Page 1
1.
A simplified representation that is used to study a real situation is called a(n):
A)
model.
B)
production possibility frontier.
C)
assumption.
D)
trade-off.
2.
The models that economists construct:
A)
usually make simplifying assumptions.
B)
often rely on physical constructs, such as those used by architects.
C)
rarely use mathematical equations or graphs.
D)
attempt to replicate the real world.
3.
When building a model, economists:
A)
simplify reality to highlight what really matters.
B)
attempt to duplicate reality in all of its complexity.
C)
ignore the facts and instead try to determine what the facts should be.
D)
are careful to avoid the scientific method.
4.
The models used in economics:
A)
are always limited to variables that are directly related.
B)
are essentially not reliable because they are not testable in the real world.
C)
are of necessity unrealistic and not related to the real world.
D)
emphasize basic relationships by abstracting from complexities in the everyday
world.
5.
Economic models are:
A)
set up and used to duplicate reality.
B)
useless if they are simple.
C)
made generally of wood, plastic, and/or metal.
D)
often useful in forming economic policy.
6.
The importance of an economic model is that it allows us to:
A)
build a complex and accurate model of the economy.
B)
build an accurate mathematical model of the economy.
C)
focus on the effects of only one change at a time.
D)
avoid opportunity costs.
Page 2
7.
In constructing a model, economists:
A)
might use a computer simulation.
B)
avoid making any assumptions.
C)
assume that all relevant factors are constantly changing.
D)
are prohibited from using mathematics.
8.
A simplified version of reality that is used to clarify economic situations is called a(n):
A)
economic fact.
B)
current event.
C)
model.
D)
scarce resource.
9.
An economic model:
A)
is useful for explaining past economic conditions but not for predicting.
B)
often leads to faulty conclusions because of the ceteris paribus assumption.
C)
allows nothing to change in the economic situation that is being described.
D)
is a simplified version of reality used to understand real-world economic
conditions.
10.
The financial meltdown of 2008–2009:
A)
was accurately predicted by an economic model.
B)
was due to excessive investment in Internet companies.
C)
was the result of the breakup of the European Union.
D)
resulted partially from a faulty economic model.
11.
Wall Street is:
A)
a district in New York City where all major investment companies have their
headquarters.
B)
a district in New York City where most fashion designers have their headquarters.
C)
an area of San Francisco where imports are received from other countries and from
which exports are shipped.
D)
a street in Houston, Texas, where major oil companies have their headquarters.
12.
A mortgage-backed security is an asset that:
A)
only homeowners are allowed to purchase.
B)
provides earnings to its owner based on payments made by people on their home
loans.
C)
the Federal Reserve uses to implement monetary policy.
D)
is an important part of the circular-flow diagram.
Page 3
13.
Before 2000, investors were reluctant to buy mortgage-backed securities because:
A)
economic models predicted that they were bad investments.
B)
they were illegal in many states.
C)
they could not calculate the risk of losing money on mortgage-backed securities.
D)
it was difficult to obtain the foreign currencies that were required for purchasing
them.
14.
Investors will lose money on mortgage-backed securities if:
A)
interest rates are too low.
B)
homeowners don’t pay their mortgages.
C)
homeowners pay off their mortgages early.
D)
the average price of a house increases too rapidly.
15.
In 2000, financial experts announced that they:
A)
would no longer be willing to buy or sell mortgage-backed securities.
B)
were unable to predict expected income from mortgage-backed securities.
C)
had overestimated the risk of loss from mortgage-backed securities.
D)
had developed a model that could predict the risk of losing money on
mortgage-backed securities.
16.
In 2000, the market for mortgage-backed securities:
A)
grew rapidly because economists had developed a model that seemed capable of
predicting the risk associated with owning mortgage-backed securities.
B)
closed down because Congress outlawed mortgage-backed securities.
C)
took tremendous losses because the price of energy reached record highs.
D)
was developed only in Europe.
17.
The production possibility frontier illustrates that:
A)
the economy will automatically end up at full employment.
B)
an economy’s productive capacity increases one-for-one with its population.
C)
if all resources of an economy are being used efficiently, more of one good can be
produced only if less of another good is produced.
D)
economic production possibilities have no limit.
Use the following to answer questions 18-20:
Page 4
18.
(Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. If the economy produces two units of consumer goods per period, it also can
produce at most _____ units of capital goods per period.
A)
30
B)
28
C)
24
D)
18
19.
(Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. If the economy produces 10 units of capital goods per period, it also can
produce at most _____ units of consumer goods per period.
A)
5
B)
4
C)
3
D)
2
20.
(Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. The opportunity cost of producing the fourth unit of consumer goods is
_____ units of capital goods.
A)
2
B)
4
C)
6
D)
8
Page 5
Use the following to answer questions 21-25:
Figure: Guns and Butter
21.
(Figure: Guns and Butter) Look at the figure Guns and Butter. On this figure, points A,
B, E, and F:
A)
indicate combinations of guns and butter that society can produce using all of its
factors efficiently.
B)
indicate increasing opportunity costs for guns but decreasing opportunity costs for
butter.
C)
indicate that society wants butter more than it wants guns.
D)
indicate constant opportunity costs for guns and increasing costs for butter.
22.
(Figure: Guns and Butter) Look at the figure Guns and Butter. This production
possibility frontier is:
A)
bowed out because of increasing opportunity costs.
B)
bowed in because of increasing opportunity costs.
C)
bowed in because of constant costs of guns and butter.
D)
linear because of constant costs.
Page 6
23.
(Figure: Guns and Butter) Look at the figure Guns and Butter. If the economy is
operating at point B, producing 16 guns and 12 pounds of butter per period, a decision to
move to point E and produce 18 pounds of butter:
A)
indicates that you can have more butter and guns simultaneously.
B)
makes it clear that this economy has decreasing opportunity costs.
C)
necessitates a loss of eight guns per period.
D)
necessitates a loss of four guns per period.
24.
(Figure: Guns and Butter) Look at the figure Guns and Butter. The combination of guns
and butter at point H:
A)
can be attained but would cost too much.
B)
cannot be attained, given the level of technology and the factors of production
available.
C)
has no meaning, since it does not relate to the preferences of consumers.
D)
is attainable but would increase unemployment.
25.
(Figure: Guns and Butter) Look at the figure Guns and Butter. Suppose the economy
produced 8 guns and 12 pounds of butter per period.
A)
This is a possible choice but is inefficient.
B)
This combination invalidates the notion of increasing opportunity cost.
C)
The economy is still efficient but does not buy as much as it could.
D)
Something must be done to reduce the amount of employment.
26.
If an economy has to sacrifice only one unit of good X for each unit of good Y produced
throughout the relevant range, then its production possibility frontier has:
A)
a zero slope.
B)
a constant negative slope.
C)
an increasing negative slope.
D)
a decreasing negative slope.
27.
A production possibility frontier that is a straight line sloping down from left to right
suggests that:
A)
more of both goods could be produced moving along the frontier.
B)
the two products must have the same price.
C)
the opportunity costs of the products are constant.
D)
there are no opportunity costs.
Page 7
Use the following to answer questions 28-30:
28.
(Table: Production Possibilities Schedule II) Look at the table Production Possibilities
Schedule II. If the economy is producing at alternative X, the opportunity cost of
producing at Y instead of X is _____ units of consumer goods per period.
A)
0
B)
6
C)
8
D)
14
29.
(Table: Production Possibilities Schedule II) Look at the table Production Possibilities
Schedule II. If an economy is producing at alternative W, the opportunity cost of
producing at X is _____ unit(s) of consumer goods per period.
A)
0
B)
1
C)
4
D)
18
30.
(Table: Production Possibilities Schedule II) Look at the table Production Possibilities
Schedule II. The production of 14 units of consumer goods and 1 unit of capital goods
per period would result in:
A)
full employment.
B)
no unused resources.
C)
some unused or inefficiently used resources.
D)
an increase in economic growth.
31.
In movement along a production possibility frontier, the opportunity cost to society of
getting more of one good:
A)
is always constant.
B)
is measured in dollar terms.
C)
is measured by the amount of the other good that must be given up.
D)
usually decreases.
Page 8
32.
If an economy has to sacrifice increasing amounts of good X for each additional unit of
good Y produced, then its production possibility frontier is:
A)
bowed out.
B)
bowed in.
C)
a straight line.
D)
a vertical line.
33.
The fact that a society’s production possibility frontier is bowed out, or concave to the
origin of a graph, demonstrates the law of _____ opportunity cost.
A)
increasing
B)
decreasing
C)
constant
D)
concave
34.
The economy’s factors of production are not equally suitable for producing different
types of goods. This principle generates:
A)
economic growth.
B)
technical efficiency.
C)
underuse of resources.
D)
the law of increasing opportunity cost.
Use the following to answer questions 35-37:
Figure: Strawberries and Submarines
Page 9
35.
(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines.
Suppose the economy is operating at point G. This implies that:
A)
the economy can move to a point such as C only if it improves its technology.
B)
the economy has unemployment and/or inefficiently allocates resources.
C)
the economy lacks the resources to achieve a combination such as C.
D)
people in this economy don’t really like strawberries or submarines.
36.
(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines.
As the economy moves from point A toward point D, it will find that the opportunity
cost of each additional submarine:
A)
falls.
B)
rises.
C)
remains unchanged.
D)
doubles.
37.
(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines.
Suppose the economy now operates at point C. Moving to point E would require that the
economy:
A)
achieve full employment and an efficient allocation of resources.
B)
eliminate its production of strawberries.
C)
reduce its production of submarines.
D)
improve its technology or increase its quantities of factors of production.
38.
If an economy is producing a level of output that is on its production possibility frontier,
the economy has:
A)
idle resources.
B)
idle resources but is using resources efficiently.
C)
no idle resources but is using resources inefficiently.
D)
no idle resources and is using resources efficiently.
Page 10
Use the following to answer questions 39-40:
Figure: Consumer and Capital Goods
39.
(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods.
