Question 1

The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight line is that

Accepted Answer

A)  it makes it easier to illustrate the concepts of scarcity and prices with a bow-shaped curve than it is with a straight line 
B)  early economists began drawing them in this way and the convention has continued throughout the years 
C)  output eventually reaches a maximum and then declines 
D)  resources are not perfectly adaptable to the production of all goods 
A)  it makes it easier to illustrate the concepts of scarcity and prices with a bow-shaped curve than it is with a straight line 
B)  early economists began drawing them in this way and the convention has continued throughout the years 
C)  output eventually reaches a maximum and then declines 
D)  resources are not perfectly adaptable to the production of all goods D

Question 2

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

Accepted Answer

A)  passage of legislation reducing the workweek to 30 hours 
B)  instituting a tax policy encouraging consumption at the expense of investment 
C)  instituting a tax policy encouraging investment at the expense of consumption 
D)  an increase in the marginal income tax rate, which would reduce the work effort of individuals 
A)  passage of legislation reducing the workweek to 30 hours 
B)  instituting a tax policy encouraging consumption at the expense of investment 
C)  instituting a tax policy encouraging investment at the expense of consumption 
D)  an increase in the marginal income tax rate, which would reduce the work effort of individuals C

Question 3

Figure 2-4   Which of the following is true of Figure 2-4?

Accepted Answer

A)  If the economy operates at point A, it is impossible to produce more of both food and clothing. 
B)  If the economy operates at point B, it is impossible to increase the output of clothing without giving up food production. 
C)  If the economy operates at point A, resources are being used efficiently. 
D)  If the economy operates at point B, resources are being used inefficiently. 
A)  If the economy operates at point A, it is impossible to produce more of both food and clothing. 
B)  If the economy operates at point B, it is impossible to increase the output of clothing without giving up food production. 
C)  If the economy operates at point A, resources are being used efficiently. 
D)  If the economy operates at point B, resources are being used inefficiently. B

Question 4

Which of the following is true?

Accepted Answer

A)  The production possibilities curve indicates that it will be impossible to expand total output with the passage of time. 
B)  As long as resources are scarce, output cannot be increased. 
C)  The size of the economic pie is fixed, and therefore, if one individual has more income, others must have less. 
D)  Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things. 
A)  The production possibilities curve indicates that it will be impossible to expand total output with the passage of time. 
B)  As long as resources are scarce, output cannot be increased. 
C)  The size of the economic pie is fixed, and therefore, if one individual has more income, others must have less. 
D)  Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things.

Question 5

When private ownership rights are well-defined and enforced, owners

Accepted Answer

A)  can ignore the wishes of others, without bearing the cost. 
B)  have little incentive to take care of things. 
C)  can do anything they want with their property. 
D)  can be held accountable for damage to others through misuse of their property. 
A)  can ignore the wishes of others, without bearing the cost. 
B)  have little incentive to take care of things. 
C)  can do anything they want with their property. 
D)  can be held accountable for damage to others through misuse of their property.

Question 6

According to the law of comparative advantage,

Accepted Answer

A)  individuals and nations gain when they specialize in producing those goods they consume. 
B)  individuals and nations gain when they specialize in producing goods they can produce at a high opportunity cost and can exchange for other desired goods they can produce cheaply. 
C)  individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply. 
D)  all of the above are true. 
A)  individuals and nations gain when they specialize in producing those goods they consume. 
B)  individuals and nations gain when they specialize in producing goods they can produce at a high opportunity cost and can exchange for other desired goods they can produce cheaply. 
C)  individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply. 
D)  all of the above are true.

Question 7

Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will

Accepted Answer

A)  make it more costly for parents to provide for their children. 
B)  reduce the value of children to their parents and, therefore, lead to a reduction in the birth rate. 
C)  reduce the after-tax cost of raising children and, therefore, increase the birth rate. 
D)  exert no impact on either the cost of raising children or the birth rate since having children is a not an economic activity. 
A)  make it more costly for parents to provide for their children. 
B)  reduce the value of children to their parents and, therefore, lead to a reduction in the birth rate. 
C)  reduce the after-tax cost of raising children and, therefore, increase the birth rate. 
D)  exert no impact on either the cost of raising children or the birth rate since having children is a not an economic activity.

