Question 1

Which of the following is true?

Accepted Answer

A)  The production possibilities curve indicates that it will be impossible to expand total output with the passage of time.
B)  As long as resources are scarce, output cannot be increased.
C)  The size of the economic pie is fixed, and therefore, if one individual has more income, others must have less.
D)  Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things. D

Question 2

Which of the following is not one of the basic economic questions that all economies must answer?

Accepted Answer

A)  What will be produced?
B)  To whom will the goods produced be allocated?
C)  How will goods be produced?
D)  Which government agency will set the prices of the goods produced? D

Question 3

Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the truck at $6,000. If these two are allowed to negotiate, which of the following will most likely occur?

Accepted Answer

A)  Todd will sell the truck for $1,500.
B)  Susan will buy the truck for $7,000.
C)  The truck will be sold at a price greater than $2,000 but less than $6,000, and both parties will benefit.
D)  Susan will benefit more than Todd if the truck is sold. C

Question 4

Table 2-2

-Refer to Table 2-2. Which of the following is correct?

Accepted Answer

A)  Avokia has the comparative advantage in both goods.
B)  Baldonia has the comparative advantage in oranges.
C)  Avokia has the comparative advantage in oranges.
D)  It would be impossible for Avokia and Baldonia to gain from trade.

Question 5

Because of a late night out with friends, Libby decided to sleep in rather than attend her 8a.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 Libby's self-interest.
C)  rational only if Libby has not missed any other classes.
D)  rational if Libby values sleep more highly than the benefit she expects to receive from attending the class.

Question 6

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that

Accepted Answer

A)  the opportunity cost of growing oranges is higher in Florida than in Georgia.
B)  Georgia has a comparative advantage in producing oranges.
C)  Florida has a comparative advantage in producing oranges.
D)  total output will be expanded when Georgia allocates more resources to producing oranges and Florida allocates more resources to producing peaches.

Question 7

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

Accepted Answer

A)  the invisible hand principle.
B)  the production possibilities frontier.
C)  creative destruction.
D)  the fallacy of composition.

Question 8

The production possibilities curve illustrates the basic principle that

Accepted Answer

A)  an economy's capacity to produce is unrelated to its population.
B)  if all the resources of an economy are being used efficiently, more of one good can be produced only if more of another good is produced.
C)  an economy will automatically move toward a point at which all of its resources are being used inefficiently.
D)  if all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

Question 9

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

Accepted Answer

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

Question 10

A production possibilities curve indicates that when resources are being used efficiently,

Accepted Answer

A)  you can only produce more of one good only if you lower its price.
B)  you can only produce more of one good only if you produce more of another good.
C)  you can only produce more of one good only if you produce less of another good.
D)  it is impossible to expand the total output of goods over time.

Question 11

Which of the following is a transaction cost?

Accepted Answer

A)  price of a ticket to a concert
B)  price of food eaten before a concert
C)  time spent standing in line to buy the ticket
D)  price of a T-shirt at the concert

Question 12

Based on the idea of opportunity cost, which of the following students would be most likely to drop out of college before completing their degree?

Accepted Answer

A)  a senior mathematics major with a solid B average
B)  a junior physical therapy student who has just read about the fantastic job offers available to students with degrees in her area
C)  a star college football player in his junior year that just received a $5 million offer from a professional team
D)  a junior economics major who wants to attend graduate school

Question 13

Suppose a country attempts to be self-sufficient and doesn't trade with any other countries. From an economic perspective, citizens of this nation can be expected to

Accepted Answer

A)  gain materially from this policy because they can consume more goods over time than if they engaged in trade with foreigners.
B)  produce less total value than they could if they specialized and engaged in trade with other nations.
C)  gain from more rapid growth since home markets are reserved for home producers.
D)  be just as well off without trade since the value of what is sent to other nations in trade just equals the value of what is received in trade.

Question 14

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 15

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 16

Figure 2-3
 
-Points A and B in Figure 2-3 indicate consumption and investment for two economies. Other things constant, which of the economies is likely to grow more rapidly in the future?

Accepted Answer

A)  economy A
B)  economy B
C)  They can be expected to grow at the same rate.
D)  This is uncertain since growth is not influenced by the factors indicated in this example.

Question 17

Which of the following is not a basic question that each economy must answer?

Accepted Answer

A)  Which resources are scarce?
B)  For whom shall the goods be produced?
C)  How shall goods be produced?
D)  What goods shall be produced?

Question 18

The owners of private property will

Accepted Answer

A)  use their property for selfish ends, taking no account of the impact their behavior has on others.
B)  use their property in ways that others value because the market will generally reward them with profits (or a higher selling price)  if they do so.
C)  find very little incentive to take care of the property or conserve it for the future.
D)  lose profits when they take the wishes of others into consideration.

Question 19

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 20

When Benjamin Franklin wrote, "Remember that time is money!" he understood

Accepted Answer

A)  the incentives created by property rights.
B)  the law of comparative advantage.
C)  the concept of opportunity cost.
D)  that watches cost money.

Exam 2: A: Some Tools of the Economist