The movement from curve 1 to curve 2 indicates:
A)
economic growth.
B)
a change from unemployment to full employment.
C)
a decrease in the level of technology.
D)
instability.
40.
(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods.
Point Z:
A)
is unattainable, all other things unchanged.
B)
is attainable if the economy is able to reach full employment.
C)
is attainable if the quantity and/or quality of factors decreases.
D)
will be attained as soon as the economy becomes efficient and moves to curve 2.
41.
Technological improvements will:
A)
leave the production possibility frontier unchanged.
B)
shift the production possibility frontier inward.
C)
shift the production possibility frontier outward.
D)
necessarily lead to increased unemployment.
Page 11
42.
A production possibility frontier illustrates the _____ facing an economy that _____
only two goods.
A)
prices; sells
B)
trade-offs; produces
C)
trade-offs; sells
D)
shortages; produces
43.
Suppose Oklahoma decides to produce only two goods, oil and football helmets. If
Oklahoma is producing on its production possibility frontier, as oil production increases,
the production of football helmets will:
A)
increase.
B)
not change.
C)
decrease at a decreasing rate.
D)
decrease.
44.
One of the controversies surrounding the United States’ energy markets is the trade-off
between energy production and clean air. Assuming clean air has value, the United
States will be on its production possibility frontier if and only if:
A)
resources used to produce clean air and energy are not being fully used.
B)
pollution is eliminated.
C)
the price of energy is relatively low.
D)
resources used to produce clean air and energy are being fully used.
45.
If an economy is producing at a point on its production possibilities frontier, it is:
A)
efficient in production and allocation.
B)
efficient in production but not necessarily in allocation.
C)
efficient in allocation but not necessarily in production.
D)
not necessarily efficient in production or allocation.
46.
Consider a production possibility frontier for Iraq. If in 2014 Iraq’s resources are not
being fully utilized, Iraq will be somewhere _____ of its production possibility frontier.
A)
inside
B)
outside
C)
near the bottom
D)
near the top
Page 12
47.
All points inside the production possibility frontier represent:
A)
efficient production points.
B)
inefficient production points.
C)
infeasible production points.
D)
economic growth.
48.
All points on the production possibility frontier are:
A)
efficient.
B)
inefficient.
C)
infeasible.
D)
economic growth.
49.
All points outside the production possibility frontier are:
A)
efficient.
B)
inefficient.
C)
infeasible.
D)
economic growth.
Use the following to answer questions 50-52:
Figure: Production Possibility Frontier Curve for Tealand
50.
(Figure: Production Possibility Frontier for Tealand) Look at the figure Production
Possibility Frontier for Tealand. If Tealand is producing 10 million scones and 10
million cups of tea (point A), we know that the economy:
A)
is using its resources efficiently.
B)
is using its resources inefficiently.
C)
is fully employing its resources.
D)
has found new resources.
Page 13
51.
(Figure: Production Possibility Frontier for Tealand) Look at the figure Production
Possibility Frontier for Tealand. Tealand is producing at point C on its production
possibility frontier. What is the opportunity cost of increasing the production of tea from
20 million cups to 30 million cups?
A)
10 million cups of tea
B)
5 million scones
C)
10 million scones
D)
The answer is impossible to determine from the information given.
52.
(Figure: Production Possibility Frontier for Tealand) Look at the figure Production
Possibility Frontier for Tealand. Tealand can produce at point E only if the government:
A)
eliminates unemployment.
B)
raises taxes.
C)
permits more immigration.
D)
increases the cost of production by decreasing the use of technology.
53.
The production possibility frontier is bowed out because:
A)
resources are not equally suited for the production of both goods.
B)
resources are scarce.
C)
economic growth leads to inefficiency.
D)
resources are inefficiently used.
54.
The opportunity cost of production:
A)
is the price of a good.
B)
is what you give up to produce the good.
C)
decreases as production increases.
D)
is what you gain by producing the good.
55.
Suppose Poland is producing on its production possibilities frontier, and it decides to
increase the production of steel and decrease the production of vodka. The bowed-out
production possibility frontier suggests that there will be a(n) _____ opportunity cost of
producing more steel.
A)
increasing
B)
decreasing
C)
nonexistent
D)
unchanged
Page 14
56.
Economists usually assume that production is subject to increasing opportunity costs
because:
A)
higher production usually results in more inflation.
B)
not all resources are equally suited to producing every good.
C)
individuals desire constantly increasing opportunities to make themselves better
off.
D)
if production is efficient, it is not possible to increase the production of all goods
simultaneously.
57.
The production possibility frontier will shift outward because of:
A)
a decrease in the labor force.
B)
an upgrade of capital to the best available technology.
C)
better technology that improves worker productivity.
D)
a decrease in the unemployment rate.
58.
In terms of the production possibility frontier, inefficient use of available resources is
shown by:
A)
an increase in the labor force growth rate.
B)
a movement from one point to another along the production possibility frontier.
C)
an inward shift of the production possibility frontier due to the lack of opportunity.
D)
production at a point inside the production possibility frontier.
59.
The production possibility frontier will shift outward for all of the following reasons
EXCEPT:
A)
an increase in the unemployment rate.
B)
an increase in the labor force.
C)
an improvement in technology.
D)
an increase in worker productivity.
60.
The effect of an increase in productive inputs such as labor and capital can be shown by:
A)
a point inside of the production possibility frontier.
B)
an outward shift of the production possibility frontier.
C)
a movement from one point to another along the production possibility frontier.
D)
an inward shift of the production possibility frontier.
Page 15
61.
The effect of a natural disaster can be shown by _____ the production possibility
frontier.
A)
a point inside of
B)
an outward shift of
C)
a movement from one point to another along
D)
an inward shift of
62.
An inward shift in the U.S. economy’s production possibility frontier could represent
U.S.:
A)
workers moving to Canada.
B)
workers moving from New Jersey to Massachusetts.
C)
economic growth.
D)
economic growth as workers move to different states.
63.
If the production possibility frontier is a straight line:
A)
opportunity costs are constant.
B)
the firm faces increasing costs.
C)
the firm faces decreasing costs.
D)
there is no trade-off between the two goods represented.
Use the following to answer questions 64-70:
Figure: Tom’s Production Possibilities
Page 16
64.
(Figure: Tom’s Production Possibilities) Look at the figure Tom’s Production
Possibilities. Which point or points represent(s) a combination of coconuts and fish that
is efficient in production?
A)
A only
B)
A and B
C)
B and C
D)
D only
65.
(Figure: Tom’s Production Possibilities) Look at the figure Tom’s Production
Possibilities. Which point or points represent(s) an inefficient combination of coconuts
and fish?
A)
A only
B)
A and B
C)
C only
D)
B and D
66.
(Figure: Tom’s Production Possibilities) Look at the figure Tom’s Production
Possibilities. Which point or points represent(s) an infeasible combination of coconuts
and fish?
A)
A only
B)
A and B
C)
B and C
D)
D only
67.
(Figure: Tom’s Production Possibilities) Look at the figure Tom’s Production
Possibilities. Which point or points represent(s) a feasible combination of coconuts and
fish?
A)
A only
B)
A and B
C)
A, B, and C
D)
D only
68.
(Figure: Tom’s Production Possibilities) Look at the figure Tom’s Production
Possibilities. The opportunity cost for Tom to move from point A on the curve to point B
is:
A)
10 coconuts.
B)
10 fish.
C)
5 coconuts.
D)
5 fish.
Page 17
69.
(Figure: Tom’s Production Possibilities) Look at the figure Tom’s Production
Possibilities. The opportunity cost for Tom to move from point B on the curve to point A
is:
A)
10 coconuts.
B)
10 fish.
C)
5 coconuts.
D)
5 fish.
70.
(Figure: Tom’s Production Possibilities) Look at the figure Tom’s Production
Possibilities. The opportunity cost for Tom to move from point C on the curve to point
A is:
A)
10 coconuts.
B)
30 fish.
C)
5 coconuts.
D)
There is no opportunity cost.
71.
The _____ illustrates the trade-offs facing an economy that produces only two goods.
A)
production possibility frontier
B)
circular-flow diagram
C)
all else equal assumption
D)
income distribution
Use the following to answer questions 72-74:
Page 18
72.
(Table: Trade-off of Study Time and Leisure Time) Look at the table Trade-off of Study
Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining
time between study time and leisure time. The table shows the combinations of study
and leisure time that can be produced in the 16 waking hours of each day. If a student
decides to consume one additional hour of leisure time, how many hours of study time
must she give up?
A)
4
B)
0.25
C)
1
D)
16
73.
(Table: Trade-off of Study Time and Leisure Time) Look at the table Trade-off of Study
Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining
time between study and leisure time. Suppose this student is studying 4 hours and
spending 10 hours doing leisure activities. This point is:
A)
outside the production possibility frontier.
B)
inside the production possibility frontier.
C)
on the production possibility frontier.
D)
both efficient and feasible.
74.
(Table: Trade-off of Study Time and Leisure Time) Look at the table Trade-off of Study
Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining
time between study time and leisure time. The table shows the combinations of study
and leisure time that can be produced in the 16 waking hours of each day. Suppose the
student completes a speed-reading course that allows him to do the same amount of
studying in half as many hours. His opportunity cost:
A)
of leisure has increased.
B)
of studying has increased.
C)
of leisure has decreased.
D)
has not changed.
75.
If a production possibility frontier is a straight line, it tells us that the opportunity cost of
producing one more unit of good X:
A)
is an increasing amount of good Y.
B)
is a decreasing amount of good Y.
C)
is equal to the inverse of the amount of good Y.
D)
is a constant amount of good Y.
Page 19
76.
Suppose Indiana produces only steel and corn, with fixed amounts of land, labor, and
capital resources. Which of the following best sets the stage for economic growth?
A)
The unemployment rate in Indiana rises from 5% to 6%.
B)
The Midwest has a devastating drought.
C)
The percentage of Indiana residents with a college degree rises from 25% to 30%.