Question 8

The process by which new products and methods of production are continuously replacing old ones is known as

Accepted Answer

A)  the invisible hand principle. 
B)  the production possibilities frontier. 
C)  creative destruction. 
D)  the fallacy of composition. 
A)  the invisible hand principle. 
B)  the production possibilities frontier. 
C)  creative destruction. 
D)  the fallacy of composition.

Question 9

The most important source of gain from the division of labor is

Accepted Answer

A)  the repeal of the law of comparative advantage. 
B)  the reduction in work effort because incentives are adversely affected. 
C)  the increase in the number of jobs since more labor is used to produce goods. 
D)  the benefits that result from specialization, adoption of mass production techniques, and exchange. 
A)  the repeal of the law of comparative advantage. 
B)  the reduction in work effort because incentives are adversely affected. 
C)  the increase in the number of jobs since more labor is used to produce goods. 
D)  the benefits that result from specialization, adoption of mass production techniques, and exchange.

Question 10

When private ownership of a resource is clearly defined and enforced, the private owner

Accepted Answer

A)  has little incentive to consider the wishes of others when deciding how to employ the resource. 
B)  has little incentive to use the resource wisely. 
C)  has a strong incentive to consume the resource during the period rather than conserving it for the future. 
D)  has a strong incentive to use the resource wisely. 
A)  has little incentive to consider the wishes of others when deciding how to employ the resource. 
B)  has little incentive to use the resource wisely. 
C)  has a strong incentive to consume the resource during the period rather than conserving it for the future. 
D)  has a strong incentive to use the resource wisely.

Question 11

Economic analysis suggests that gains from specialization and exchange

Accepted Answer

A)  will not be realized unless a central planning authority requires that all goods be produced by the low opportunity cost supplier. 
B)  will be realized if individuals are allowed to pursue goals that are in their own self-interest. 
C)  will not be realized unless business firms employ economists when making decisions about the proper combination of resources to utilize in the production process. 
D)  will be realized if individuals place the public interest above the pursuit of their own self-interest. 
A)  will not be realized unless a central planning authority requires that all goods be produced by the low opportunity cost supplier. 
B)  will be realized if individuals are allowed to pursue goals that are in their own self-interest. 
C)  will not be realized unless business firms employ economists when making decisions about the proper combination of resources to utilize in the production process. 
D)  will be realized if individuals place the public interest above the pursuit of their own self-interest.

Question 12

The creation of a new product or process, often facilitated by the knowledge of engineering and scientific relationships, is known as

Accepted Answer

A)  invention. 
B)  innovation. 
C)  application. 
D)  sublimation. 
A)  invention. 
B)  innovation. 
C)  application. 
D)  sublimation.

Question 13

Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the truck at $6,000. If these two are allowed to negotiate, which of the following will most likely occur?

Accepted Answer

A)  Todd will sell the truck for $1,500. 
B)  Susan will buy the truck for $7,000. 
C)  The truck will be sold at a price greater than $2,000 but less than $6,000, and both parties will benefit. 
D)  Susan will benefit more than Todd if the truck is sold. 
A)  Todd will sell the truck for $1,500. 
B)  Susan will buy the truck for $7,000. 
C)  The truck will be sold at a price greater than $2,000 but less than $6,000, and both parties will benefit. 
D)  Susan will benefit more than Todd if the truck is sold.

Question 14

Middlemen are individuals who

Accepted Answer

A)  add to the buyer's expense without performing a useful function. 
B)  add to the seller's cost without performing a useful function. 
C)  provide services that reduce the cost of transactions and help achieve additional gains from trade. 
D)  act as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services. 
A)  add to the buyer's expense without performing a useful function. 
B)  add to the seller's cost without performing a useful function. 
C)  provide services that reduce the cost of transactions and help achieve additional gains from trade. 
D)  act as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services.

Question 15

Jayden can produce 10 pens or 20 pencils in one hour while Alexander can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct?

Accepted Answer

A)  Alexander has a comparative advantage over Jayden in the production of pencils 
B)  Alexander has a comparative advantage over Jayden in the production of pens 
C)  Jayden has a comparative advantage over Alexander in the production of pens 
D)  Alexander and Jayden cannot gain from specialization and exchange. 
A)  Alexander has a comparative advantage over Jayden in the production of pencils 
B)  Alexander has a comparative advantage over Jayden in the production of pens 
C)  Jayden has a comparative advantage over Alexander in the production of pens 
D)  Alexander and Jayden cannot gain from specialization and exchange.

