1) Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then
a. the two countries combined output of both goods will be higher than it would be in the absence of trade.
b. Greece will produce more fish than it would produce in the absence of trade.
c. Germany will produce more cars than it would produce in the absence of trade.
d. All of the above are correct.
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2) The amount of goods and services produced from each unit of labor input is called
a. opportunity cost.
b. productivity.
c. externality.
d. marginal benefit.
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3) The cross-price elasticity of demand can tell us whether goods are
a. normal or inferior.
b. elastic or inelastic.
c. luxuries or necessities.
d. complements or substitutes.
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4) At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about
a. 1.18.
b. 1.00.
c. 0.85.
d. 0.25.
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5)
Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $10 is
a. 0 units.
b. 5 units.
c. 8.33 units.
d. 25 units.
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6)
Refer to Figure 3-6. If the production possibilities frontier shown for Maxine is for 3 hours of work, then how long does it take Maxine to make one pie?
a. 1/4 hour
b. 1/3 hour
c. 3 hours
d. 4 hours
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7) In a market economy,
a. households decide which firms to work for and what to buy with their incomes.
b. firms decide whom to hire and what to make.
c. a central planner makes decisions about production and consumption.
d. Both a and b are correct.
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8)
Refer to Figure 3-6. Suppose Maxine decides to increase her production of tarts by 5. What is the opportunity cost of this decision?
a. 2/5 pie
b. 2 pies
c. 5/2 pies
d. 10 pies
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9) When an economist evaluates a positive statement, he or she is primarily
a. examining evidence.
b. evaluating values as well as facts.
c. acting as a policy adviser.
d. concerned with making a sound decision on how the world ought to be.
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10) Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?
a. an increase in the price of wool shirts and a decrease in the price of raw cotton
b. a decrease in the price of wool shirts and a decrease in the price of raw cotton
c. an increase in the price of wool shirts and an increase in the price of raw cotton
d. a decrease in the price of wool shirts and an increase in the price of raw cotton
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11) Refer to Table 3-4. The opportunity cost of 1 pound of meat for the farmer is
a. 1/4 pound of potatoes.
b. 1/4 hour of labor.
c. 4 pounds of potatoes.
d. 8 hours of labor.
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12)
Refer to Figure 2-9, Panel (a) and Panel (b). Which of the following is not a result of the shift of the economys production possibilities frontier from Panel (a) to Panel (b)?
a. the tradeoff between the production of printers and computers changes
b. production of 2 printers and 5 computers becomes efficient
c. production of 6 printers and 7 computers becomes possible
d. the opportunity cost of a computer is higher at all levels of computer production
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13) A model can be accurately described as a
a. theoretical abstraction with very little value.
b. device that is useful only to the people who created it.
c. realistic and carefully constructed theory.
d. simplification of reality.
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14) Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?
a. 0
b. 0.5
c. 1
d. 1.5
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15) Duties of the Council of Economic Advisers include
a. advising the president and writing the annual Economic Report of the President.
b. implementing the presidents tax policies.
c. tracking the behavior of the nations money supply.
d. All of the above are correct.
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16) The demand for Godiva pumpkin truffles is likely quite elastic because
a. truffles melt easily.
b. this particular type of chocolate is viewed as a necessity by many chocolate lovers.
c. the market is broadly defined.
d. other types of chocolate are good substitutes for this particular flavor.
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17) Which of the following can lead to market failure?
a. externalities and market power
b. externalities but not market power
c. market power but not externalities
d. neither externalities nor market power
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18)
Refer to Figure 6-16. Suppose a tax of $5 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?
a. $5
b. between $5 and $10
c. between $10 and $14
d. $14
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19) Adam Smith asserted that a person should never attempt to make at home
a. what it will cost him more to make than to buy.
b. any good in which that person does not have an absolute advantage.
c. any luxury good.
d. any necessity.
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20) Equilibrium quantity must increase when demand
a. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase.
b. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease.
c. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply increase.
d. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.
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21) Rent control
a. serves as an example of how a social problem can be alleviated or even solved by government policies.
b. serves as an example of a price ceiling.
c. is regarded by most economists as an efficient way of helping the poor.
d. is the most efficient way to allocate scarce housing resources.
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22)
Refer to Figure 2-13. The graph shown is known as a
a. time-series graph.
b. bar graph.
c. scatterplot.
d. pie chart.
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23) Table 3-3
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate.