D)
The United States imports more and more low-cost steel from Asian countries.
77.
The production possibility frontier illustrates:
A)
the maximum quantity of one good that can be produced given the quantity of the
other good produced.
B)
that when markets don’t achieve efficiency, government intervention can improve
society’s welfare.
C)
the inverse relation between price and quantity of a particular good.
D)
that people usually exploit opportunities to make themselves better off.
Use the following to answer questions 78-83:
78.
(Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is
producing 12 tons of wheat and 9,000 bottles of wine, we know the economy:
A)
is using its resources efficiently.
B)
is using its resources inefficiently.
C)
is producing at an unattainable point.
D)
has unemployment.
Page 20
79.
(Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is
producing at point A, we know the economy is:
A)
using its resources efficiently.
B)
using its resources inefficiently.
C)
producing at an unattainable point.
D)
trading with another country.
80.
(Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is
producing at point A and wants to produce at point B, it must:
A)
trade with another country.
B)
increase its resources.
C)
decrease production.
D)
use its existing resources efficiently.
81.
(Figure: Wine and Wheat) Look at the figure Wine and Wheat. The opportunity cost of
moving from producing ONLY wheat to producing ONLY wine is _____ tons of wheat.
A)
3
B)
6
C)
9
D)
15
82.
(Figure: Wine and Wheat) Look at the figure Wine and Wheat. The opportunity cost of
moving from producing ONLY wheat to producing at point D is _____ tons of wheat.
A)
3
B)
6
C)
9
D)
15
83.
(Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is
producing on the production possibility frontier, what would allow it to produce at point
C?
A)
an improvement in technology
B)
a decrease in resources
C)
a decrease in production
D)
elimination of unemployment
Page 21
84.
The U.S. production possibility frontier would _____ if all computers using Microsoft
operating systems contracted a virus that deleted all information on those computers.
A)
shift in
B)
shift out
C)
not change
D)
The answer cannot be determined from the information provided.
85.
The U.S. production possibility frontier will _____ if there is a large influx of
working-age immigrants.
A)
shift in
B)
shift out
C)
not change
D)
The answer cannot be determined from the information provided.
86.
In Kessy’s old kitchen, he could bake 10 cookies or mix 15 glasses of lemonade in one
day. Now Kessy has a larger oven and refrigerator. How does this affect his production
possibility frontier?
A)
It shifts his production possibility frontier out.
B)
It shifts his production possibility frontier in.
C)
He will be less efficient.
D)
He will not be able to produce as much as before.
Use the following to answer questions 87-89:
87.
(Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. If the economy produces 4 units of consumer goods per period, it also can
produce at most _____ units of capital goods per period.
A)
30
B)
28
C)
10
D)
18
Page 22
88.
(Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. If the economy produces 24 units of capital goods per period, it also can
produce at most _____ units of consumer goods per period.
A)
5
B)
4
C)
3
D)
2
89.
(Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. The opportunity cost of producing the third unit of consumer goods is _____
units of capital goods.
A)
two
B)
four
C)
six
D)
eight
Use the following to answer questions 90-96:
Figure: Production Possibility Frontier
Page 23
90.
(Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. Points A, B, E, and F:
A)
indicate combinations of cars and computers that society can produce using all of
its resources efficiently.
B)
show that the opportunity cost of cars increases as more cars are produced but that
of more computers decreases as more computers are produced.
C)
indicate that society wants computers more than cars.
D)
indicate constant opportunity costs for cars and increasing opportunity costs for
computers.
91.
(Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. This production possibility frontier is:
A)
bowed out because of increasing opportunity costs.
B)
bowed in because of increasing opportunity costs.
C)
bowed in because of constant cost of cars and computers.
D)
linear because of constant costs.
92.
(Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. If the economy is operating at point B, producing 16 cars and 12 computers per
period, a decision to move to point E and produce 18 computers:
A)
indicates that you can have more computers and more cars simultaneously.
B)
makes it clear that this economy has decreasing opportunity costs.
C)
entails a loss of 8 cars per period.
D)
entails a loss of 4 cars per period.
93.
(Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. The combination of cars and computers at point H:
A)
can be attained but would cost too much.
B)
cannot be attained given the level of technology and the resources available.
C)
has no meaning, since it is not what consumers want.
D)
is attainable but would increase unemployment.
94.
(Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. If the economy is producing 8 cars and 12 computers per period:
A)
unemployment or inefficiency will ensue.
B)
the notion of increasing opportunity cost is invalidated.
C)
the economy is still efficient but has made a decision not to buy as much as it
could.
D)
something must be done to reduce the amount of employment.
Page 24
95.
(Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. A movement from point C producing 12 cars and 16 computers per period to
point B means a _____of _____ cars and a _____ of _____ computers per period.
A)
gain; 4; loss; 4
B)
gain; 2; loss; 4
C)
gain; 4; loss; 6
D)
loss; 2; gain; 4
96.
(Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. Which of the following is NOT an efficient rate of production per period?
A)
18 cars and no computers
B)
no cars and 20 computers
C)
16 cars and 12 computers
D)
no cars and 18 computers
97.
If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no
cabbages and 100 pounds of potatoes and if he faces a linear production possibility
frontier, the opportunity cost of producing an additional pound of potatoes is _____
pound(s) of cabbage.
A)
0.5
B)
2
C)
100
D)
200
98.
If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no
cabbages and 100 pounds of potatoes and if he faces a linear production possibility
frontier, the opportunity cost of producing an additional pound of cabbage is _____
pound(s) of potatoes.
A)
0.5
B)
2
C)
100
D)
200
99.
The slope of a typical production possibility frontier is:
A)
0.
B)
vertical.
C)
positive.
D)
negative.
Page 25
Use the following to answer questions 100-102:
100.
(Table: Production Possibilities Schedule II) Look at the table Production Possibilities
Schedule II. If the economy is producing at Y, the opportunity cost of producing at Z is
_____ units of consumer goods per period.
A)
1
B)
6
C)
8
D)
14
101.
(Table: Production Possibilities Schedule II) Look at the table Production Possibilities
Schedule II. If an economy is producing at X, the opportunity cost to it of producing at Y
is _____ units of consumer goods per period.
A)
2
B)
1
C)
6
D)
18
102.
(Table: Production Possibilities Schedule II) Look at the table Production Possibilities
Schedule II. The production of eight units of consumer goods and two units of capital
goods per period would result in:
A)
full employment.
B)
no unused resources.
C)
some unused or inefficiently used resources.
D)
increased economic growth.
Page 26
Use the following to answer questions 103-104:
Figure: Bicycles and Radishes I
103.
(Figure: Bicycles and Radishes I) Look at The figure Bicycles and Radishes I. It shows
the production possibility frontiers for two countries that produce only radishes and
bicycles. The axes of the two graphs are measured in equivalent units. Country A is
operating at point M, and country B is operating at point N. The opportunity cost of
producing an additional ton of radishes would be greater in:
A)
country A.
B)
country B.
C)
neither; the opportunity cost would be the same in both countries.
D)
There is not enough information to answer the question.
104.
(Figure: Bicycles and Radishes I) Look at the figure Bicycles and Radishes I. It shows
production possibility frontiers for two countries that produce only radishes and
bicycles. The axes of the two graphs are measured in equivalent units. Country A is
operating at point M, and country B is operating at point N. Suppose country A
discovers a new technology that greatly increases its ability to produce bicycles but has
no effect on its ability to produce radishes. This would:
A)
lower the opportunity cost of producing radishes in country A.
B)
increase the opportunity cost of producing radishes in country A.
C)
not affect the opportunity cost of producing radishes in country A.
D)
increase the opportunity cost of producing radishes in country B.
Page 27
Use the following to answer question 105:
Figure: Bicycles and Radishes II
105.
(Figure: Bicycles and Radishes II) Look at the figure Bicycles and Radishes II. The
country depicted in this figure is operating at point M. It could achieve production at
point I only if it:
A)
used its resources more efficiently.
B)
devoted more resources to radish production.
C)
devoted more resources to bicycle production.
D)
increased the quantities of capital, natural resources, or labor available or improved
its technology.
Use the following to answer questions 106-107:
Figure: Sugar and Freight Trains
Page 28
106.
(Figure: Sugar and Freight Trains) Look at the figure Sugar and Freight Trains. Suppose
the economy is operating at point B. The opportunity cost of producing the third freight
train would be _____ tons of sugar.
A)
6
B)
19
C)
45
D)
80
107.
(Figure: Sugar and Freight Trains) Look at the figure Sugar and Freight Trains. Suppose
the economy is operating at point C. The opportunity cost of producing the fourth
freight train would be:
A)
19 tons of sugar.
B)
45 tons of sugar.
C)
80 tons of sugar.
D)
3 freight trains.
Use the following to answer questions 108-112:
Figure: Strawberries and Submarines II
108.
(Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. Point F:
A)
is unattainable, all other things unchanged.
B)
is attainable if the quantity and/or quality of factors decreases.
C)
is attainable if the economy is able to reach full employment.
D)
is feasible but not efficient.
Page 29
109.
(Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. Suppose the economy is operating at point A. The first submarine, which
is achieved at point B, would have an opportunity cost of _____ million tons of
strawberries.
A)
50
B)
150
C)
400
D)
950
110.
(Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. Assume that the economy is operating at point A. The opportunity cost of
moving to point C is equal to _____ million tons of strawberries:
A)
800
B)
200
C)
2
D)
50
111.
(Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. The downward slope of the production possibility frontier implies that
resources:
A)
must be used efficiently.
B)
are scarce.
C)
should not be wasted.
D)
should be allocated so that approximately equal amounts of both goods are
produced.
112.
(Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. Suppose the economy is operating at point B. Achieving production at
point F would require that the economy:
A)
achieve full employment and an efficient allocation of resources.
B)
reduce its production of strawberries.
C)
reduce its production of submarines.
D)
improve its technology or increase its resources.
113.
Efficient production occurs when the economy is:
A)
operating inside its production possibility frontier.
B)
operating on its production possibility frontier.
C)
operating outside its production possibility frontier.
