Question 1

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 2

When property rights are clearly defined and enforced, private owners will

Accepted Answer

A)  use their property for selfish ends because they have little or no incentive to consider the desires of others. 
B)  develop and direct their property toward uses that others value highly because the market will generally reward them for doing so. 
C)  have little or no incentive to take care of their property or conserve it for the future. 
D)  be unable to derive personal gain if they are sensitive to the desires of others when deciding how to use their property.

Question 3

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."

Question 4

Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

Accepted Answer

A)  Resource owners will fail to conserve vital resources, even if they expect their supply to be highly limited in the future. 
B)  Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned. 
C)  Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources. 
D)  Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

Question 5

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

Accepted Answer

A)  the law of absolute advantage. 
B)  the law of comparative advantage. 
C)  the law of production possibilities. 
D)  the exchange maximum principle.

Question 6

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

Accepted Answer

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

Question 7

Private property rights involve

Accepted Answer

A)  the right to exclusive use of the property. 
B)  legal protection against those who would seek to use or abuse the property without the owner's permission. 
C)  the right to transfer, sell, exchange, or mortgage the property. 
D)  all of the above.

Question 8

In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries?

Accepted Answer

A)  In Zimbabwe and Botswana, elephants are near the verge of extinction, while in Kenya, the population of elephants is growing rapidly. 
B)  There has been a similar decline in the population of elephants in all of these countries. 
C)  There has been a similar increase in the population of elephants in all of these countries. 
D)  In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

Question 9

Entrepreneurs are

Accepted Answer

A)  profit-seeking decision makers who decide which business projects to undertake. 
B)  people who loan money to other business decision makers. 
C)  managers who generally work for a salary because they are unwilling to take risks. 
D)  none of the above.

Question 10

The successful introduction and adoption of a new product or process is known as

Accepted Answer

A)  invention. 
B)  innovation. 
C)  origination. 
D)  adaptation.

Question 11

Which of the following is an implication of the law of comparative advantage?

Accepted Answer

A)  Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities. 
B)  Since workers in high-income countries utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries. 
C)  Countries that are high cost producers of agricultural products should trade those products for goods they can produce only at a low opportunity cost. 
D)  Countries that are low opportunity cost producers of timber products should trade those products for goods they can produce only at a high opportunity cost.

Question 12

In an informed and voluntary exchange,

Accepted Answer

A)  both parties receive something they value more than what they gave up. 
B)  both parties place an equal value on what they received and what they gave up. 
C)  neither party can gain more than the other. 
D)  one trader can gain only at the expense of the other.

Question 13

If Mia can either wash 10 cars or wax 2 cars during a day, and Daniel can either wash 17 cars or wax 2 cars during a day, then according to the law of comparative advantage,

Accepted Answer

A)  Daniel's opportunity cost of waxing a car is less than Mia's. 
B)  their total output can be expanded if Mia specializes in waxing and Daniel in washing. 
C)  their total output can be expanded if Mia specializes in washing and Daniel in waxing. 
D)  it would be impossible for Daniel and Mia to increase their total output through specialization and mutual exchange.

Question 14

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 15

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called

Accepted Answer

A)  socialism. 
B)  a market economy. 
C)  a corporate economy. 
D)  capitalism.

Question 16

When the production possibilities curve is bowed out, resources are

Accepted Answer

A)  equally well-suited to production of both goods. 
B)  not being used efficiently. 
C)  not equally suited to the production of both goods. 
D)  available in larger and larger quantities as more of one good is produced.

Question 17

Figure 2-10  Refer to Figure 2-10. If this economy put all available resources into the production of bananas, it could produce

Accepted Answer

A)  200 bananas and also 150 baseballs. 
B)  300 bananas and also 100 baseballs. 
C)  400 bananas and no baseballs. 
D)  It is impossible to know unless we know the quantity of resources available.

Question 18

Why is trade an important source of economic progress?

Accepted Answer

A)  It allows the trading partners to produce a larger joint output through specialization in the areas where they have a comparative advantage. 
B)  It allows the trading partners to produce a larger joint output as the result of greater realization of cost reductions that accompany the adoption of mass production methods. 
C)  It makes it possible to realize gains from the discovery and dissemination of innovative products and production processes. 
D)  All of the above are correct.

Question 19

A nation with cheap, efficient communications is likely to be

Accepted Answer

A)  richer, ceteris paribus, because transaction costs will be lower and trade greater. 
B)  richer only if production of goods is cheaper, too, since trade itself cannot create value. 
C)  poorer since it spends so much on communication instead of true productivity. 
D)  spending too much on communications, which adds nothing to the value of output.

Question 20

Given your knowledge of the incentives created by private ownership, which of the following would you expect to be false?

Accepted Answer

A)  People will take better care of their own personal automobile than they will a rental car. 
B)  People will take better care of a home they own than they will of a home they rent. 
C)  Property owned privately will tend to be better conserved and kept than public property or property owned in common. 
D)  People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the side of an interstate highway.

Exam 2: Some Tools of the Economist