Question 1

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie

Accepted Answer

A) is a fixed total waiting to be divided up among people. 
B) determines how much wealth an individual can obtain. 
C) is variable, not fixed, across time periods. 
D) depends solely upon the natural resources of a country. 
A) is a fixed total waiting to be divided up among people. 
B) determines how much wealth an individual can obtain. 
C) is variable, not fixed, across time periods. 
D) depends solely upon the natural resources of a country. C

Question 2

An airline ticket from Baltimore to Miami costs $525. A bus ticket is $325. Traveling by plane will take 5 hours, compared with 25 hours by bus. Thus, the plane costs $200 more but saves 20 hours of time (Hint: Note how we are "thinking at the margin" here by looking at the changes). Other things constant, an individual will gain by choosing air travel if, and only if, each hour of her time is valued at more than

Accepted Answer

A) $10 per hour. 
B) $13 per hour. 
C) $20 per hour. 
D) $105 per hour. 
A) $10 per hour. 
B) $13 per hour. 
C) $20 per hour. 
D) $105 per hour. A

Question 3

It can be said that, ultimately, consumers are the driving force in answering the three basic economic questions. Explain the consumer's role in providing these answers.

Accepted Answer

What will be produced is determined by businesses, but they know that the only way to succeed is to offer products consumers find desirable. What they produce is determined by what consumers want. How the goods will be produced is determined by firms that continually seek lower costs of production. Since consumers are price conscious, they will buy the product that carries the lowest price, ceteris paribus. Firms that lower production costs can lower prices and attract more consumers. The goods are consumed by people who desire them and have the ability to pay. Since income is derived from production, those who produce more of what consumers value will have higher incomes. The consumer is at the heart of all three basic economic questions.

Question 4

A popular video program used to teach economics to primary school children defines opportunity cost as "what you give up to get something." In light of your understanding of opportunity cost, how would you modify this definition?

Accepted Answer

The video program always gives the child

Question 5

(I) When individuals engage in a voluntary exchange, both parties are made better off. (II) By channeling goods and resources to those who value them most, trade creates value and increases the wealth created by a society's resources.

Accepted Answer

A) I is true; II is false. 
B) I is false; II is true. 
C) Both I and II are true. 
D) Both I and II are false. 
A) I is true; II is false. 
B) I is false; II is true. 
C) Both I and II are true. 
D) Both I and II are false.

Question 6

In a market economy,

Accepted Answer

A) a larger income for one person means a smaller one for another. 
B) the government answers all the basic economic questions. 
C) a larger income for one person means it is possible for others to earn more too. 
D) economic output shrinks as we discover better ways of doing things. 
A) a larger income for one person means a smaller one for another. 
B) the government answers all the basic economic questions. 
C) a larger income for one person means it is possible for others to earn more too. 
D) economic output shrinks as we discover better ways of doing things.

Question 7

A department store buys a wool coat for $120 and sets its retail price at $300. The coat costs $85 to produce. When the coat doesn't sell, the store marks the price down to $200, then $100, and finally $70. At $70, Amy buys the coat. What was the coat's true value? Why?

Accepted Answer

Since the coat sold for $70, we would ha

Question 8

Middlemen, such as grocers, stockbrokers, and realtors

Accepted Answer

A) specialize in reducing transactions costs. 
B) provide nothing of value to either the buyer or the seller. 
C) have no effect on economic output in society. 
D) do not exist in capitalist economies. 
A) specialize in reducing transactions costs. 
B) provide nothing of value to either the buyer or the seller. 
C) have no effect on economic output in society. 
D) do not exist in capitalist economies.

Question 9

An economics professor points to a student in the front row and announces that "sitting in class is the thing you value most during this time period." Is the professor correct? Why or why not?

Accepted Answer

If the student is rational (and this is

Question 10

Kelly is an architect and she is trying to decide whether to hire Mike, a draftsman, to assist with her work. Kelly could hire Mike at $20 per hour but it would take him three times as long to complete a task as it takes Kelly. Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true?

Accepted Answer

A) Kelly should not hire Mike because it would be faster for her to do the work herself. 
B) Kelly should do the drafting work herself because she has the lower opportunity cost. 
C) Mike should be hired at the $20 per hour wage rate. 
D) Mike should be hired, but only if he is paid more than $30 per hour. 
A) Kelly should not hire Mike because it would be faster for her to do the work herself. 
B) Kelly should do the drafting work herself because she has the lower opportunity cost. 
C) Mike should be hired at the $20 per hour wage rate. 
D) Mike should be hired, but only if he is paid more than $30 per hour.

Question 11

Which of the following attributes of trade explain why it is important for economic prosperity?

Accepted Answer

A) Trade moves goods from people who value them less to people who value them more. 
B) Trade makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. 
C) Trade makes it possible to produce a larger output as a result of gains from division of labor and specialization. 
D) All of the above. 
A) Trade moves goods from people who value them less to people who value them more. 
B) Trade makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. 
C) Trade makes it possible to produce a larger output as a result of gains from division of labor and specialization. 
D) All of the above.

Question 12

Table 2-4
  
-Refer to Table 2-4. Which of the following is correct?