D)
moving beyond its production possibility frontier.
Page 30
114.
Assume an economy is operating on its production possibility frontier, which shows the
production of military and civilian goods. If the output of military goods is increased,
the output of civilian goods:
A)
will increase, too.
B)
will not change.
C)
must decrease.
D)
may increase or decrease.
115.
The process observed when an economy’s production possibility frontier shifts outward
is:
A)
comparative advantage.
B)
economic growth.
C)
full employment.
D)
specialization.
116.
Increases in resources or improvements in technology will tend to cause a society’s
production possibility frontier to:
A)
shift inward.
B)
shift outward.
C)
remain unchanged.
D)
become vertical.
117.
Technological improvements will:
A)
leave the production possibility frontier unchanged.
B)
shift the production possibility frontier inward.
C)
shift the production possibility frontier outward.
D)
necessarily lead to increased unemployment.
Page 31
Use the following to answer questions 118-120:
Figure: Consumer and Capital Goods
118.
(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods.
If the economy is operating at point Y and its relevant production possibility frontier is
curve 1:
A)
the economy is at full employment and is efficient.
B)
the economy is less than fully employed.
C)
the economy is not efficient.
D)
economic growth is not possible in the future.
119.
(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods.
The movement from curve 1 to curve 2 indicates:
A)
a growing ability of the economy to produce capital and consumer goods.
B)
going from unemployment to full employment.
C)
a decrease in the factors of production.
D)
a shift of the production possibility frontier toward producing fewer goods.
120.
(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods.
Technological improvements will likely:
A)
shift the production possibility frontier inward to curve 1.
B)
shift the production possibility frontier outward to curve 2.
C)
lead to increased unemployment.
D)
leave the production possibility frontier unchanged.
Page 32
121.
Abe starts exercising regularly, and after a few months he can do twice as much of
everything. In a single day Abe can now make 10 hamburgers or 8 milkshakes rather
than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe’s
production possibility frontier has _____, but his opportunity costs of making
milkshakes _____.
A)
shifted right; are unchanged
B)
shifted right; have decreased
C)
not changed; have increased
D)
not changed; have decreased
122.
When a nation’s economy grows:
A)
its production possibility frontier shifts outward.
B)
its production possibility frontier shifts inward.
C)
it has been able to reach full employment.
D)
it has moved to a more consumer-oriented position on its production possibility
frontier.
123.
As long as people have different _____, everyone has a comparative advantage in
something.
A)
direct costs
B)
benefits
C)
utility
D)
opportunity costs
124.
Because of trade, a country may:
A)
consume outside its production possibility frontier.
B)
consume inside its production possibility frontier.
C)
find its production possibility frontier shifting outward.
D)
avoid opportunity costs.
125.
An economy is said to have a comparative advantage if it:
A)
can produce more of all goods than another economy.
B)
can produce less of all goods than another economy.
C)
has the highest cost of producing a particular good.
D)
has the lowest cost of producing a particular good.
Page 33
126.
The economy with the lowest opportunity cost of producing a particular good is said to
have:
A)
a technological advantage.
B)
a comparative advantage.
C)
a production possibility frontier.
D)
an increasing opportunity cost.
127.
An economy is said to have a comparative advantage in the production of a good if it
can produce that good:
A)
with more resources than another economy.
B)
with a higher opportunity cost than another economy.
C)
outside its production possibilities curve.
D)
at a lower opportunity cost than another economy.
Use the following to answer question 128:
128.
(Table: Fish and Coconut Production Possibilities) The table shows the maximum
amount of fish and coconuts that Tom and Hank can produce if they produce only one
good. Tom produces and consumes nine fish and two coconuts, and Hank produces and
consumes three fish and two coconuts. Now they decide to engage in trade. Which of
the following statements is INCORRECT?
A)
For both to become better off, each should specialize in the production of some
good. However, since Hank is equally productive in both goods, it doesn’t matter
which good each specializes in.
B)
For both to become better off, each should specialize completely in the production
of the good in which he has a comparative advantage.
C)
After trade it is possible for Tom to consume 9 fish and 2.5 coconuts and for Hank
to consume 3 fish and 2.5 coconuts.
D)
For each individual, the consumption point after trade will lie outside that
individual’s production possibility frontier.
Page 34
129.
In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one
hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies
that:
A)
Japan has a comparative advantage in the production of automobiles.
B)
the United States has an absolute advantage in the production of steel.
C)
Japan has a comparative advantage in the production of both goods.
D)
the United States has a comparative advantage in the production of automobiles.
Use the following to answer questions 130-131:
130.
(Table: Coffee and Salmon Production Possibilities) Look at the table Coffee and
Salmon Production Possibilities. The table shows the maximum amounts of coffee and
salmon that Brazil and Alaska can produce if they just produce one good. The
opportunity cost of producing 1 unit of coffee for Brazil is:
A)
2 salmon.
B)
0.25 salmon.
C)
1 salmon.
D)
0.5 salmon.
131.
(Table: Coffee and Salmon Production Possibilities) Look at the table Coffee and
Salmon Production Possibilities. The table shows the maximum amounts of coffee and
salmon that Brazil and Alaska can produce if they just produce one good. The
opportunity cost of producing 1 unit of salmon for Alaska is:
A)
2 coffees.
B)
0.25 coffee.
C)
1 coffee.
D)
0.5 coffee.
132.
Free trade between countries:
A)
should be based on absolute advantage.
B)
will allow wealthy countries to exploit less developed nations.
C)
will shift the domestic production possibility frontier to the right.
D)
will allow for greater levels of consumption than without trade.
Page 35
133.
If they spend all night writing computer programs, Laurence can write 10 programs, and
Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make
6 pairs, and Carrie Anne can make 4. Given this information and supposing Laurence
and Carrie Anne have constant opportunity costs, we know that _____ has an absolute
advantage in _____.
A)
Laurence; programs but not in sunglasses.
B)
Laurence; both programs and sunglasses.
C)
Carrie Anne; programs but not in sunglasses.
D)
Carrie Anne; both programs and sunglasses.
134.
If they spend all night writing computer programs, Laurence can write 10 programs, and
Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make
6 pairs, and Carrie Anne can make 4. We know that:
A)
Laurence’s opportunity cost of writing programs is less than Carrie Anne’s.
B)
Laurence’s opportunity costs of writing programs and of making sunglasses are less
than Carrie Anne’s.
C)
Carrie Anne’s opportunity costs of writing programs and of making sunglasses are
less than Laurence’s.
D)
Carrie Anne’s opportunity cost of writing programs is less than Laurence’s.
135.
If they spend all night writing computer programs, Laurence can write 10 programs, and
Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make
6 pairs, and Carrie Anne can make 4. We know that _____ has a comparative advantage
in _____.
A)
Laurence; programs
B)
Laurence; both programs and sunglasses
C)
Carrie Anne; programs
D)
Carrie Anne; both programs and sunglasses
136.
Which of the following statements is TRUE?
A)
Some very talented people have a comparative advantage in everything they do.
B)
Some very untalented people have a comparative advantage in nothing they do.
C)
Some very talented people have a very low opportunity cost in everything they do.
D)
It is possible to have an absolute disadvantage but a comparative advantage in
something.
Page 36
137.
In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers.
Therefore, _____ has a(n) _____ advantage in making hamburgers.
A)
Sarah; comparative
B)
Sarah; absolute
C)
Abe; comparative
D)
Abe; absolute
138.
If they produce only hamburgers, in a single day Sarah can produce 10 hamburgers, and
Abe can produce 5 hamburgers. If they make milkshakes only, in a single day Sarah can
produce 10 milkshakes, and Abe can produce 4 milkshakes. Therefore, _____ has an
absolute advantage and a comparative advantage in making _____.
A)
Sarah; hamburgers
B)
Sarah; milkshakes
C)
Abe; hamburgers
D)
Abe; milkshakes
139.
Roommates Sarah and Zoe are hosting a Halloween party and have to make food for
their guests and costumes for themselves. To finish both tasks as quickly as possible,
Sarah and Zoe know that each of them should focus on just one task, but they don’t
know who should do what. Sarah and Zoe should determine which roommate:
A)
has the absolute advantage in cooking.
B)
has the comparative advantage in cooking.
C)
can cook the most in a given amount of time.
D)
can complete the cooking in the least amount of time.
140.
Economists generally believe that a country should specialize in the production of a
good or service if:
A)
the production possibility frontier is further from the origin than that of any other
country.
B)
the production possibility frontier is closer to the origin than that of any other
country.
C)
the country can produce the product using more resources than any other country.
D)
the country can produce the product while forgoing fewer alternative products than
any other country.
Page 37
Use the following to answer questions 141-143:
141.
(Table: Coffee and Salmon Production Possibilities II) Look at the table Coffee and
Salmon Production Possibilities II. This table shows the maximum amounts of coffee
and salmon, both measured in pounds, that Brazil and Alaska can produce if they just
produce one good. Brazil has an absolute advantage in producing:
A)
coffee only.
B)
salmon only.
C)
both coffee and salmon.
D)
neither coffee nor salmon.
142.
(Table: Coffee and Salmon Production Possibilities II) Look at the table Coffee and
Salmon Production Possibilities II. This table shows the maximum amounts of coffee
and salmon, both measured in pounds, that Brazil and Alaska can produce if they just
produce one good. Alaska has an absolute advantage in producing:
A)
coffee only.
B)
salmon only.
C)
both coffee and salmon.
D)
neither coffee nor salmon.
143.
(Table: Coffee and Salmon Production Possibilities II) Look at the table Coffee and
Salmon Production Possibilities II. This table shows the maximum amounts of coffee
and salmon, both measured in pounds, that Brazil and Alaska can produce if they just
produce one good. Brazil has a comparative advantage in producing:
A)
coffee only.
B)
salmon only.
C)
both coffee and salmon.
D)
neither coffee nor salmon.
144.
An economy is said to have a comparative advantage in the production of one good if it:
A)
can produce more of all goods than another economy.