Question 16

Melanie has a choice of driving or flying from Durham, North Carolina to Knoxville, Tennessee for a one-day business trip. If she travels by air, she will be able to work seven hours in Knoxville, while if she drives, she will only have time to work four hours once there. Her expected income from each hour of work in Knoxville is $40. If Melanie a rational decision maker, she will chose to fly if and only if the price differential (air cost minus driving cost) is less than

Accepted Answer

A)  $40. 
B)  $120. 
C)  $160. 
D)  $280. 
A)  $40. 
B)  $120. 
C)  $160. 
D)  $280.

Question 17

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

Accepted Answer

A)  the role of markets will be replaced by political decision making. 
B)  centralized decision making in all areas is inevitable. 
C)  the preferences of individuals are of no importance. 
D)  economic efficiency will be assured. 
A)  the role of markets will be replaced by political decision making. 
B)  centralized decision making in all areas is inevitable. 
C)  the preferences of individuals are of no importance. 
D)  economic efficiency will be assured.

Question 18

If an economy operates at a point within its production possibilities curve,

Accepted Answer

A)  it lacks the resources necessary to reach the curve. 
B)  it is utilizing all of its resources efficiently. 
C)  it does not confront the problem of scarce goods relative to unlimited wants. 
D)  it is not efficiently using all of its resources. 
A)  it lacks the resources necessary to reach the curve. 
B)  it is utilizing all of its resources efficiently. 
C)  it does not confront the problem of scarce goods relative to unlimited wants. 
D)  it is not efficiently using all of its resources.

Question 19

Because of a late night out with friends, Ayana decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was

Accepted Answer

A)  irrational, because economic analysis suggests you should always attend classes that you have already paid for. 
B)  irrational, because oversleeping is not in Ayana's self-interest. 
C)  rational only if Ayana has not missed any other classes. 
D)  rational if Ayana values sleep more highly than the benefit she expects to receive from attending the class. 
A)  irrational, because economic analysis suggests you should always attend classes that you have already paid for. 
B)  irrational, because oversleeping is not in Ayana's self-interest. 
C)  rational only if Ayana has not missed any other classes. 
D)  rational if Ayana values sleep more highly than the benefit she expects to receive from attending the class.

Question 20

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

Accepted Answer

A)  The production possibilities curves for these countries would have shifted outward. 
B)  The production possibilities curves for these countries would have shifted inward. 
C)  The production possibilities curves for these countries would have been unaffected. 
D)  This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them. 
A)  The production possibilities curves for these countries would have shifted outward. 
B)  The production possibilities curves for these countries would have shifted inward. 
C)  The production possibilities curves for these countries would have been unaffected. 
D)  This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them.

The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight line is that

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

Figure 2-4 Which of the following is true of Figure 2-4?

Which of the following is true?

When private ownership rights are well-defined and enforced, owners

According to the law of comparative advantage,

Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will

The process by which new products and methods of production are continuously replacing old ones is known as

The most important source of gain from the division of labor is

When private ownership of a resource is clearly defined and enforced, the private owner

Economic analysis suggests that gains from specialization and exchange

The creation of a new product or process, often facilitated by the knowledge of engineering and scientific relationships, is known as

Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the truck at $6,000. If these two are allowed to negotiate, which of the following will most likely occur?

Middlemen are individuals who

Jayden can produce 10 pens or 20 pencils in one hour while Alexander can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct?

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

If an economy operates at a point within its production possibilities curve,

Because of a late night out with friends, Ayana decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

The Economic Approach

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 2: Some Tools of the Economist

The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight line is that

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

Figure 2-4 Which of the following is true of Figure 2-4?

Which of the following is true?

When private ownership rights are well-defined and enforced, owners

According to the law of comparative advantage,

Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will

The process by which new products and methods of production are continuously replacing old ones is known as

The most important source of gain from the division of labor is

When private ownership of a resource is clearly defined and enforced, the private owner

Economic analysis suggests that gains from specialization and exchange

The creation of a new product or process, often facilitated by the knowledge of engineering and scientific relationships, is known as

Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the truck at $6,000. If these two are allowed to negotiate, which of the following will most likely occur?

Middlemen are individuals who

Jayden can produce 10 pens or 20 pencils in one hour while Alexander can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct?

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

If an economy operates at a point within its production possibilities curve,

Because of a late night out with friends, Ayana decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

The Economic Approach

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters