Question 1

Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis, her choice was

Accepted Answer

A)  irrational, because economic analysis suggests you should always attend classes that you have already paid for. 
B)  irrational, because oversleeping is not in Keri's self-interest. 
C)  rational if Keri has not missed any other classes. 
D)  rational if Keri values sleep more highly than the benefit she expects to receive from attending the class.

Question 2

The opportunity cost to the United States of placing a man on the moon was

Accepted Answer

A)  the loss of government revenues that were allocated to the mission. 
B)  the cost of all production involved in the space program. 
C)  the loss of utility from the highest valued bundle of products that had to be forgone because of the moon mission. 
D)  less than zero, because the long-run benefit of the project will be greater than the cost.

Question 3

Which of the following is true regarding private ownership?

Accepted Answer

A)  Relative to common ownership, private ownership generally leads to less conservation of resources. 
B)  With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others. 
C)  Private ownership generally gives the owner little incentive to find ways to use the resource wisely. 
D)  With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource.

Question 4

Middlemen are individuals who

Accepted Answer

A)  add to the buyer's expense without performing a useful function. 
B)  add to the seller's cost without performing a useful function. 
C)  provide services that reduce the cost of transactions and help achieve additional gains from trade. 
D)  act as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services.

Question 5

Increasing opportunity costs of producing goods imply that the production possibilities curve will be

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  bowed inward. 
D)  bowed outward.

Question 6

Suppose you can type a paper in two hours or mow the lawn in four hours. It takes your friend Ann eight hours to type a paper of the same length and five hours to mow the same size of lawn. Which of the following is true?

Accepted Answer

A)  Ann is the high-opportunity cost producer of both typing and mowing. 
B)  Since you can type papers and mow lawns faster than Ann, you and Ann cannot benefit from specialization and trade. 
C)  You and Ann could expand output and gain from trade if she specialized in mowing lawns and you specialized in typing papers. 
D)  You and Ann could expand output and gain from trade if she specialized in typing papers and you specialized in mowing lawns.

Question 7

Use the production possibilities data below for Lebos and Slavia to answer the following question(s). Table 2-1
  Refer to Table 2-1. Which of the following would be a mutually agreeable rate of exchange?

Accepted Answer

A)  1F = 1C 
B)  1F = 2C 
C)  1F = 3C 
D)  No exchange rate would be mutually agreeable.

Question 8

Figure 2-10 
Refer to Figure 2-10. If the economy moves from point C to point B, then which of the following statements is correct?

Accepted Answer

A)  The economy benefited from a technological advance in the production of baseballs. 
B)  The opportunity cost of each additional baseball is 2 bananas. 
C)  The opportunity cost of each additional banana is 2 baseballs. 
D)  The move involves no opportunity cost; it simply reflects the desires of the economy's citizens.

Question 9

Use the production possibilities data below to answer the following question(s).
Table 2-3

Refer to Table 2-3. The opportunity cost of 1 pound of meat for the rancher is

Accepted Answer

A)  4 hours of labor. 
B)  5 hours of labor. 
C)  4/5 pounds of potatoes. 
D)  5/4 pounds of potatoes.

Question 10

Over time, an increase in a nation's stock of physical capital will

Accepted Answer

A)  shift the production possibilities curve inward. 
B)  cause an economy to operate inside its production possibilities curve. 
C)  shift the production possibilities curve outward. 
D)  eliminate the basic economic problem of scarcity.

Question 11

Three basic decisions must be made by all economies. What are they?

Accepted Answer

A)  how much will be produced, when it will be produced, and how much it will cost 
B)  what the price of each good will be, who will produce each good, and who will consume each good 
C)  what will be produced, how goods will be produced, and for whom goods will be produced 
D)  how the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply

Question 12

Which of the following is true with regard to value and exchange?

Accepted Answer

A)  Exchange generally moves a good from a person who values it more to a person who values it less. 
B)  Transaction costs reduce our ability to gain from potentially advantageous trades. 
C)  Middlemen increase transaction costs and, thereby, reduce the potential gains derived from trade. 
D)  Physical goods have an objective value that is unrelated to time and the person of ownership.

Question 13

Your opportunity cost of attending a football game is

Accepted Answer

A)  the subjective value of the disappointment you will feel if your team loses. 
B)  the monetary cost of the drinks and food you purchase at the game. 
C)  the price of the ticket. 
D)  the highest valued alternative forgone because of the time and money required to attend the game.

Question 14

Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?

Accepted Answer

A)  an increase in the labor force 
B)  an increase in unemployment 
C)  development of an improved technological method of production 
D)  a decrease in the stock of physical capital

Question 15

Which of the following is NOT true of opportunity cost?

Accepted Answer

A)  Opportunity costs are subjective because they depend upon how the decision-maker values his or her options. 
B)  Opportunity costs are only the monetary costs of lost options. 
C)  Opportunity costs are the highest-valued alternative sacrificed in order to choose an option. 
D)  Only the decision-maker can determine his or her opportunity costs for any particular action.

Question 16

The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that

Accepted Answer

A)  students will take better care of these commonly owned bicycles than they do their own bicycles. 
B)  students will take equally as good care of these commonly owned bicycles as they do their own bicycles. 
C)  students will not take as good of care of these commonly owned bicycles as they do their own bicycles. 
D)  because universities have a lot of money, these bikes will be better maintained than the ones owned privately by college students who tend to have little money.

Question 17

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie

Accepted Answer

A)  is a fixed total waiting to be divided up among people. 
B)  determines how much wealth an individual can obtain. 
C)  is variable, not fixed, across time periods. 
D)  depends solely upon the natural resources of a country.

Question 18

An airline ticket from Baltimore to Miami costs $525. A bus ticket is $325. Traveling by plane will take 5 hours, compared with 25 hours by bus. Thus, the plane costs $200 more but saves 20 hours of time (Hint: Note how we are "thinking at the margin" here by looking at the changes). Other things constant, an individual will gain by choosing air travel if, and only if, each hour of her time is valued at more than

Accepted Answer

A)  $10 per hour. 
B)  $13 per hour. 
C)  $20 per hour. 
D)  $105 per hour.

Question 19

Specialization in production is beneficial because

Accepted Answer

A)  it allows everyone to have a job that they like. 
B)  it permits people to expand production and achieve rates of output that would otherwise be unattainable. 
C)  it allows everyone to be self-sufficient. 
D)  it eliminates the need for the division of labor.

Question 20

Which of the following sayings best reflects the concept of opportunity cost?

Accepted Answer

A)  "You can't teach an old dog new tricks." 
B)  "Time is money." 
C)  "I have a baker's dozen." 
D)  "There's no business like show business."

Exam 2: Some Tools of the Economist