B)
can produce less of all goods than another economy.
C)
has the highest opportunity cost of producing a particular good.
D)
has the lowest opportunity cost of producing a particular good.
Page 38
145.
An economy that has the lowest opportunity cost of producing a particular good is said
to have:
A)
an absolute advantage in production of that good.
B)
a comparative advantage in production of that good.
C)
a production possibility frontier.
D)
an increasing opportunity cost in production of that good.
146.
The concept of comparative advantage is based upon:
A)
absolute labor productivity.
B)
relative labor costs.
C)
dollar prices of labor.
D)
relative opportunity costs.
147.
An economy is said to have a comparative advantage in the production of a good if it
can produce that good:
A)
with more resources than another economy.
B)
with a higher opportunity cost than another economy.
C)
outside its production possibility frontier.
D)
at a lower opportunity cost than another economy.
148.
If the opportunity cost of manufacturing machinery is lower in the United States than in
Britain and the opportunity cost of manufacturing sweaters is higher in the United States
than in Britain, then the United States will:
A)
export both sweaters and machinery to Britain.
B)
import both sweaters and machinery from Britain.
C)
export sweaters to Britain and import machinery from Britain.
D)
import sweaters from Britain and export machinery to Britain.
149.
If the opportunity cost of manufacturing machinery is higher in the United States than in
Britain and the opportunity cost of manufacturing sweaters is lower in the United States
than in Britain, then the United States will:
A)
export both sweaters and machinery to Britain.
B)
import both sweaters and machinery from Britain.
C)
export sweaters to Britain and import machinery from Britain.
D)
import sweaters from Britain and export machinery to Britain.
Page 39
150.
Trade can be beneficial to an economy because:
A)
it results in a more efficient use of the combined resources of some of the trading
countries, even though it reduces efficiency in others.
B)
more goods and services can be obtained at lower opportunity cost.
C)
it prevents specialization in activities in which countries have a comparative
advantage.
D)
it prevents unemployment.
151.
If Brazil gives up three automobiles for each ton of coffee it produces, while Peru gives
up seven automobiles for each ton of coffee it produces, then Brazil has a comparative
advantage in _____ production and should specialize in _____.
A)
automobile; coffee
B)
coffee; automobiles
C)
coffee; coffee
D)
automobile; automobiles
152.
If countries engage in international trade:
A)
they give up the ability to specialize in production.
B)
worldwide levels of production are lower.
C)
they will be consuming inside their production possibility frontiers.
D)
they will be consuming outside their production possibility frontiers.
Use the following to answer questions 153-160:
153.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. Sweden
has an absolute advantage in producing:
A)
cell phones only.
B)
herring only.
C)
both cell phones and herring.
D)
neither cell phones nor herring.
Page 40
154.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. Finland
has an absolute advantage in producing:
A)
cell phones only.
B)
herring only.
C)
both cell phones and herring.
D)
neither cell phones nor herring.
155.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. Sweden
has a comparative advantage in producing:
A)
cell phones only.
B)
herring only.
C)
both cell phones and herring.
D)
neither cell phones nor herring.
156.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. Finland
has a comparative advantage in producing:
A)
cell phones only.
B)
herring only.
C)
both cell phones and herring.
D)
neither cell phones nor herring.
157.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. The
opportunity cost of producing 1 box of cell phones for Sweden is _____ box(es) of
herring.
A)
10
B)
0.2
C)
5
D)
0.1
158.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. The
opportunity cost of producing 1 box of cell phones for Finland is _____ box(es) of
herring.
A)
10
B)
0.5
C)
5
D)
0.1
Page 41
159.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. The
opportunity cost of producing 1 box of herring for Sweden is _____ box(es) of cell
phones.
A)
10
B)
0.5
C)
5
D)
0.1
160.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. The
opportunity cost of producing 1 box of herring for Finland is _____ box(es) of cell
phones.
A)
10
B)
0.2
C)
5
D)
0.1
Use the following to answer questions 161-168:
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges, and this
figure shows each nation’s production possibility frontier for the two goods.
161.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. Eastland
has an absolute advantage in producing:
A)
oranges only.
B)
peaches only.
C)
both oranges and peaches.
D)
neither oranges nor peaches.
Page 42
162.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. Westland
has an absolute advantage in producing:
A)
oranges only.
B)
peaches only.
C)
both oranges and peaches.
D)
neither oranges or peaches.
163.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of oranges for Eastland is _____ box(es) of
peaches.
A)
1
B)
0.25
C)
4
D)
10
164.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of oranges for Westland is _____ box(es) of
peaches.
A)
1
B)
0.25
C)
4
D)
10
165.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of peaches for Eastland is _____ box(es) of
oranges.
A)
1
B)
0.25
C)
4
D)
10
166.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of peaches for Westland is _____ box(es) of
oranges.
A)
1
B)
0.25
C)
4
D)
10
Page 43
167.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. Eastland
has a comparative advantage in producing:
A)
oranges only.
B)
peaches only.
C)
both oranges and peaches.
D)
neither oranges nor peaches.
168.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. Westland
has a comparative advantage in producing:
A)
oranges only.
B)
peaches only.
C)
both oranges and peaches.
D)
neither oranges nor peaches.
169.
Which of the following statements is TRUE?
A)
Very talented people may have a comparative advantage in everything they do.
B)
Very untalented people have a comparative advantage in something they do.
C)
Very talented people may have a low opportunity cost in most things they do.
D)
Very untalented people may have a high opportunity cost in most things they do.
170.
In a single day, George can bake 10 cakes and Greta can bake 5 cakes. We know that
_____ has a(n) _____ advantage in baking cakes.
A)
George; comparative
B)
George; absolute
C)
Greta; comparative
D)
Greta; absolute
171.
If they bake only cakes, in a single day George can bake 10 cakes and Greta can bake 5
cakes. If they make only pies, in a single day George can bake 10 pies while Greta can
bake 4 pies. We know that _____ has an absolute advantage and a comparative
advantage in making _____.
A)
George; cakes
B)
George; pies
C)
Greta; cakes
D)
Greta; pies
Page 44
172.
Greta starts using a new baking technique, and she can now do twice as much of
everything. In a single day Greta can now make 10 cakes or 8 pies, rather than the 5
cakes and 4 pies she could previously bake. Greta’s production possibility frontier has
_____, but her opportunity costs of making pies _____.
A)
shifted right; are unchanged
B)
shifted right; have decreased
C)
not changed; have increased
D)
not changed; have decreased
173.
Coworkers Yvonne and Rodney are washing dishes and sweeping the floors of the store.
They know that to finish both tasks as quickly as possible, each of them should focus on
just one task, but they don’t know who should do what. Yvonne and Rodney should
determine which one:
A)
has the absolute advantage in dishwashing.
B)
has the comparative advantage in dishwashing.
C)
has the production possibility frontier that is farthest from the origin in
dishwashing.
D)
can wash the dishes faster.
174.
To achieve the gains from trade, each nation should specialize in the production of a
good or service if:
A)
its production possibility frontier is farther from the origin than that of any other
country.
B)
its production possibility frontier is closer to the origin than that of any other
country.
C)
the country can make the product using fewer resources than any other country.
D)
the country can make the product while forgoing fewer alternative products than
any other country.
175.
Dr. Colgate is a dentist who employs an assistant, Ms. Crest. If Dr. Colgate worked all
day at the front desk, she could answer 40 phone calls. If she worked all day with
patients, she could clean the teeth of 40 patients. If Ms. Crest worked all day at the front
desk, she could answer 60 phone calls. If she worked all day with patients, she could
clean the teeth of 20 patients. _____ has a(n) _____ advantage in _____.
A)
Dr. Colgate; absolute; answering phones
B)
Ms. Crest; comparative; answering phones
C)
Ms. Crest; absolute; cleaning patients’ teeth
D)
Dr. Colgate; comparative; answering phones
Page 45
Use the following to answer questions 176-177:
176.
(Table: Wheat and Aluminum) Look at the table Wheat and Aluminum. The United
States and Germany can produce both wheat and aluminum. The table shows, in
tonnage, the maximum annual output combinations of wheat and aluminum that can be
produced. Which of the following choices represents a possible trade based upon
specialization and comparative advantage?
A)
Germany would trade 2 tons of wheat to the United States for 1 ton of aluminum.
B)
Germany would trade 2 tons of aluminum to the United States for 0.5 ton of wheat.
C)
The United States would trade 1 ton of wheat to Germany for 1 ton of aluminum.
D)
The United States would trade 1 ton of wheat to Germany for 1.5 tons of
aluminum.
177.
(Table: Wheat and Aluminum) Look at the table Wheat and Aluminum. The United
States and Germany can produce both wheat and aluminum. The table shows the
maximum annual output combinations of wheat and aluminum that can be produced.
Based on the table:
A)
the United States has a comparative advantage in wheat and an absolute advantage
in wheat.
B)
Germany has an absolute advantage in aluminum and a comparative advantage in
wheat.
C)
the United States has a comparative advantage in both aluminum and wheat.
D)
Germany has a comparative advantage in aluminum and an absolute advantage in
aluminum.
Page 46
178.
In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. His friend Ava
can make 10 cookies or 10 glasses of lemonade. His other friend, Ian, can make 10
cookies or 20 glasses of lemonade. Who has the lowest opportunity cost in cookie
production?
A)
Kessy
B)
Ava
C)
Ian
D)
Kessy and Ava have the same opportunity cost in cookie production.
179.
Because Casey can type reports faster and more accurately than Ahmet, Casey has a(n)
_____ in typing reports.
A)
comparative advantage
B)
absolute advantage
C)
opportunity cost
D)
specialization
180.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. Based on this information, _____ has the comparative
advantage in making brownies and _____ has the comparative advantage in making
cookies.
A)
Mark; Julie
B)
Mark; Mark
C)
Julie; Mark
D)
Julie; Julie
181.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. What is Mark’s opportunity cost to produce one brownie?
