If a country has a comparative advantage in producing a product, it may not have an
absolute advantage in producing that product.
Economies cannot function without money.
The basis for trade is absolute advantage, not comparative advantage.
The double taxation problem occurs because households pay taxes on dividends and
capital gains from stock and corporations pay taxes on corporate profits.
“An increase in the price of gasoline will increase the demand for hybrid vehicles.” This
statement is an example of a positive economic statement.
Which of the following would cause the dollar to depreciate?
A) an increase in the demand for dollars
B) a decrease in the demand for dollars
C) a decrease in the supply of dollars
D) a decrease in the demand for imports from foreign countries
Prior to the 1998 World Cup, France banned the use of all soccer balls made by child
workers. Several economists criticized the ban. Which of the following is an argument
these economists used to justify the use of child labor in some countries?
A) Soccer balls are easy to carry and workers were given soccer balls to play with.
B) Child workers were allowed to attend school during the periods they worked.
C) Child workers were given gloves to protect their hands while they stitched soccer
balls.
D) Some of the alternatives to stitching soccer balls include begging and prostitution.
The opportunity cost of being unemployed tends to be the highest in which of the
following countries?
A) Canada
B) the United States
C) France
D) the United Kingdom
Figure 13-13
Economies of scale are exhausted at which output level?
A) Q1 units
B) Q2 units
C) Q3 units
D) more than Q1units
Figure 2-6
If the economy is currently producing at point A, what is the opportunity cost of moving
to point B?
A) 8 thousand wrenches
B) 6 thousand hammers
C) 30 thousand wrenches
D) 23 thousand hammers
In the real world we don’t observe countries completely specializing in the production
of goods for which they have a comparative advantage. One reasons for this is
A) comparative advantage works better in theory than in practice.
B) some countries have more resources than other countries.
C) tastes for many traded goods are similar in many countries because of globalization.
D) production of most goods involves increasing opportunity costs.
Scenario 1-1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and
makes a profit of $5,000 per week. A manager at the plant observes, “Although the last
3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs
by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on
the right track. We are producing the optimal number of cell phones.”
Using marginal analysis terminology, what is another economic term for the
incremental revenue received from the sale of the last 3,000 cell phones?
A) gross earnings
B) marginal revenue
C) sales revenue
D) gross profit
The president of Toyota’s Georgetown plant was quoted as saying, “Demand for high
volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out
the expertise and knowledge we painstakingly built up over the years.” This quote
suggests that
A) Toyota was experiencing an excess demand for its automobiles which it had
difficulty keeping up with.
B) as Toyota expanded its capacity, it experienced diseconomies of scale.
C) Toyota was focused on “churning” out cars for which it did not invest sufficiently in
training its workers.
D) high demand for Toyota’s cars prevented the company from focusing on its strength:
auto design.
To maximize profit, a monopolist will produce where
A) marginal revenue is equal to marginal cost.
B) demand for its product is unit-elastic.
C) revenue per unit is maximized.
D) average total cost is equal to average revenue.
Figure 2-2 Figure
2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation
that produces two goods, meat and vegetables. What is the opportunity cost of one
pound of meat?
A) pound of vegetables
B) pounds of vegetables
C) 1.6 pounds of vegetables
D) 16 pounds of vegetables
Table 19-13
Consider the data shown above for Vicuna, a country that produces only two products:
oranges and shirts. Nominal GDP for Vicuna for 2009 equals
A) $4,920.
B) $5,100.
C) $5,300.
D) $5,850.
The paradox of American farming is
A) the demand for imported luxury food products has risen as the demand for domestic
food products has fallen.
B) the demand for food has risen as the number of people who pursue farming as a
career has fallen.
C) food has become cheaper and more abundant as the number of farms has decreased.
D) the amount of food produced has increased as the average farm size has fallen.
Figure 4-4
The figure above represents the market for pecans. Assume that this is a competitive
market. Which of the following is true?
A) If the price of pecans is $3 the output will be economically efficient but there will be
a deadweight loss.
B) If the price of pecans is $9 consumers will purchase more than the economically
efficient output.
C) Both 4,000 pounds and 12,000 pounds are economically inefficient rates of output.
D) If the price of pecans is $3 producers will sell 12,000 pounds of pecans but this
output will be economically inefficient.
The “Big Mac Theory of Exchange Rates” tests the accuracy of purchasing power
parity theory. In July 2013, the Economist reported that the average price of a Big Mac
in the United States was $4.56. In Mexico, the average price of a Big Mac at that time
was 37 pesos. If the exchange rate between the dollar and the peso was 13.60 pesos per
dollar, how would purchasing power parity predict the exchange rate will change in the
long run? Support your answer graphically.
Use the following demand schedule for apples to draw a graph of the demand curve. Be
sure to label the demand curve and each axis, and show each point on the demand
curve.
Why do banks create money? Do they create money to help the Federal Reserve control
the money supply or is there a more basic reason?
Explain whether FedEx’s sales are likely to fluctuate more or less than the sales of each
of the following firms as the economy moves from recession to expansion and back to
recession.
Whirlpool Corporation (appliance manufacturer)
Taco Bell
The Boeing Company (aircraft manufacturer)
GameStop (video game sales and rentals)
Suppose you withdraw $1,000 from your savings account and put it in your checking
account. Briefly explain how this will affect M1 and M2.
President Bush lowered taxes on capital gains and dividends in 2003. Explain how this
might increase aggregate supply.
What is equity, and how does it differ from efficiency?