Exam 1: First Principles

Trade takes the form of when people directly exchange goods that they have for goods they want. A.exploitation B.Benevolence C.barter D.the zero-sum game

As long as people have different , everyone has a comparative advantage in something. A.direct costs B.benefits C.utility D.opportunity costs

(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.

In movement along a production possibility frontier, the opportunity cost to society of getting more of one good: A.is 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.

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.Westland has a comparative advantage in producing: A.oranges only. B.peaches only. C.both oranges and peaches. D.neither oranges nor peaches.

(Table: Fish and Coconut Production Possibilities) Look at the table Fish and Coconut Production Possibilities.The table 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.

(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.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.

Economic models are: A.created 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.

Figure: Strawberries and Submarines II (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.

"The unemployment rate should be higher" is a normative statement.

The models that economists construct:

A high-school graduate who gets a college degree is adding to the economy's stock of: A.labor.capital. B.human capital. C.financial capital.

(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.

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.

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.

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: A.has shifted right, but his opportunity costs of making milkshakes are unchanged. B.has shifted right, but his opportunity costs of making milkshakes have decreased. C.has not changed, but his opportunity costs of making milkshakes have increased. D.has not changed, but his opportunity costs of making milkshakes have decreased.

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 those activities in which countries have a comparative advantage. D.it prevents unemployment.

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.underuse of C.resources. D.the law of increasing opportunity cost.

Figure: Wine and Wheat (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.

(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 5 of Z and 50 of X, then this combination is: A.feasible but inefficient. B.feasible and efficient. C.not feasible but efficient. D.neither feasible nor efficient.