A)
1 cookie
B)
1 brownie
C)
0.5 cookie
D)
0.5 brownie
Page 47
182.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. With specialization, _____ brownies and _____ cookies will be
made in one day.
A)
15; 20
B)
40; 20
C)
40; 15
D)
55; 35
183.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. Based on this information, _____ has the absolute advantage in
making brownies and _____ has the absolute advantage in making cookies.
A)
Mark; Julie
B)
Mark; Mark
C)
Julie; Mark
D)
Mark; neither Mark nor Julie
Use the following to answer questions 184-185:
184.
(Table: Bongos and Frisbees) Look at the table Bongos and Frisbees. Bill and Mickey
make bongos and Frisbees. Who has the comparative advantage in producing Frisbees?
A)
Bill
B)
Mickey
C)
both
D)
neither
185.
(Table: Bongos and Frisbees) Look at the table Bongos and Frisbees. Bill and Mickey
make bongos and Frisbees. Who should specialize in the production of bongos?
A)
Bill
B)
Mickey
C)
both
D)
neither
Page 48
186.
If the opportunity cost of manufacturing automobiles is lower in the United States than
in Britain and the opportunity cost of manufacturing airplanes is higher in the United
States than in Britain, then the United States will:
A)
export both airplanes and automobiles to Britain.
B)
import both airplanes and automobiles from Britain.
C)
export airplanes to Britain and import automobiles from Britain.
D)
import airplanes from Britain and export automobiles to Britain.
187.
If the opportunity cost of manufacturing automobiles is higher in the United States than
in Britain and the opportunity cost of manufacturing airplanes is lower in the United
States than in Britain, then the United States will:
A)
export both airplanes and automobiles to Britain.
B)
import both airplanes and automobiles from Britain.
C)
export airplanes to Britain and import automobiles from Britain.
D)
import airplanes from Britain and export automobiles to Britain.
188.
Assume that Colombia gives up three motorcycles for each ton of coffee it produces,
while Bolivia gives up seven motorcycles for each ton of coffee it produces. Colombia
has a comparative advantage in _____ production and should specialize in _____.
A)
motorcycle; coffee
B)
coffee; motorcycles
C)
coffee; coffee
D)
motorcycle; motorcycles
189.
Economists are generally in support of:
A)
government restrictions on trade.
B)
free international trade.
C)
tariffs to restrict trade.
D)
subsidizing exports.
190.
Trade takes the form of _____ when people directly exchange goods they have for
goods they want.
A)
exploitation
B)
benevolence
C)
barter
D)
the zero-sum game
Page 49
191.
The simplest circular-flow model shows the interaction between households and firms.
In this model:
A)
only barter transactions take place.
B)
households and firms interact in the market for goods and services, but firms are
the only participants in the factor markets.
C)
firms supply goods and services to households, which in turn supply factors of
production to firms.
D)
attention is focused on real flows of goods, services, and factors of production, but
money flows between households and firms are ignored for simplicity.
192.
A high-school graduate who gets a college degree is adding to the economy’s stock of:
A)
labor.
B)
capital.
C)
human capital.
D)
financial capital.
Use the following to answer questions 193-196:
Figure: Production Possibilities and Circular-Flow Diagram
Page 50
193.
(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure
Production Possibilities and Circular-Flow Diagram. Assume the two figures represent
the same economy. Suppose that in the circular-flow diagram there is a significant
decrease in the amount of labor flowing to the firms that produce coconuts. If all other
variables remain unchanged, this adjustment in the economy would be best represented
in the production possibilities figure by a move from point A toward:
A)
point A (no movement).
B)
point B (a decrease in coconut production and an increase in fish production).
C)
point C (a decrease in coconut production).
D)
point D (an outward shift of the entire curve).
194.
(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure
Production Possibilities and Circular-Flow Diagram. Assume the two figures represent
the same economy. Suppose that in the circular-flow diagram capital that used to flow to
firms producing coconuts now flows to firms producing fish. This adjustment in the
economy would be best represented in the production possibilities figure by a move
from point A toward:
A)
point A (no movement).
B)
point B (a decrease in coconut production and an increase in fish production).
C)
point C (a decrease in coconut production).
D)
point D (an outward shift of the entire curve).
195.
(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure
Production Possibilities and Circular-Flow Diagram. Assume the two figures represent
the same economy. Suppose that in the circular-flow diagram there is a significant
increase in the amount of human capital flowing to both coconut producers and fish
producers. If all other variables remain unchanged, then the adjustment in this economy
would be best represented in the production possibilities figure by a movement from
point A toward:
A)
point A (no movement).
B)
point B (a decrease in coconut production and an increase in fish production).
C)
point C (a decrease in coconut production).
D)
point D (an outward shift of the entire curve).
Page 51
196.
(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure
Production Possibilities and Circular-Flow Diagram. Assume the two figures represent
the same economy. Suppose that in the circular-flow diagram most firms undergo a
significant increase in productivity. This results in a significant increase in the output of
both coconuts and fish. If all other variables remain unchanged, then the adjustment in
this economy would be best represented in the production possibilities figure by a
movement from point A toward:
A)
point A (no movement).
B)
point B (a decrease in coconut production and an increase in fish production).
C)
point C (a decrease in coconut production).
D)
point D (an outward shift of the entire curve).
197.
If LeRoyce trades two cookies for one of Amir’s brownies, we say that they are
engaging in:
A)
exploitation.
B)
benevolence.
C)
barter.
D)
a zero-sum game.
198.
Which of the following is FALSE about the circular-flow diagram?
A)
Households are the primary demanders of goods and services.
B)
Firms are the primary suppliers of goods and services.
C)
Money flows from households to firms as households offer factors of production
for sale.
D)
Money flows in the direction opposite to goods and services and factors of
production.
199.
Which of the following is NOT a factor of production?
A)
labor
B)
machines and buildings
C)
land
D)
money
200.
The circular-flow diagram illustrates how households _____ goods and services and
_____ factors of production.
A)
buy; sell
B)
buy; buy
C)
own; buy
D)
own; sell
Page 52
201.
The circular-flow diagram illustrates how firms _____ goods and services and _____
factors of production.
A)
buy; sell
B)
buy; buy
C)
sell; buy
D)
sell; sell
202.
In the simplest circular-flow model, households supply _____ and demand _____.
A)
capital; barter
B)
wages and income; capital markets
C)
factors of production; goods and services
D)
firms; markets
203.
The circular-flow diagram represents the market for _____ and the market for _____.
A)
goods and services; factors
B)
households; firms
C)
money; goods and services
D)
factors; money
204.
The circular-flow diagram shows the flow of _____ and the flow of _____.
A)
goods and services; factors
B)
households; firms
C)
money; goods and services
D)
factors; money
205.
The circular-flow diagram shows how:
A)
banks receive deposits and create money.
B)
money, goods and services, and factors of production flow through the economy.
C)
the various levels of government allocate tax revenues to meet the needs of society.
D)
the work force is educated and trained to increase labor productivity.
206.
The basis of the circular-flow diagram is that:
A)
the best models avoid making assumptions.
B)
goods and services flow in a circle in the factor market.
C)
resources are sold along with goods and services in the resource market.
D)
the flow of money into each market or sector is equal to the flow of money coming
out of that market or sector.
Page 53
207.
In the circular-flow diagram the flow of money going into each sector or market is
_____ the flow of money coming out of that market or sector.
A)
equal to
B)
greater than
C)
less than
D)
unrelated to
208.
In the circular-flow diagram, an individual or a group of people (usually a family) who
share their income is a(n):
A)
market.
B)
factor.
C)
household.
D)
business.
209.
In the circular-flow diagram, a household is:
A)
an entity that sells goods and services.
B)
an individual or group of people who share their income.
C)
an entity that purchases factors of production.
D)
a member of a group that is prohibited from buying imported goods and services.
210.
In the circular-flow diagram, an organization that produces goods or services for sale is
a:
A)
market.
B)
household.
C)
factor.
D)
firm.
211.
In the circular-flow diagram, a firm is:
A)
an organization that produces goods or services for sale.
B)
an individual or a group of people who share their income.
C)
an organization that sells factors of production.
D)
an organization that purchases goods and services.
212.
In the circular-flow diagram, the product market is where:
A)
firms buy goods and services.
B)
firms buy resources used to produce goods and services.
C)
households buy goods and services.
D)
households buy resources used to produce goods and services.
Page 54
213.
Households buy goods and services in the _____ markets.
A)
factor
B)
product
C)
resource
D)
financial
214.
In the circular-flow diagram, the factor market is where:
A)
households buy factors of production.
B)
households buy goods and services.
C)
businesses buy goods and services.
D)
businesses buy factors of production.
215.
Businesses buy resources used to produce goods and services in the:
A)
factor market.
B)
product market.
C)
market for goods and services.
D)
foreign exchange market.
216.
Jim is being paid $7.25 an hour to work at a restaurant. In the circular flow this is an
example of a:
A)
business selling goods and services in the product market.
B)
household buying goods and services in the product market.
C)
household buying goods and services in the factor market.
D)
household selling a resource in the factor market.
217.
Jim is being paid $7.25 an hour to work at a restaurant. In the circular flow this is an
example of a:
A)
business selling goods and services in the product market.
B)
household buying goods and services in the product market.
C)
business buying resources in the factor market.
D)
household buying a resource in the factor market.
218.
Mary spends $5 on food for her cat. This is an example of a:
A)
business buying goods and services in the product market.
B)
household buying goods and services in the product market.
C)
household buying goods and services in the factor market.
D)
household selling a resource in the factor market.
Page 55
219.
Which of the following is sold in the factor market?
A)
hamburgers
B)
video games
C)
haircuts
D)
labor
220.
Which of the following is sold in the factor market?
A)
hot dogs
B)
bulldozers
C)
nail polish
D)
appendectomies
221.
Which of the following is sold in the product market?
A)
land
B)
labor
C)
cell phones
D)
human capital
222.
Which of the following is sold in the product market?
A)
footballs
B)
labor
C)
physical capital
D)
human capital
223.
