Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
According to the production possibilities frontier model, if more resources are allocated to the
production of physical and human capital, then all of the following are likely to happen except
1)
A)
the production possibilities frontier will be shift outward in the future.
B)
future economic growth is enhanced.
C)
fewer goods will be produced for consumption today.
D)
the country’s total production will fall.
2)
Refer to Table 2–2. What is George’s opportunity cost of cultivating a garden?
2)
A)
one and a half lawns mowed
B)
one–half of a garden cultivated
C)
two lawns mowed
D)
two–thirds of a garden cultivated
3)
A worker is hired in a
3)
A)
government market.
B)
product market.
C)
factor market.
D)
goods and services market.
Explanation:
4)
The income earned by those who supply labor services is called
4)
A)
bonus.
B)
wages and salaries.
C)
stock options.
D)
profit.
5)
Refer to Table 2–3. If the two countries specialize and trade, who should export wheat?
5)
A)
They should both be exporting wheat.
B)
China
C)
There is no basis for trade between the two countries.
D)
South Korea
6)
A production possibilities frontier with a bowed outward shape indicates
6)
A)
decreasing opportunity costs as more and more of one good is produced.
B)
increasing opportunity costs as more and more of one good is produced.
C)
the possibility of inefficient production.
D)
constant opportunity costs as more and more of one good is produced.
7)
The attainable production points on a production possibility curve are
7)
A)
the points outside the area enclosed by the production possibilities frontier.
B)
only the horizontal and vertical intercepts.
C)
the points along and inside the production possibility frontier.
D)
only the points along the production possibilities frontier.
8)
The slope of a production possibilities frontier
8)
A)
is always constant.
B)
is always varying.
C)
measures the opportunity cost of producing one more unit of a good.
D)
has no economic relevance or meaning.
9)
Refer to Figure 2–11. Which two arrows in the diagram depict the following transaction: Lizzie
Haxem hires “The Paint Pros,” a professional painting company, to paint her home.
9)
A)
J and M
B)
K and G
C)
J and G
D)
K and M
10)
Refer to Figure 2–7. What is the opportunity cost of producing 1 bolt of cotton in Pakistan?
10)
A)
1 3/5 pounds of cashews
B)
150 pounds of cashews
C)
3/8 pounds of cashews
D)
5/8 pounds of cashews
11)
“An Inquiry into the Nature and Causes of the Wealth of Nations” published in 1776 was written by
11)
A)
Alfred Marshall.
B)
Adam Smith.
C)
John Maynard Keynes.
D)
Karl Marx.
12)
The production possibilities frontier model shows that
12)
A)
if consumers decide to buy more of a product its price will increase.
B)
economic growth can only be achieved by free market economies.
C)
if all resources are fully and efficiently utilized, more of one good can be produced only by
producing less of another good.
D)
a market economy is more efficient in producing goods and services than is a centrally
planned economy.
13)
Adam Smith’s invisible hand refers to
13)
A)
the laws of nature that influence economics decisions.
B)
property ownership laws and the rule of the court system.
C)
the process by which individuals acting in their own self–interest bring about a market
outcome that benefits society as a whole.
D)
the government’s role in ensuring that the economy functions efficiently.
14)
Which of the following statements is false? An entrepreneur
14)
A)
develops the vision for his firm and funds the producing unit.
B)
sells his entrepreneurial services in the output market.
C)
risks personal funds he invests in his firm.
D)
organizes the other factors of production into a working unit.
15)
Suppose your expenses for this term are as follows: tuition: $5,000, room and board: $3,000, books
and other educational supplies: $500. Further, during the term you can only work part–time and
earn $4,000 instead of your full–time salary of $10,000. What is the opportunity cost of going to
college this term, assuming that your room and board expenses would be the same even if you did
not go to college?
