Question 1

If the marginal benefit of a good exceeds its marginal cost

Accepted Answer

A)  we've achieved efficient resource use. 
B)  we should produce more to achieve the allocatively efficient use of resources. 
C)  we should produce less to achieve the allocatively efficient use of resources. 
D)  we cannot tell if more or less should be produced to achieve the allocatively efficient use of resources.

Question 2

If the marginal benefit of consuming another unit of a good is positive, then to reach the allocatively efficient level of output more of the good should be produced and consumed

Accepted Answer

A)  no matter what. 
B)  as long as the consumer can afford to pay for it. 
C)  if the total benefit of the good is greater than its total cost. 
D)  if the marginal benefit of the good is greater than its marginal cost.

Question 3

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

Accepted Answer

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

Question 4

-The above table shows production combinations on a country's production possibilities frontier. Which of the following points signifies efficient production?

Accepted Answer

A)  0 units of good X and 40 units of good Y 
B)  3 units of good X and 25 units of good Y 
C)  10 units of good X and 16 units of good Y 
D)  12 units of good X and 1 unit of good Y

Question 5

According to the principle of comparative advantage, if a rich country trades with a poor country, then

Accepted Answer

A)  the rich country will benefit and the poor country will lose. 
B)  the rich country will lose and the poor country will benefit. 
C)  both countries will benefit. 
D)  neither of the countries will benefit.

Question 6

-The table above represents the marginal cost and marginal benefit associated with pizza (in terms of movies). What quantity of pizza should be produced if resources are to be used efficiently?

Accepted Answer

A)  5 pizzas 
B)  6 pizzas 
C)  7 pizzas 
D)  8 pizzas

Question 7

The production possibilities frontier is

Accepted Answer

A)  upward sloping and reflects unlimited choices. 
B)  upward sloping and reflects tradeoffs in choices. 
C)  downward sloping and reflects unlimited choices. 
D)  downward sloping and reflects tradeoffs in choices.

Question 8

Specialization and trade allow countries to consume beyond their PPFs.

Accepted Answer

A) True 
 B)False

Question 9

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)  higher wages for producers of pop culture. 
C)  an absolute advantage in producing pop culture. 
D)  a comparative advantage in producing pop culture.

Question 10

Moving along a PPF, marginal cost is

Accepted Answer

A)  the cost of producing the first unit of a good or service. 
B)  the total cost, less the production of the other good or service. 
C)  greater than the opportunity cost. 
D)  equal to the opportunity cost of producing one more unit of a good or service.

Question 11

-The above table shows production combinations on a country's production possibilities frontier. What is the opportunity cost of increasing the production of X from 0 to 3 units?

Accepted Answer

A)  40 units of good Y per unit of good X 
B)  3 units of good Y per unit of good X 
C)  4/3 units of good Y per unit of good X 
D)  0 units of good Y per unit of good X

Question 12

George and Michael can gain from exchange

Accepted Answer

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

Question 13

-The table above lists six points on the production possibilities frontier for grain and cars. What is the opportunity cost of producing the 5th ton of grain?

Accepted Answer

A)  16 cars per ton of grain 
B)  6 cars per ton of grain 
C)  3 cars per ton of grain 
D)  2 cars per ton of grain

Question 14

-A (very, very small) country produces milk and shirts and its production possibilities frontier is in the table above. The nation is currently producing at point B. What is the opportunity cost of two additional gallons of milk? At point C? At point D? What do your results show?

Accepted Answer

The answer of 
-A (very, very small) country produces milk...

Question 15

-The above table shows production combinations on a country's production possibilities frontier. The opportunity cost of increasing the production of Y from 16 to 28 units is ________ units of good X per unit of good Y.

Accepted Answer

A)  12 
B)  6 
C)  3 
D)  There is no opportunity cost when moving from one point to another along a production possibilities frontier so none of the above answers is correct.

Question 16

Which of the following is TRUE regarding markets? I) Economists define a market as a geographic location where trade occurs.
II) A market enables buyers and sellers to get information about each other and to buy and sell from each other.
III) Markets coordinate decisions through prices.

Accepted Answer

A)  I only 
B)  I and III 
C)  II and III 
D)  I, II and III

Question 17

In the United States, the government coordinates most of the economic activity.

Accepted Answer

A) True 
 B)False

Question 18

A country produces only pencils and erasers. Pencil production is allocatively efficient if the marginal ________ of a pencil equals the marginal ________ of ________.

Accepted Answer

A)  cost; benefit; an eraser 
B)  cost; cost; an eraser 
C)  benefit; benefit; an eraser 
D)  benefit; cost; a pencil

Question 19

An opportunity cost of economic growth is

Accepted Answer

A)  essentially zero because economic growth leads to such large gains in the long run. 
B)  the decrease in production of consumption goods in the present time period. 
C)  decreased by the creation of capital goods rather than consumption goods. 
D)  so high that places such as Hong Kong have had to do without it.

Question 20

-Refer to the table above, which gives five points on a nation's PPF. The opportunity cost of increasing the production of Y from 16 to 36 units is a total of

Accepted Answer

A)  1/5 unit of X per unit of Y. 
B)  2/5 unit of X per unit of Y. 
C)  1/2 unit of X per unit of Y. 
D)  3/5 unit of X per unit of Y.

Exam 2: The Economic Problem