In the circular-flow diagram households buy _____ in the _____ market.
A)
goods and services; product
B)
goods and services; factor
C)
resources; factor
D)
resources; product
224.
In the circular-flow diagram households receive money for _____ in the _____ market.
A)
producing and selling goods and services; product
B)
selling resources; product
C)
selling resources; factor
D)
selling goods and services; factor
Page 56
225.
In the circular-flow diagram firms buy _____ in the _____ market.
A)
goods and services; product
B)
goods and services; factor
C)
resources; product
D)
resources; factor
226.
In the circular-flow diagram firms receive money for _____ in the _____ market.
A)
selling goods and services; product
B)
selling resources; product
C)
selling resources; factor
D)
selling goods and services; factor
227.
Which of the following two statements is a positive statement? Which is a normative
statement?
I. The federal minimum wage in 2014 was $7.25 an hour.
II. The minimum wage should be high enough that families will not live in poverty.
A)
I is positive; II is normative.
B)
I is positive; II is positive.
C)
I is normative; II is positive.
D)
I is normative; II is normative.
228.
Which of the following is a normative statement?
A)
Women’s labor force participation rate has increased during the past 100 years.
B)
The federal minimum wage is higher today than it was in 1990.
C)
Children in the United States are required to go to school until they reach a certain
age.
D)
The best way to encourage growth in the economy is through government
spending.
229.
Which of the following is a normative statement?
A)
The minimum wage has not kept pace with inflation.
B)
The minimum wage is an important tool in fighting poverty and should be
increased.
C)
The minimum wage can cause higher unemployment for teens and unskilled
workers.
D)
A higher minimum wage is expected to increase the price of a fast-food
cheeseburger.
Page 57
230.
Which of the following is a normative statement?
A)
International trade leads to expanded consumption opportunities.
B)
Higher expenditures on health care will reduce infant mortality rates.
C)
To improve our economic security, we should reduce our dependence on oil
imports.
D)
Increased defense spending will lead to higher budget deficits.
231.
Which of the following is a positive economic statement?
A)
Government has grown too large and should be reduced.
B)
There has been an increase in the rate of inflation.
C)
Government should be subject to the same rules as all other institutions.
D)
Women should be paid as much as men for the same work.
232.
Which of the following is a positive statement?
A)
The rate of unemployment is 4%.
B)
A high rate of economic growth is the most important economic goal for the
country.
C)
Everyone in the country should be covered by national health insurance.
D)
Baseball players should not be paid higher salaries than the president of the United
States.
233.
Which of the following is a positive statement?
A)
The rate of unemployment should be 4%.
B)
A high rate of economic growth should be a more important economic goal than a
low rate of inflation.
C)
The federal government spends half of its budget on national defense.
D)
Everyone in the country should be covered by national health insurance.
234.
“Unemployment of 5% is too high” is:
A)
a normative statement.
B)
a positive statement.
C)
the circular-flow model.
D)
an example of comparative advantage.
235.
Which of the following is a normative statement?
A)
Government has grown too large and should be reduced.
B)
The rate of inflation has increased.
C)
Government is subject to the same rules as all other institutions.
D)
The money supply grew by 3% last year.
Page 58
236.
Which of the following is a positive statement?
A)
The poverty rate is 14%.
B)
A high rate of inflation is the most important economic goal for the country.
C)
Everyone in the country should save money for retirement.
D)
Basketball players should not be paid higher salaries than teachers.
237.
Which of the following is an example of a positive statement?
A)
The poverty rate should be 4%.
B)
A high rate of economic growth should be a more important goal for the country
than a low rate of unemployment.
C)
The federal government pays for 46% of U.S. health care costs.
D)
Everyone in the country should be covered by national health insurance.
238.
Statements that make value judgments are:
A)
pecuniary.
B)
positive.
C)
nominal.
D)
normative.
239.
Which of the following is a normative statement?
A)
The rate of unemployment is 9%.
B)
The price of gasoline should be less than $4 per gallon.
C)
The federal government spends half of its budget on national defense.
D)
Millions of Americans lack health insurance.
240.
Which of the following is a normative statement?
A)
The rate of unemployment is 9%.
B)
A high rate of economic growth creates jobs.
C)
The federal government spends half of its budget on national defense.
D)
Everyone in the United States deserves to be covered by national health insurance.
241.
“The current rate of unemployment of 9% is too high” is a _____ statement.
A)
normative
B)
ceteris paribus
C)
positive
D)
marginal
Page 59
242.
“The rate of unemployment is 9%.” This statement:
A)
is positive.
B)
is normative.
C)
involves a value judgment.
D)
is a personal reflection and has no value in economics.
243.
Unemployment decreased to its lowest level in 10 years last month. This statement is:
A)
an example of an opportunity cost.
B)
a positive economic statement.
C)
a normative economic statement.
D)
a value judgment.
244.
A statement that the minimum wage should be increased is a:
A)
positive statement.
B)
normative statement.
C)
ceteris paribus assumption.
D)
scientific conclusion based on marginal analysis.
245.
A normative statement deals with:
A)
the facts.
B)
what was, is, or will be.
C)
what ought to be.
D)
the scientific method.
246.
Which of the following offices of the U.S. government is a major employer of
economists?
A)
International Monetary Fund
B)
United Nations
C)
World Bank
D)
Bureau of Labor Statistics
247.
Economists who are asked to choose between two government policies may disagree
because:
A)
they make the same value judgments about the desirability of the policies.
B)
they base their conclusions on models that make different assumptions.
C)
as a matter of course, economists often take opposing points of view so that all
sides of a question may be discussed.
D)
economists are trained ignore facts and focus on theory.
Page 60
248.
Economists may disagree about policies because they:
A)
approach the issue using the same sets of values.
B)
use different economic models.
C)
enjoy disagreeing with each other.
D)
only consider issues in positive economics.
249.
Economic models that make unrealistic assumptions may be useful in analyzing some
economic problems.
A)
True
B)
False
250.
It is impossible for economists to use computers to simulate how the economy works.
A)
True
B)
False
251.
In building models, economists avoid making any assumptions that might leave out any
aspect of reality.
A)
True
B)
False
252.
In building models, economists often assume that opportunity costs don’t matter.
A)
True
B)
False
253.
The assumption ceteris paribus in a model means “other things equal.”
A)
True
B)
False
254.
Because models make simplifying assumptions, they are of very little use in the real
world.
A)
True
B)
False
255.
An economic model is a simplified version of reality that is used to analyze real-world
economic situations.
A)
True
B)
False
Page 61
256.
The financial meltdown in 2008–2009 was partially the result of a faulty economic
model that underestimated the risk of mortgage-backed securities.
A)
True
B)
False
257.
A mortgage-backed security is an asset that provides earnings to its owner based on
interest on the national debt paid by the Federal Reserve.
A)
True
B)
False
258.
After 2000 the market for mortgage-backed securities grew rapidly because economists
claimed they had a model that could predict the risk associated with them.
A)
True
B)
False
259.
On any given production possibility frontier, we see the minimum quantity of one good
that can be produced for any given production of the other.
A)
True
B)
False
260.
Suppose residents of Montana operate on their production possibility frontier, and they
want to increase production of both wheat and fly-fishing rods. According to the
production possibility frontier, this cannot happen without new resources or
technological improvement.
A)
True
B)
False
261.
A typical bowed-out production possibility frontier between two goods, guns and butter,
shows that the opportunity cost of butter in terms of guns increases as more butter is
produced. This implies that the opportunity cost of guns in terms of butter decreases as
more guns are produced.
A)
True
B)
False
262.
If the United States is more productive than Mexico in all lines of production, then the
United States cannot benefit from trade with Mexico.
A)
True
B)
False
Page 62
263.
Bangladesh produces much of the clothing we wear because it can produce more clothes
than the United States.
A)
True
B)
False
264.
Nations can gain from trade with other nations even if they are less productive in all
industries than the nations they trade with.
A)
True
B)
False
Use the following to answer questions 265-266:
265.
(Table: Fish and Coconut Production Possibilities) The table Fish and Coconut
Production Possibilities shows the maximum amount of fish or coconuts that Tom and
Hank can produce when each produces only one of the goods. The table implies that
Hank has an absolute advantage in the production of both goods.
A)
True
B)
False
266.
(Table: Fish and Coconut Production Possibilities) The table Fish and Coconut
Production Possibilities shows the maximum amount of fish or coconuts that Tom and
Hank can produce when each produces only one of the goods. The table implies that
Tom has a comparative advantage in the production of both goods.
A)
True
B)
False
267.
Absolute advantage is the basis for gains from trade.
A)
True
B)
False
Page 63
268.
The principle of comparative advantage suggests that if New York and Florida exchange
taxi parts for oranges, each state will be made worse off.
A)
True
B)
False
269.
A firm is an organization that produces goods and/or services.
A)
True
B)
False
270.
Fertilizer, used to grow pumpkins, is a factor of production.
A)
True
B)
False
271.
Labor and capital are the only two factors of production.
A)
True
B)
False
272.
The basis of the circular-flow diagram is that the money flowing into each sector or
market is greater than the money that flows out.
A)
True
B)
False
273.
The basis of the circular-flow diagram is that the money flowing into each sector or
market is equal to the money that flows out.
A)
True
B)
False
274.
In the product market, households buy goods and services.
A)
True
B)
False
275.
In the factor market, households buy goods and services.
A)
True
B)
False
Page 64
276.
In the factor market, firms buy goods and services.
A)
True
B)
False
277.
In the factor market, firms buy resources.
A)
True
B)
False
278.
If Mary accepts a job as a nurse, she has sold a factor of production in the factor market.
A)
True
B)
False
279.
If Jim buys a lunch at a restaurant, he has bought a factor of production in the factor
market.
A)
True
B)
False
280.
An apple is a resource sold in the factor market.
A)
True
B)
False
281.
“Teachers in northern New Hampshire should earn more money” is a normative
statement.
A)
True
B)
False
282.
