Question 1

Internet sites such as eBay make it easier for sellers and buyers to find one another and, by doing so,

Accepted Answer

A) reduce transactions costs. 
B) increase transaction costs. 
C) reduce the number of exchanges that occur. 
D) lower the value created by the goods and services available.

Question 2

Economic thinking suggests that a nation in which middlemen are considered to be unproductive seekers of profit, and where their activities are heavily restricted by law, will

Accepted Answer

A) gain by channeling people's efforts away from unproductive middleman activity toward physical output. 
B) lose the potential gains from trade that would result from lower transaction costs emanating from middleman activities. 
C) find that it is richer because the added transaction costs normally imposed by middlemen will be reduced. 
D) gain because the value of total output will rise.

Question 3

Private property rights exist when property rights are

Accepted Answer

A) exclusively controlled by the owner or owners. 
B) transferable to others. 
C) protected by legal enforcement. 
D) all of the above.

Question 4

Figure 2-6
 
-Which of the following will most likely shift the production possibilities curve for breadfruit and fish outward from AA to BB in Figure 2-6?

Accepted Answer

A) an improvement in the form of economic organization 
B) lower investment and a reduction in the country's capital stock 
C) an increase in the price of breadfruit 
D) a decrease in the average number of hours worked

Question 5

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 6

If Sean sells Tom a tennis racket for $50, we would expect

Accepted Answer

A) both parties to gain from this transaction. 
B) Sean to gain from the transaction, while Tom loses. 
C) Tom to gain from the transaction, while Sean loses. 
D) the well-being of both parties to be unchanged.

Question 7

Ken values his boat at $5,000, and Monica values it at $8,000. If Monica buys it from Ken for $7,000, which of the following is true?

Accepted Answer

A) Ken gains $2,000 of value, and Monica gains $1,000 of value. 
B) Ken gains $7,000 of value, and Monica loses $7,000 of value. 
C) Ken gains $7,000 of value, and Monica gains $3,000 of value. 
D) Ken and Monica both gain $7,000 of value.

Question 8

An airline ticket from Seattle 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 9

Air travel from New York to Miami costs $300 and takes 6 hours. A bus ticket between the cities costs $150 and takes 56 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be

Accepted Answer

A) $1 per hour. 
B) $3 per hour. 
C) $5 per hour. 
D) $50 per hour.

Question 10

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 11

Which of the following statements about exchange is false?

Accepted Answer

A) The expectation of gain motivates people to engage in trade. 
B) If a party to a potential exchange does not believe that it will lead to personal gain, he or she can chose not to engage in the trade. 
C) Voluntary exchange is generally mutually beneficial to the trading partners. 
D) If one trading partner gains, the other must lose.

Question 12

Suppose that country A produces mostly consumption goods and few investment goods, while country B produces mostly investment goods with few consumption goods. Other things constant, which of the following is most likely to happen in the future?

Accepted Answer

A) The per capita income of country A will grow more rapidly than country B. 
B) The population of country B will grow more rapidly than country A. 
C) The production possibilities curve (PP
C)  of country B will shift out more rapidly than the PPC of country A. 
D) The production possibilities curve (PP
C)  of country A will shift out more rapidly than the PPC of country B.

Question 13

"Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects

Accepted Answer

A) the importance of secondary effects. 
B) the fallacy of composition. 
C) the law of comparative advantage. 
D) behavior inconsistent with economizing.

Question 14

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 15

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 16

The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called

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 17

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 18

Table 2-2

-Refer to Table 2-2. Which of the following would be a mutually agreeable rate of exchange?

Accepted Answer

A) Baldonia trades one orange to Avokia for every one apple. 
B) Baldonia trades one orange to Avokia for every two apples. 
C) Baldonia trades one orange to Avokia for every three apples. 
D) Baldonia trades one orange to Avokia for every four apples.

Question 19

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 20

Compared to a situation where transaction costs are zero, the existence of transaction costs

Accepted Answer

A) will reduce the volume of trade. 
B) will reduce the gains from trade. 
C) may lead some buyers and sellers to employ middlemen. 
D) All of the above are correct.

Exam 2: A: Some Tools of the Economist