Machine Minutes Needed to Make 1
Toothbrush Hairbrush
Zimbabwe 3 10
Portugal 5 6
Refer to Table 3-3. Assume that Zimbabwe and Portugal each has 180 machine minutes available. If each country divides its time equally between the production of toothbrushes and hairbrushes, then total production is
a. 24 toothbrushes and 12 hairbrushes.
b. 48 toothbrushes and 24 hairbrushes.
c. 96 toothbrushes and 48 hairbrushes.
d. 720 toothbrushes and 1440 hairbrushes.
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24) The highest form of competition is called
a. arbitrage.
b. monopolistic competition.
c. equilibrium.
d. perfect competition.
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25) If Miguel expects to earn a higher income next month, he may choose to
a. save more now and spend less of his current income on goods and services.
b. save less now and spend more of his current income on goods and services.
c. decrease his current demand for goods and services.
d. move along his current demand curves for goods and services.
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26) In the markets for goods and services in the circular-flow diagram,
a. households provide firms with savings for investment.
b. households provide firms with labor, land, and capital.
c. firms provide households with output.
d. firms provide households with profit.
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27) Government policies can change the costs and benefits that people face. Those policies have the potential to
a. alter peoples behavior.
b. alter peoples decisions at the margin.
c. produce results that policymakers did not intend.
d. All of the above are correct.
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28) Table 6-1
Price Quantity Demanded Quantity Supplied
$0 12 0
$1 10 2
$2 8 4
$3 6 6
$4 4 8
$5 2 10
$6 0 12
Refer to Table 6-1. Suppose the government imposes a price floor of $1 on this market. What will be the size of the surplus in this market?
a. 0 units
b. 2 units
c. 8 units
d. 10 units
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29)
Refer to Figure 4-6. The movement from D to D in the market for potato chips could be caused by a(n)
a. decrease in the price of potato chips.
b. decrease in income, assuming that potato chips are a normal good.
c. announcement by the FDA that potato chips cause cancer.
d. increase in the price of a pretzels.
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30) Macroeconomics is the study of economy-wide phenomena.
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31) In the case of perfectly inelastic demand,
a. the change in quantity demanded equals the change in price.
b. the percentage change in quantity demanded equals the percentage change in price.
c. infinitely-large changes in quantity demanded result from very small changes in the price.
d. quantity demanded stays the same whenever price changes.
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32) If a paper factory does not bear the entire cost of the pollution it emits, it will
a. not emit any pollution so as to avoid the entire cost of the pollution.
b. emit lower levels of pollution.
c. emit an acceptable level of pollution.
d. emit too much pollution.
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33) Table 3-12
Labor Hours Needed to Make 1 Pound of: Amount Produced in 40 hours
Meat Potatoes Meat Potatoes
Farmer 8 hours/pound 5 hours/pound 5 pounds 8 pounds
Rancher 4 hours/pound 10 hours/pound 10 pounds 4 pounds
Refer to Table 3-1. Relative to the rancher, the farmer has
a. a comparative advantage in the production of meat, because the farmers opportunity cost of a pound of meat is lower than the ranchers opportunity cost of a pound of meat.
b. a comparative advantage in the production of potatoes, because the rancher requires less time than the farmer to produce a pound of potatoes.
c. a comparative advantage in the production of potatoes; relative to the farmer, the rancher has a comparative advantage in the production of meat.
d. an absolute advantage in the production of both meat and potatoes.
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34) Which of the following expressions is valid for the price elasticity of demand?
a. Price elasticity of demand = .
b. Price elasticity of demand = .
c. Price elasticity of demand = .
d. Price elasticity of demand = .
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35)
Refer to Figure 2-4. The opportunity cost of obtaining 10 additional lamps by moving from point W to point Z is
a. 0 notepads.
b. 10 notepads.
c. 50 notepads.
d. None of the above; the economy cannot move from point W to point Z.
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36) In markets, prices move toward equilibrium because of
a. the actions of buyers and sellers.
b. government regulations placed on market participants.
c. increased competition among sellers.
d. buyers’ ability to affect market outcomes.
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37) Economists work both inside and outside the administrative branch of the U.S. government.
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38) A price ceiling set below the equilibrium price causes quantity demanded to exceed quantity supplied.
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39) Table 4-3
Price Berts Quantity Demanded Ernies Quantity Demanded Grovers Quantity Demanded Oscars Quantity Demanded
$0.00 20 16 4 8
$0.50 18 12 6 6
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40) Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.
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41) The scientific method is the dispassionate development and testing of theories about how the world works.
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42) Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why?
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43) Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time horizon.
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44) In the circular-flow diagram, one loop represents the flow of goods and services, and the other loop represents the flow of factors of production.
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