Accepted Answer

A) In Lebos, the opportunity cost of producing one unit of food is equal to one unit of clothing. 
B) In Slavia, the opportunity cost of producing one unit of food is equal to two units of clothing. 
C) The opportunity cost of producing food in Lebos is less than the opportunity cost of producing food in Slavia. 
D) All of the above are correct. 
A) In Lebos, the opportunity cost of producing one unit of food is equal to one unit of clothing. 
B) In Slavia, the opportunity cost of producing one unit of food is equal to two units of clothing. 
C) The opportunity cost of producing food in Lebos is less than the opportunity cost of producing food in Slavia. 
D) All of the above are correct.

Question 13

Figure 2-11
  
-In Figure 2-11, which shows the production possibilities curve,

Accepted Answer

A) A is efficient. 
B) B is inefficient. 
C) C is unattainable. 
D) all of the above are true. 
A) A is efficient. 
B) B is inefficient. 
C) C is unattainable. 
D) all of the above are true.

Question 14

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,

Accepted Answer

A) the stranded motorist must not understand that four quarters are worth $1. 
B) economic theory is unable to explain this transaction. 
C) both parties have gained from this exchange. 
D) the passerby was made better off and the motorist worse off. 
A) the stranded motorist must not understand that four quarters are worth $1. 
B) economic theory is unable to explain this transaction. 
C) both parties have gained from this exchange. 
D) the passerby was made better off and the motorist worse off.

Question 15

Jim values his car at $2,000, and Kelly values it at $5,000. Can value be created in this situation? How? Suppose Jim refuses to sell for less than $6,000. Is value destroyed? Why or why not?

Accepted Answer

Value can be created in this situation.

Question 16

Mark and John are 10-year-old twins who do not get along. They have opened separate lemonade stands and are competing with each other, selling lemonade on their block. Their mother observes that Mark is very good at making lemonade and John is an excellent young salesman. She suggests they both could make more money if they worked together. John counters that two stands will always make more money than one. Who is right? Why?

Accepted Answer

The mother makes the point that gains fr

Question 17

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 18

"The economic wealth of this country was built primarily by some individuals profiting from a transaction, whereas others were harmed by that transaction." This statement indicates the speaker

Accepted Answer

A) fails to comprehend the idea that all voluntary trades benefit both parties involved. 
B) fails to comprehend the fallacy of composition. 
C) fails to understand the significance of the production possibilities curve. 
D) uses the economic way of thinking. The statement is essentially correct. 
A) fails to comprehend the idea that all voluntary trades benefit both parties involved. 
B) fails to comprehend the fallacy of composition. 
C) fails to understand the significance of the production possibilities curve. 
D) uses the economic way of thinking. The statement is essentially correct.

Question 19

The production possibilities curve illustrates the basic principle that

Accepted Answer

A) an economy's capacity to produce increases in proportion to its population. 
B) if the resources of an economy are being used efficiently, more of one good can be produced only if less of another is produced. 
C) an economy will automatically seek the output at which all of its resources are fully employed. 
D) the distribution of income among households is the major determinant of the economic welfare of a nation. 
A) an economy's capacity to produce increases in proportion to its population. 
B) if the resources of an economy are being used efficiently, more of one good can be produced only if less of another is produced. 
C) an economy will automatically seek the output at which all of its resources are fully employed. 
D) the distribution of income among households is the major determinant of the economic welfare of a nation.

Question 20

Table 2-4
  
-Refer to Table 2-4. Which of the following is correct?

Accepted Answer

A) Lebos has the comparative advantage in both goods. 
B) Slavia has the comparative advantage in food. 
C) Lebos has the comparative advantage in food. 
D) Lebos has the comparative advantage in clothing. 
A) Lebos has the comparative advantage in both goods. 
B) Slavia has the comparative advantage in food. 
C) Lebos has the comparative advantage in food. 
D) Lebos has the comparative advantage in clothing.

Exam 2: B: Some Tools of the Economist

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie

It can be said that, ultimately, consumers are the driving force in answering the three basic economic questions. Explain the consumer's role in providing these answers.

A popular video program used to teach economics to primary school children defines opportunity cost as "what you give up to get something." In light of your understanding of opportunity cost, how would you modify this definition?

(I) When individuals engage in a voluntary exchange, both parties are made better off. (II) By channeling goods and resources to those who value them most, trade creates value and increases the wealth created by a society's resources.

In a market economy,

A department store buys a wool coat for $120 and sets its retail price at $300. The coat costs $85 to produce. When the coat doesn't sell, the store marks the price down to $200, then $100, and finally $70. At $70, Amy buys the coat. What was the coat's true value? Why?

Middlemen, such as grocers, stockbrokers, and realtors

An economics professor points to a student in the front row and announces that "sitting in class is the thing you value most during this time period." Is the professor correct? Why or why not?

Which of the following attributes of trade explain why it is important for economic prosperity?

Table 2-4 -Refer to Table 2-4. Which of the following is correct?

Figure 2-11 -In Figure 2-11, which shows the production possibilities curve,

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,

Jim values his car at $2,000, and Kelly values it at $5,000. Can value be created in this situation? How? Suppose Jim refuses to sell for less than $6,000. Is value destroyed? Why or why not?

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

"The economic wealth of this country was built primarily by some individuals profiting from a transaction, whereas others were harmed by that transaction." This statement indicates the speaker

The production possibilities curve illustrates the basic principle that

Table 2-4 -Refer to Table 2-4. Which of the following is correct?

The Economic Approach

A: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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