Question 1

Households are buyers in factor markets and sellers in goods markets.

Accepted Answer

A) True 
 B)False

Question 2

"If an economy is producing at a point on its PPF, it has achieved allocative efficiency." True or false? Explain.

Accepted Answer

The answer of "If an economy is producing at a...

Question 3

Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways are constructed, the marginal benefit of additional freeways ________ and the marginal cost of additional freeways ________.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases

Question 4

-Omar and John can fix computers or write computer programs. The table above shows the number of computers they can fix and the lines of code they can write in a day.
a)Who, if anyone, has the absolute advantage?
b)Who has the comparative advantage in fixing computers? Why?
c)Who has the comparative advantage in writing programs? Why?

Accepted Answer

The answer of 
-Omar and John can fix computers or...

Question 5

-Leisure Land produces only sun screen and camel rides. The table shows the marginal benefit and marginal cost schedules for sun screen and camel rides. The allocatively efficient number of camel rides is ________.

Accepted Answer

A)  1 ride per day because the marginal benefit exceeds the marginal cost by as much as possible 
B)  2 rides per day 
C)  4 rides per day 
D)  6 rides per day because that is the maximum number of rides

Question 6

When producing at a production efficient point, ________.

Accepted Answer

A)  our choice of the goods can be either on or within the production possibilities frontier 
B)  we can satisfy our all wants 
C)  the opportunity cost of another good is zero 
D)  we face a tradeoff and incur an opportunity cost

Question 7

-In the above figure, once on PPF?, a country would grow slowest by producing at point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 8

-Employees at Bank of America are good at providing banking services and workers at Ben & Jerry's are good at making ice cream. The figure above shows the marginal cost and marginal benefit curves for ice cream. A movement from point a to point b reflects

Accepted Answer

A)  the economy must give up banking services to get extra gallons of ice cream. 
B)  the opportunity cost of banking services increases. 
C)  a decrease in the tradeoff between ice cream and banking services. 
D)  a leftward shift in the marginal benefit curve.

Question 9

-The above table shows the tons of steel and concrete that can be produced by the United States and France in an hour. From the data in the table

Accepted Answer

A)  France has a comparative advantage in the production of concrete. 
B)  the United States has a comparative advantage in the production of concrete. 
C)  France has an absolute advantage in the production of concrete. 
D)  the United States has a comparative advantage in the production of both goods.

Question 10

Using a production possibilities frontier, economic growth is illustrated by a

Accepted Answer

A)  point inside the curve. 
B)  point on the curve. 
C)  movement from one point on the curve to another point on the curve. 
D)  rightward shift of the curve.

Question 11

Before the first Gulf War in 1991, Kuwait had the capacity to produce a certain amount of oil from its oil wells. After the war, it found that capacity greatly diminished because the oil wells had been set on fire. Draw Kuwait's PPF before and after the war, assuming that the only two goods produced are oil and food. Further assume that setting the oil wells on fire did not affect Kuwait's ability to produce food. Explain why the PPF before the war is different from the PPF after the war.

Accepted Answer

The answer of Before the first Gulf War in 1991,...

Question 12

Claire and Dag are farmers who produce beef and corn. In a year, Claire can produce 16 tons of beef or 40 bushels of corn, while Dag can produce 5 tons of beef or 25 bushels of corn. The opportunity cost of producing a ton of beef is

Accepted Answer

A)  10 bushels of corn for Dag and 8 bushels of corn for Claire. 
B)  5 bushels of corn for Dag and 2.5 bushels of corn for Claire. 
C)  20 bushels of corn for Dag and 50 bushels of corn for Claire. 
D)  36.5 days for Dag and 45.6 days for Claire.

Question 13

Suppose a scientific breakthrough made free solar power available in unlimited quantities in the United States. The effect of this invention would be to move the

Accepted Answer

A)  United States beyond its production possibilities frontier. 
B)  United States inside its production possibilities frontier. 
C)  U.S. production possibilities frontier outward. 
D)  U.S. production possibilities frontier inward.

Question 14

If the marginal benefit from another computer exceeds the marginal cost of the computer, then to use resources allocatively efficiently

Accepted Answer

A)  more resources should be used to produce computers. 
B)  fewer resources should be used to produce computers. 
C)  if the marginal benefit exceeds the marginal cost by as much as possible, the efficient amount of resources are being used to produce computers. 
D)  None of the above is correct because marginal benefit and marginal cost have nothing to do with using resources allocatively efficiently.

Question 15

The nation's production possibilities frontier is bowed outward. Suppose that the government decides to increase the production of armaments by $20 billion, and that as a result the output of consumer goods falls by $20 billion. If a further $20 billion increase beyond the initial $20 billion increase in armaments output is sought, we can expect that the output of consumer goods and services will fall further by

Accepted Answer

A)  less than $20 billion. 
B)  $20 billion. 
C)  more than $20 billion. 
D)  There is not enough information to determine the answer.

Question 16

The slope of a production possibilities frontier that displays increasing opportunity cost is

Accepted Answer

A)  positive and constant. 
B)  negative and constant. 
C)  steeper near the horizontal intercept than near the vertical intercept. 
D)  steeper near the vertical intercept than near the horizontal intercept.

Question 17

The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta. Which of the following should be the manager's choice?

Accepted Answer

A)  Fire David because he is not as productive as John. John will do both jobs. 
B)  John will make pizza because he has comparative advantage in making pizza. 
C)  David will make pizza because he has comparative advantage in making pizza. 
D)  John and David both will spend half their time making pizza and half their time making pasta because each has a comparative advantage in making pizza.

Question 18

Opportunity cost is illustrated in a production possibilities frontier (PPF)by a movement

Accepted Answer

A)  from the region within the PPF to a point on the PPF. 
B)  from the region within the PPF to the region outside of the PPF. 
C)  from the region outside of the PPF to a point on the PPF. 
D)  along the PPF where to gain more of one good it is necessary to give some of another good.

Question 19

Tom and Di grow tomatoes and turnips. Tom has a comparative advantage in growing tomatoes if ________.

Accepted Answer

A)  Tom can grow more tomatoes than Di can 
B)  his opportunity cost of tomatoes is less than Di's opportunity cost of tomatoes 
C)  his opportunity cost of tomatoes is less than his opportunity cost of turnips 
D)  his marginal benefit from tomatoes is greater than Di's

Question 20

Resource use is allocatively efficient

Accepted Answer

A)  when marginal benefit equals marginal cost. 
B)  whenever marginal benefit exceeds marginal cost. 
C)  whenever marginal cost exceeds marginal benefit. 
D)  when the maximum possible quantity is being produced.

Exam 2: The Economic Problem