Question 1

The process by which new products and methods of production are continuously replacing old ones is known as:

Accepted Answer

A) opportunity cost. 
B) the production possibilities frontier. 
C) creative destruction. 
D) the fallacy of composition.

Question 2

The law of comparative advantage implies that a nation,individual,or region should trade for those economic goods for which it

Accepted Answer

A) has an absolute advantage. 
B) has a comparative advantage. 
C) is a low opportunity cost producer. 
D) is a high opportunity cost producer.

Question 3

What are the three basic questions faced by every economy?

Accepted Answer

A) What,how,and for whom will goods be produced? 
B) When,where,and how much will be produced? 
C) Why,where,and when will goods be produced? 
D) How,how much,and why will goods be produced?

Question 4

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 5

Which of the following most accurately states the function of middlemen?

Accepted Answer

A) Middlemen reduce transaction costs. 
B) Middlemen add to the expense of buyers and sellers without providing any benefit. 
C) Our economy would work just as well without middlemen since they do not expand the availability of physical goods. 
D) Middlemen reduce the number of transactions since they increase the buyer's price and reduce the seller's net receipts.

Question 6

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 7

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 8

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 9

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

Accepted Answer

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

Question 10

Creative destruction refers to the process where

Accepted Answer

A) new products and methods of production are continuously replacing old ones 
B) producing more of one good causes you to produce less of another 
C) everybody involved is made worse off 
D) new ways to destroy buildings are employed

Question 11

The opportunity cost of choosing an alternative

Accepted Answer

A) is the value of the highest valued alternative forgone as the result of the choice. 
B) includes only the amount of time spent on whatever is chosen. 
C) includes only the money cost of the option. 
D) is irrelevant for most choices individuals face.

Question 12

Using a production possibilities curve,a technological advance that increases the amount of output for the same amount of inputs would be illustrated as

Accepted Answer

A) an inward shift of 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 13

Ms.Liebowitz has a choice of driving or flying from Morgantown,West Virginia to Washington,D.C.for a one-day business trip.If she travels by air,she will be able to work seven hours in D.C. ,while if she drives,she will only have time to work four hours once there.Her expected income from each hour of work in D.C.is $40.If Ms.Liebowitz is a rational decision maker,she will chose to fly if and only if the price differential (air cost minus driving cost)is less than

Accepted Answer

A) $40. 
B) $120. 
C) $160. 
D) $280.

Question 14

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 15

Middlemen,such as grocers,stockbrokers,and Realtors,

Accepted Answer

A) specialize in reducing transactions costs. 
B) provide nothing of value to either the buyer or the seller. 
C) have no effect on economic output in society. 
D) do not exist in capitalist economies.

Question 16

Use the production possibilities data below for Avokia and Baldonia to answer the following question(s).
Table 2-2

-Refer to Table 2-2.According to the law of comparative advantage,both Avokia and Baldonia could gain if

Accepted Answer

A) Avokia produced all of the apples and oranges and Baldonia did not produce anything. 
B) Avokia specialized in producing apples,Baldonia specialized in producing oranges,and they traded. 
C) Avokia specialized in producing oranges,Baldonia specialized in producing apples,and they traded. 
D) Baldonia and Avokia were both were self-sufficient and did not trade.

Question 17

The law of comparative advantage applies to exchange between

Accepted Answer

A) individuals. 
B) regions. 
C) nations. 
D) all of the above.

Question 18

When private ownership of a resource is clearly defined and enforced,the private owner

Accepted Answer

A) has a strong incentive to consider the wishes of others when deciding how to employ the resource. 
B) has little incentive to use the resource wisely. 
C) has a strong incentive to consume the resource during the period rather than conserving it for the future. 
D) has little incentive to consider the wishes of others when deciding how to employ the resource.

Question 19

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 20

When private ownership rights are well-defined and enforced,owners of physical assets and resources

Accepted Answer

A) have no incentive to consider the desires of others. 
B) incur the opportunity cost of ignoring the wishes of others. 
C) are not responsible if the use of their assets impose harm on others. 
D) have little incentive to take care of their assets.

Exam 2: Asome Tools of the Economist