15)
A)
$8,500
B)
$11,500
C)
$14,500
D)
$5,500
16)
Increasing opportunity cost along a bowed out production possibilities frontier occurs because
16)
A)
some factors of production are not equally suited to producing both goods or services.
B)
of ineffective management by entrepreneurs.
C)
of the scarcity of factors of production.
D)
of inefficient production.
17)
If the production possibilities frontier is linear, then
17)
A)
opportunity cost decreases as more of either good is produced.
B)
opportunity cost increases as more of either good is produced.
C)
opportunity cost is constant as more of either good is produced.
D)
it is easy to efficiently produce output.
18)
Refer to Figure 2–6. Between 1995 and 2003 worker productivity increased so that the total number
of vehicles produced increased as the company added more machinery and workers and changed
the layout of its factory. This is best represented by the
18)
A)
movement from J to H in Graph B.
B)
movement from G to H in Graph B.
C)
movement from L to K in Graph C.
D)
movement from E to F in Graph A.
19)
Refer to Figure 2–5. If the economy is currently producing at point Y, what is the opportunity cost
of moving to point W?
19)
A)
16 million tons of paper
B)
9 million tons of paper
C)
2 million tons of steel
D)
zero
20)
Individuals who have never been the best at doing anything
20)
A)
cannot have a comparative advantage in producing any product.
B)
must have an absolute advantage in at least one task.
C)
can still have a comparative advantage in producing some product.
D)
perform all tasks at a higher opportunity cost than others.
21)
A production possibilities frontier shows
21)
A)
what people want firms to produce in a particular time period.
B)
the various products that can be produced now and in the future.
C)
the maximum attainable combinations of two products that may be produced with available
resources and current technology.
D)
what an equitable distribution of products among citizens would be.
22)
Rayburn Reed is a highly talented photographer. He has chosen to specialize in photography
because of all of the following except
22)
A)
he obviously has a comparative advantage in photography.
B)
his opportunity cost of pursuing another career is very low.
C)
his photographs are highly esteemed by art lovers who are willing to pay very high prices.
D)
for him, this is the most lucrative way to purchase the products that he wants to consume.
23)
The primary purpose of patents and copyrights is to
23)
A)
protect domestic firms from foreign competition.
B)
protect firms from being taken advantage of by competing firms.
C)
provide owners with large profit forever.
D)
encourage the expenditure of funds on research and development to create new products.
Table 2–3
One Digital
Camera Wheat (per pound)
China 100 hours 4 hours
South Korea 60 hours 3 hours
Table 2–3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South
Korea.
24)
Refer to Table 2–3. What is China’s opportunity cost of producing one digital camera?
24)
A)
25 pounds of wheat
B)
4 pounds of wheat
C)
40 pounds of wheat
D)
0.04 pounds of wheat
25)
Increasing marginal opportunity cost implies that
25)
A)
the more resources already devoted to any activity, the benefits from allocating yet more
resources to that activity decreases by progressively larger amounts.
B)
rising opportunity costs make it inefficient to produce beyond a certain quantity.
C)
the more resources already devoted to any activity, the payoff from allocating yet more
resources to that activity increases by progressively smaller amounts.
D)
resources are limited and, therefore, scarce.
26)
Comparative advantage means
26)
A)
the ability to produce more of a product with the same amount of resources than any other
producer.
B)
the ability to produce a good or service at a higher opportunity cost than any other producer.
C)
compared to others you are better at producing a product.
D)
the ability to produce a good or service at a lower opportunity cost than any other producer.
27)
When you purchase a new pair of jeans you do so in the
27)
A)
resource market.
B)
factor market.
C)
input market.
D)
product market.
Figure 2–4
Figure 2–4 shows various points on three different production possibilities frontiers for a nation.
28)
Refer to Figure 2–4. Consider the following events:
a. a decrease in the unemployment rate
b. general technological advancement
c. an increase in consumer wealth
Which of the events listed above could cause a movement from V to W ?
28)
A)
a only
B)
b and c only
C)
a and b only
D)
a, b, and c
29)
Refer to Table 2–3. China has a comparative advantage in
29)
A)
both products.
B)
neither product.
C)
digital camera production.
D)
wheat production.
Table 2–2
George Jack
Lawns Mowed 10 6
Gardens
Cultivated 5 4
Table 2–2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns
or cultivating gardens.
30)
Refer to Table 2–2. Which of the following statements is true?
30)
A)
George has a comparative advantage in both tasks.
B)
Jack has a comparative advantage in garden cultivating and George in lawn mowing.
C)
Jack has a comparative advantage in lawn mowing and George in garden cultivating.
D)
Jack has a comparative advantage in both tasks.
Table 2–3
One Digital
Camera Wheat (per pound)
China 100 hours 4 hours
South Korea 60 hours 3 hours
Table 2–3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South
Korea.
31)
Refer to Table 2–3. What is China’s opportunity cost of producing one pound of wheat?
31)
A)
40 digital cameras
B)
4 digital cameras
C)
25 digital cameras
D)
0.04 units of a digital camera
Figure 2–7
Figure 2–7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton
and cashews.
32)
Refer to Figure 2–7. What is the opportunity cost of producing 1 bolt of cotton in Indonesia?
32)
A)
3/8 pounds of cashews
B)
120 pounds of cashews
C)
2 2/3 pounds of cashews
D)
5/8 pounds of cashews
33)
The term “property rights” refers to
33)
A)
the ability to exercise control over one’s own resources within the confines of the law.
B)
the physical possession of a house or any other property which the owner legally purchased.
C)
the government’s right to appropriate land from wealthy individuals to redistribute to low
income families.
D)
the right of a business not to have its assets confiscated by the government in the event that
the business is accused of committing fraud.
A
34)
If the best lawyer in town is also the best at operating a word processor, then according to economic
reasoning, this person should
34)
A)
split her time evenly between being a lawyer and a word processor.
B)
specialize in being a work processor because it is more capital–intensive.
C)
should pursue the activity she enjoys more.
D)
specialize in being a lawyer because the opportunity cost is lower.
D
A
35)
Which of the following is not an example of spending on factors of production in the circular flow
model?
35)
A)
Iris buys a dozen roses for her mother’s birthday.
B)
“Get Fit Together” purchases 3 new treadmills for its gym.
C)
The Banyan Tree rents a much larger property so that it can add a restaurant to its facilities.
D)
Bima hires two students to work at his ice–cream store.
36)
Which of the following countries does not come close to the free market benchmark?
36)
A)
Cuba
B)
France
C)
The United States
D)
Japan
Figure 2–4
Figure 2–4 shows various points on three different production possibilities frontiers for a nation.
37)
Refer to Figure 2–4. A movement from Y to Z
37)
A)
represents an increase in the demand for plastic products.
B)
is the result of advancements in food production technology.
C)
could occur if all resources are fully employed.
D)
is the result of advancements in plastic production technology.
38)
Refer to Table 2–3. If the two countries specialize and trade, who should export digital cameras?
38)
A)
South Korea
B)
There is no basis for trade between the two countries.
C)
They should both be importing digital cameras.
D)
China
39)
Refer to Figure 2–11. Which two arrows in the diagram depict the following transaction: Carter
earns a $400 commission for selling men’s designer shoes at Brooks Brothers.
39)
A)
J and M
B)
J and G
C)
K and G
D)
K and M
Figure 2–1
40)
Refer to Figure 2–1. Point A is
40)
A)
inefficient since some resources are not being used.
B)
the equilibrium output combination.
C)
technically efficient.
D)
unattainable with current resources.
41)
In the circular flow model, producers
41)
A)
spend earnings from sales of factors of production on goods and services in the factor market.
B)
sell goods and services in the input market.
C)
spend earnings from resource sales on goods and services in the product market.
D)
hire factors of production from households in the factor market.
D
42)
Households
42)
A)
have no influence on the circular flow of income in a market economy.
B)
supply factors of production in the factor market.
C)
purchase factors of production in the factor market.
D)
sell goods in the product market.
B
A
Table 2–3
One Digital
Camera Wheat (per pound)
China 100 hours 4 hours
South Korea 60 hours 3 hours
Table 2–3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South
Korea.
43)
Refer to Table 2–3. What is South Korea’s opportunity cost of producing one digital camera?
43)
A)
0.05 pounds of wheat
B)
60 pounds of wheat
C)
25 pounds of wheat
D)
20 pounds of wheat
44)
Refer to Figure 2–8. The segment of the circular flow diagram in the Figure shows the flow of
wages and salaries from market K to economic agents M. What is market K and who are economic
agents M?
44)
A)
K= factor markets; M= households
B)
K= product markets; M= firms
C)
K= factor markets; M = firms
D)
K= product markets; M= households
45)
Refer to Table 2–3. What is South Korea’s opportunity cost of producing one pound of wheat?
45)
A)
20 digital cameras
B)
5 digital cameras
C)
0.05 units of a digital camera
D)
60 digital cameras
46)
Hurricane Katrina, which hit the Gulf Coast region in August 2005, resulted in massive flooding
which destroyed large sections of New Orleans. Suppose that prior to this event New Orleans was
producing an output combination given by a point on its production possibilities frontier. How did
the hurricane affect its production possibilities frontier?
46)
A)
The production possibilities frontier no longer existed.
B)
The production possibilities frontier shifted inwards.
C)
New Orleans’ output combination moved from a point on the frontier to a point given by one
of the intercepts.
D)
The production possibilities frontier did not shift but there was a movement from a point on
the frontier to a point inside the frontier.
47)
Which of the following are not flows in the circular flow model?
47)
A)
the flow of income earned by households and the flow of expenditures incurred by
households
B)
the flow of revenue received by producers and the flow of payments to resource owners
C)
the flow of goods and services and the flow of resources to produce goods and services
D)
the flow of profit and the flow of revenue
48)
An outward shift of a nation’s production possibilities frontier represents
48)
A)
rising prices of the two goods on the production possibilities frontier.
B)
economic growth.
C)
a situation in which a country produces more of one good and less of another.
D)
an impossible situation.
Figure 2–2
Figure 2–2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat
and vegetables.
49)
Refer to Figure 2–2. The linear production possibilities frontier in the figure indicates that
49)
A)
the tradeoff between meat and vegetables is constant.
B)
it is progressively more expensive to produce meat.
C)
Mendonca has a comparative disadvantage in the production of meat.
D)
Mendonca has a comparative advantage in the production of vegetables.
50)
If society decides it wants more of one good and all resources are fully utilized, then
50)
A)
more unemployment will occur.
B)
additional economics resources will have to be found.
C)
it has to give up some of another good and incur an opportunity cost.
D)
it is unable to do this unless technology advances.
Figure 2–9
51)
Refer to Figure 2–9. The segment of the circular flow diagram in the Figure shows the flow of
goods and services from market C to economic agents A. What is market C and who are economic
agents A?
51)
A)
C= product markets; A= firms
B)
C = factor markets; A = firms
C)
C= product markets; A = households
D)
C= factor markets; A= households
Figure 2–1
52)
Refer to Figure 2–1. Point B is
52)
A)
efficient. All available resources are being fully utilized.
B)
inefficient in that not all resources are being used.
C)
unattainable with current resources.
D)
the equilibrium output combination.
53)
A successful market economy requires well defined property rights and
53)
A)
balanced supplies of all factors of production.
B)
a safety net to ensure that those who cannot participate in the market economy can earn an
income.
C)
an independent court system to adjudicate disputes based on the law.
D)
detailed government regulations.
C
A