Exam 1: First Principles

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.

Which of the following two statements is a positive statement? Which is a normative statement? X.The federal minimum wage is increasing to $7.50 an hour.Y.The minimum wage should be high enough that families will not live in poverty. A.X is positive; Y is normative. B.X is positive; Y is positive. C.X is normative; Y is positive. D.X is normative; Y is normative

(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.2 B.4 C.6 D.8

Figure: Tom's Production Possibilities (Figure: Tom's Production Possibilities) Look at the figure Tom's Production Possibilities.In the figure, 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.

Efficient production exists when the economy is: A.operating underneath 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.

Figure: Production Possibility Frontier (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 you can have more computers and cars simultaneously. B.makes it clear that this economy has decreasing opportunity costs. C.involves a loss of 8 cars per period. D.involves a loss of 4 cars per period.

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.

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. (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.

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.

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 parts of this editorial are positive and what parts are normative economics?

Figure: Production Possibility Frontier (Figure: Production Possibility Frontier) Look at the figure Production Possibilities Frontier.A movement from producing 12 cars and 16 computers per period to point B means: A.a loss of 4 computers and a gain of 4 cars per period. B.a gain of 2 cars and a loss of 4 computers per period. C.a gain of 4 cars and a loss of 6 computers per D.period.a loss of 2 cars and a gain of 4 computers per period.

(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.

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.

In a single day, George can bake 10 cakes and Greta can bake 5 cakes.We know that:

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

Figure: Production Possibility Frontier (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.

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.

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 sock or one shirt. (Scenario: Linear Production Possibility Frontier) Look at the scenario Linear Production Possibility Frontier.What happens to the opportunity cost of producing shirts in Largetown if its labor resource decreases by 40 hours? A.The opportunity cost of producing shirts increases. B.The opportunity cost of producing shirts decreases. C.The opportunity cost of producing shirts does not change. D.The opportunity cost may or may not change depending upon the number of units of socks it wishes to produce.

Figure: Production Possibility Frontier Curve for Tealand (Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand.In the figure, Tealand is producing at point C on its production possibility frontier.What is the opportunity cost in Tealand 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.

A firm is an organization that produces goods.