Positive economics is the branch of economics that makes prescriptions about the way
the economy should work.
A)
True
B)
False
283.
“Steel tariffs will prevent job losses in the steel industry” is a positive statement.
A)
True
B)
False
Page 65
284.
“The unemployment rate should be higher” is a normative statement.
A)
True
B)
False
285.
“Many economists agree that income taxes should be increased for rich people” is a
positive statement.
A)
True
B)
False
286.
Economists disagree more over normative economics than positive economics.
A)
True
B)
False
287.
Explain how an economic model contributed to the financial crisis in 2008–2009.
288.
Consider a point within a production possibility frontier for a simple economy that
produces only two goods, X and Y. Why is this point described as feasible but not
efficient?
289.
Explain why economists believe that production possibility frontiers have a bowed-out
curvature rather than a straight line.
290.
Leaders of a small town are tired of looking at a vacant and dilapidated warehouse that
sits on a prime piece of real estate. The town finds an investor who purchases the
warehouse and promises to renovate the old building and build condominiums in the old
building. Is this economic growth?
291.
Explain how technological progress is a source of economic growth.
Page 66
Use the following to answer questions 292-293:
292.
(Table: Crab and Cake Production in Chesapeake) Look at the table Crab and Cake
Production in Chesapeake. What is the opportunity cost of increasing the production of
crabs from zero to 100? What is the opportunity cost of increasing the production of
crabs from 400 to 500? Explain the difference in your answers.
293.
(Table: Crab and Cake Production in Chesapeake) Look at the table Crab and Cake
Production in Chesapeake. The table shows the maximum annual output combinations
of crabs and cakes. Given the scarce resources and limited technology, as Chesapeake
uses more resources for the production of cakes, fewer resources are available to
produce crabs. Can this nation produce 200 crabs and 500 cakes? Is this efficient?
Explain.
Use the following to answer question 294:
294.
(Table: Wheat and Aluminum) Look at the table Wheat and Aluminum. The table shows
the maximum possible production of wheat and aluminum for both the United States
and Germany. Are gains from trade possible between these nations? Explain.
Page 67
295.
Consider a nation with a large economy, like the United States, and a nation with a
small economy, like the Dominican Republic. How can the United States, with absolute
advantage in production of almost all goods, benefit from trade with the Dominican
Republic?
296.
You are reading an editorial in your local newspaper. The editorial says: “The United
States had a trade deficit of $18.4 billion in February 2008. This is a clear indication to
our leaders that we must renegotiate our trade agreements with China to make them
fairer for the American worker.” What part of this editorial is positive and what part is
normative?
297.
Economists use models to explain real-life situations because:
A)
such models tend to be exactly what is occurring in each situation.
B)
assumptions found in such models tend to make analyzing the situation more
difficult.
C)
simplifications and assumptions often yield results that can help to explain the
more difficult real-life situations.
D)
real-life situations are not relevant to the building of models.
298.
Economic models often:
A)
vary greatly in assumptions and simplifications.
B)
are correct.
C)
provide similar answers.
D)
fail to explain any of the real-life scenarios they are supposed to help solve.
299.
“All other relevant factors remain unchanged” is another way of saying:
A)
all other things equal.
B)
allow several variables to change to understand how those variables affect one
variable held constant.
C)
allow all variables to change and attempt to understand how the variables interact
with each other.
D)
no variables change.
Page 68
300.
Alexander has a straight-line, or linear, production possibility frontier when he produces
soybeans and corn. If he uses all of his resources to grow soybeans, he can produce 200
bushels of soybeans; if he uses all of his resources for corn production, he can produce
400 bushels of corn. Alexander CANNOT produce _____ bushels of soybeans and
_____ bushels of corn.
A)
200; 0
B)
200; 600
C)
0; 400
D)
100; 200
301.
Frances has a linear production possibility frontier when she produces tomatoes and
green beans. If she uses all of her resources, she can produce 400 bushels of tomatoes or
800 bushels of green beans. Frances CANNOT efficiently produce _____ bushels of
tomatoes and _____ bushels of green beans.
A)
400; 0
B)
200; 400
C)
200; 200
D)
0; 800
302.
Alison has a linear production possibility frontier in bracelets and necklaces. In one
hour, she can produce 5 bracelets or 10 necklaces. What is the opportunity cost to make
1 necklace?
A)
5 bracelets
B)
10 necklaces
C)
0.5 bracelet
D)
2 necklaces
Use the following to answer questions 303-306:
Scenario: Linear Production Possibility Frontier
Largetown has a linear production possibility frontier, and it produces socks and shirts with 80
hours of labor. The table shows the number of hours of labor necessary to produce one pair of
socks or one shirt.
Page 69
303.
(Scenario: Linear Production Possibility Frontier) Look at the scenario Linear
Production Possibility Frontier. What is the maximum number of pairs of socks
Largetown can produce?
A)
40
B)
20
C)
2
D)
4
304.
(Scenario: Linear Production Possibility Frontier) Look at the scenario Linear
Production Possibility Frontier. If Largetown decides to devote half of its labor time to
the production of socks and half of the time to the production of shirts, it can produce
_____ shirts and _____ pairs of socks.
A)
10; 20
B)
20; 10
C)
30; 30
D)
0; 30
305.
(Scenario: Linear Production Possibility Frontier) Look at the scenario Linear
Production Possibility Frontier. If Largetown’s labor resource decreases by 40 hours, the
opportunity cost of producing shirts:
A)
increases.
B)
decreases.
C)
does not change.
D)
may or may not change depending upon the number of pairs of socks it wishes to
produce.
306.
(Scenario: Linear Production Possibility Frontier) Look at the scenario Linear
Production Possibility Frontier. Largetown CANNOT produce _____ shirts and _____
pairs of socks.
A)
20; 0
B)
40; 40
C)
0; 40
D)
10; 20
Page 70
307.
Smallville has a linear production possibility frontier in the production of good X and
good Y. It can produce 6 of X per hour or 8 of Y per hour. Suppose it has 240 hours of
labor and divides labor hours equally between production of good X and good Y. What
is the MAXIMUM amount of good Y it can produce?
A)
960
B)
30
C)
14
D)
6
Use the following to answer questions 308-311:
308.
(Table: Production of Good Z and Good X in Urbanville) Look at the table Production
of Good Z and Good X in Urbanville. If this table shows the production possibility
frontier and if Urbanville is producing 5 of Z and 50 of X, this combination is:
A)
feasible but inefficient.
B)
feasible and efficient.
C)
not feasible but efficient.
D)
neither feasible nor efficient.
309.
(Table: Production of Good Z and Good X in Urbanville) Look at the table Production
of Good Z and Good X in Urbanville. Suppose this table shows the production
possibility frontier and Urbanville is producing 15 of Z and 45 of X. This combination
is:
A)
both allocatively and productively efficient.
B)
productively efficient.
C)
allocatively efficient.
D)
neither productively nor allocatively efficient.
Page 71
310.
(Table: Production of Good Z and Good X in Urbanville) Look at the table Production
of Good Z and Good X in Urbanville. Suppose this table shows the production
possibility frontier. Urbanville is producing at combination C and moves to combination
D. What is the opportunity cost of this move?
A)
15 of X
B)
5 of Z
C)
15 of Z
D)
45 of X
311.
(Table: Production of Good Z and Good X in Urbanville) Look at the table Production
of Good Z and Good X in Urbanville. If this table shows the production possibility
frontier and Urbanville is producing at combination F, what is the opportunity cost of a
move to combination E?
A)
5 of Z
B)
20 of Z
C)
25 of X
D)
0 of X
312.
If an economy produces the desired mix of goods from its available resources, then this
mix of goods is:
A)
allocatively efficient.
B)
both productively and allocatively efficient.
C)
productively efficient.
D)
neither productively nor allocatively efficient.
Use the following to answer questions 313-317:
Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear
production possibility frontier in both goods. If country A spends all of its available resources to
produce wheat, it can produce 500 tons of wheat and no steel. If it uses all of its resources to
produce steel, it can produce 250 tons of steel and no wheat. If country B spends all of its
available resources producing wheat, it can produce 400 tons of wheat, and if it spends all of its
resources on the production of steel, it can produce 400 tons of steel.
Page 72
313.
(Scenario: Countries A and B) Look at the scenario Countries A and B. Given this
information, country _____ has a comparative advantage in the production of wheat,
and country _____ has a comparative advantage in the production of steel.
A)
A; A
B)
A; B
C)
B; B
D)
B; A
314.
(Scenario: Countries A and B) Look at the scenario Countries A and B. If each country
devotes half of its resources to the production of wheat and half to the production of
steel, then their combined total production of wheat will be _____ tons and their
combined total production of steel will be _____ tons.
A)
450; 325
B)
900; 650
C)
500; 250
D)
400; 400
315.
(Scenario: Countries A and B) Look at the scenario Countries A and B. If country B
produces 300 tons of steel, how many tons of wheat can it produce?
A)
100
B)
200
C)
300
D)
400
316.
(Scenario: Countries A and B) Look at the scenario Countries A and B. If countries A
and B both specialize and trade:
A)
only country A will gain.
B)
only country B will gain.
C)
country A and country B will gain if they both specialize in the good in which they
have a comparative advantage.
D)
neither country will gain.
317.
(Scenario: Countries A and B) Look at the scenario Countries A and B. Given this
information, the country that has the absolute advantage in wheat is _____, and the
country that has the absolute advantage in steel is _____.
A)
A; A
B)
A; B
C)
B; B
D)
B; A
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318.
Positive economics:
A)
describes opinions and perspectives on how the world should work.
B)
is based on opinion polls.
C)
describes how the world does work.
D)
is the same as normative economics.
319.
Of the following statements, which reflect(s) a normative view?
I. The United States should increase the minimum wage to $10 per hour.
II. There is a federal minimum wage in the United States.
III. The federal minimum wage in the United States is less than $10 per hour.
A)
I, II, and III
B)
None is normative.
C)
I and II
D)
I
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Answer Key
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