is more abundant than human capital.

Question 14

George and Michael can gain from exchange

Accepted Answer

A)  if each specializes in the production of the good for which he has the lower opportunity cost. 
B)  unless they have different opportunity costs. 
C)  unless one has an absolute advantage in all goods. 
D)  if each specializes in the production of the good for which he has the higher opportunity cost.

Question 15

-Employees at Bank of America are good at providing banking services and workers at Ben & Jerryʹs are good at making ice cream. The figure above shows the marginal cost and marginal benefit curves for ice cream. If 3 million gallons of ice cream are produced, marginal cost________ marginal benefit and__________ produced.

Accepted Answer

A)  exceeds; not enough ice cream is 
B)  is less than; too much ice cream is 
C)  is less than; not enough banking services are 
D)  exceeds; too much ice cream is

Question 16

If Tom and Di specialize in producing the goods in which he and she have a comparative advantage and they exchange goods, then_________ .

Accepted Answer

A)  they will lose because they are no longer able to produce and consume both goods. 
B)  each will gain because each can consume a combination of goods that is outside her/his production possibility frontier 
C)  one of them will gain and the other will lose 
D)  each will produce a combination of goods that is within her/his production possibility frontier

Question 17

-In the figure above, point D is

Accepted Answer

A)  less production efficient than point C. 
B)  not production efficient and point B is production efficient. 
C)  production efficient and point A is not production efficient. 
D)  production efficient and point B is not production efficient.

Question 18

Before the first Gulf War in 1991, Kuwait had the capacity to produce a certain amount of oil from its oil wells. After the war, it found that capacity greatly diminished because the oil wells had been set on fire. Draw Kuwaitʹs PPF before and after the war, assuming that the only two goods produced are oil and food. Further assume that setting the oil wells on fire did not affect Kuwaitʹs ability to produce food. Explain why the PPF before the war is different from the PPF after the war. $$\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Production } \
\text { point }
\end{array} & \begin{array} { l } 
\text { Pizza } \
\text { produced }
\end{array} & & \begin{array} { l } 
\text { CDs } \
\text { produced }
\end{array} \
\hline A & 0 & \text { and } & 42 \
\hline B & 4 & \text { and } & 40 \
\hline & 8 & \text { and } & 36 \
\hline D & 12 & \text { and } & 30 \
\hline E & 16 & \text { and } & 22 \
\hline F & 20 & \text { and } & 12 \
\hline G & 24 & \text { and } & 0 \
\hline
\end{array}$$

Accepted Answer

The answer of Before the first Gulf War in 1991,...

Question 19

A reduction in the amount of unemployment

Accepted Answer

A)  moves the economyʹs point of production closer to the production possibilities frontier. 
B)  moves the economyʹs point of production along the production possibilities frontier. 
C)  moves the economyʹs point of production further away from the production possibilities frontier. 
D)  shifts the production possibilities frontier outward.

Question 20

Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. If these two states were to engage in trade, which of the following is true?

Accepted Answer

A)  Half of both Washingtonʹs and Missouriʹs resources would be devoted to pears and the other half to pecans because that is the comparative advantage. 
B)  Missouri would specialize in pecan production and trade pecans to Washington for pears. 
C)  Washington would produce both pears and pecans and Missouri would produce neither. 
D)  Missouri would specialize in pear production and trade pears to Washington pecans.

Exam 2: The Economic Problem