Question 1

Which of the following would allow the production possibilities curve for an economy to shift outward?

Accepted Answer

A)  a better social organization of economic activity, such as conversion from socialism to capitalism 
B)  an increase in the labor force or resource base 
C)  more investment leading to better technology and more innovation 
D)  all of the above

Question 2

If an economy operates at a point within its production possibilities curve,

Accepted Answer

A)  it lacks the resources necessary to reach the curve. 
B)  it is utilizing all of its resources efficiently. 
C)  it does not confront the problem of scarce goods relative to unlimited wants. 
D)  it is not efficiently using all of its resources.

Question 3

In the fictitious country of Lebos, the government allows private ownership of pigs but not of cows. If the people of Lebos permanently increase their desire to purchase more pork and beef, in the long run, we would expect

Accepted Answer

A)  the population of pigs to rise and the population of cows to fall. 
B)  the population of cows to rise and the population of pigs to fall. 
C)  the populations of both pigs and cows to increase. 
D)  both pigs and cows to become extinct in Lebos unless the government places the animals on the endangered species list.

Question 4

Suppose you can type a paper in two hours or mow the lawn in four hours, while it takes your friend Ann eight hours to type a paper or two hours to mow the lawn. Which of the following is true?

Accepted Answer

A)  You have a comparative advantage in typing. 
B)  You have a comparative advantage in mowing the lawn. 
C)  You and Ann could save time if you mowed her lawn while she typed your paper. 
D)  You and Ann cannot gain from specialization and trade.

Question 5

An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contracts would result in which of the following changes to the country's production possibilities curve?

Accepted Answer

A)  a movement from a point on the curve to a point outside the curve 
B)  a movement from one point to another point along the curve 
C)  an outward shift of the curve 
D)  a movement from a point on the curve to a point inside the curve

Question 6

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

Accepted Answer

A)  decentralized decision making is inevitable. 
B)  central planning and political bargaining will replace market forces. 
C)  individual preferences are of no importance. 
D)  economic equality will result.

Question 7

After the terrorist attacks on September 11, 2001, the United States began devoting substantial resources toward the War on Terrorism, homeland security, and relief efforts. Use the production possibilities curve to demonstrate how this might affect the production of other goods in the United States.

Accepted Answer

The answer of After the terrorist attacks on September 11,...

Question 8

Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result,

Accepted Answer

A)  the population of black rhinos has fallen substantially. 
B)  the population of black rhinos has increased. 
C)  many black rhinos are being poached. 
D)  the incomes of residents in Zimbabwe has fallen substantially.

Question 9

A middleman

Accepted Answer

A)  attempts to prevent buyers from finding sellers. 
B)  promotes trade by lowering the transaction costs of buyers and sellers. 
C)  acts as a liaison between top management and the hourly employees. 
D)  adds to the seller's expense and the buyer's price without providing a service to either.

Question 10

A middleman is a person who

Accepted Answer

A)  specializes in arranging trades and selling, guaranteeing, and servicing items traded. 
B)  acts as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services. 
C)  adds to the seller's expense and the buyer's buying price without providing a service to either. 
D)  levies a tax on private sector activity and uses the funds to support government activities.

Question 11

In economics, transaction costs refer to the

Accepted Answer

A)  time, effort, and other resources needed to search out and negotiate an exchange. 
B)  dollar cost or price of the item traded. 
C)  cost an economy suffers when it allows specialization according to comparative advantage. 
D)  amount by which the price of an item increases due to the presence of a middleman.

Question 12

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 13

Which of the following is true?

Accepted Answer

A)  Trade does not produce anything new; therefore, it cannot create value. 
B)  The value of a good is determined by the cost of the material resources required for its production. 
C)  The value of a good generally depends on who uses it and circumstances such as when and where it is used. 
D)  All of the above are true.

Question 14

A point on the production possibilities curve represents a combination of goods that is

Accepted Answer

A)  inefficient. 
B)  efficient. 
C)  unattainable. 
D)  attainable.

Question 15

Which of the following is true regarding value and exchange?

Accepted Answer

A)  Middlemen fail to create value since they do not expand the supply of physical goods. 
B)  A good or service has a given value regardless of who uses it or how it is used. 
C)  If it were not for middlemen, transaction costs would be zero. 
D)  Voluntary exchange creates value by channeling goods into the hands of people who value them most.

Question 16

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

Accepted Answer

A)  How much will be produced; when will it be produced; who will produce it? 
B)  What goods will be produced; how will goods be produced; for whom will goods be produced? 
C)  What will be consumed; how will goods be consumed; for whom will goods be consumed? 
D)  How will the opportunity cost principle be applied; if the law of comparative advantage will be utilized, how will it be utilized; will the production possibilities constraint apply?

Question 17

According to the law of comparative advantage, a particular task is performed most efficiently by the individual with the lowest

Accepted Answer

A)  wage rate. 
B)  tax liability. 
C)  net worth. 
D)  opportunity cost.

Exam 2: Some Tools of the Economist