Exam 1: First Principles

"All other relevant factors remain unchanged" is another way of saying: A.all other things equal. B.allow several variables to change in order 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.

Which of the following is an example of a normative statement? A.The rate of unemployment is 9%. B.A high rate of economic growth is good for the country. C.The federal government spends half of its budget on national D.defense.Millions of Americans lack health insurance.

A simplified representation that is used to study a real situation is called:

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 for producing a particular good. D.has the lowest cost for producing a particular good.

Which of the following is an example of a positive statement? A.The poverty rate is 14%. B.A high rate of economic growth is good for the country. C.Everyone in the country needs to save money for retirement. D.Basketball players should not be paid higher salaries than teachers.

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. A.Colombia has a comparative advantage in motorcycle production and should specialize in coffee. B.Colombia has a comparative advantage in coffee production and should specialize in the production of motorcycles. C.Colombia has a comparative advantage in coffee production and should specialize in coffee production. D.Colombia has a comparative advantage in motorcycle production and should specialize in motorcycle production.

Figure: Production Possibility Frontier (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 more cars increases, but that of more computers decreases. C.indicate that society wants computers more than cars. D.indicate constant costs for cars and increasing costs for computers.

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.

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.Which of the following is true? A.Dr.Colgate has an absolute advantage in answering phones. B.Ms.Crest has a comparative advantage in answering phones. C.Ms.Crest has an absolute advantage in cleaning patients' teeth. D.Dr.Colgate has a comparative advantage in answering phones.

The production possibility frontier illustrates that:

The fact that a society's production possibility frontier is bowed out or concave to the origin of a graph demonstrates the law of: A.increasing opportunity cost. B.decreasing opportunity cost. C.constant opportunity cost. D.concave opportunity cost.

If the United States is more productive than Mexico in all lines of production, then the United States cannot benefit from trade with Mexico.

(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 represents the production possibility frontier and Urbanville is producing at combination C and moves to combination D, what is its opportunity cost of this move? A.15 of X B.5 of Z C.15 of Z D.45 of X

Figure: Consumer and Capital Goods (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.

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. the United States has a comparative advantage in the production of automobiles.

Because of trade, a country may: A.consume outside its production possibility frontier. B.consume inside its production possibility frontier. C.find that its production possibility frontier will shift outward. D.avoid opportunity costs.

A production possibility frontier that is a straight line sloping down from left to right would suggest that:

(Figure: Guns and Butter) Look at the figure Guns and Butter.This production possibility frontier is: A.bowed out from the origin because of increasing opportunity B.costs.bowed in toward the origin because of increasing C.opportunity costs.bowed in toward the origin because of D.constant costs of guns and butter.linear because of constant costs.

In terms of the production possibility frontier, inefficient use of available resources is shown by:

The two flows represented in the circular-flow diagram are: A.the flow of goods and services and the flow of factors. B.the flow of households and firms. C.the flow of money and the flow of goods and services. D.the flow of factors and the flow of money.