Question 1

The core principle that is illustrated by the production possibilities curve is:

Accepted Answer

A) the Scarcity Principle. 
B) the Cost-Benefit Principle. 
C) the Incentive Principle. 
D) The Principle of Comparative Advantage. 
A) the Scarcity Principle. 
B) the Cost-Benefit Principle. 
C) the Incentive Principle. 
D) The Principle of Comparative Advantage.

Question 2

You are the Minister of Trade for a small island country in the South Pacific with the following annual production possibilities curve:  
You are negotiating a deal with a neighboring island that has the following annual PPC:  
Refer to the figure above.When the other island's delegate offers to give you 1,000 fish in exchange for 500 coconuts,you:

Accepted Answer

A) accept because you will then have a total of 2,500 fish. 
B) refuse because the trade would leave you at a level of consumption that is less than what you could produce on your own. 
C) accept because the trade will leave you at a level of consumption that is more than what you could produce on your own. 
D) counter,offering to give them 400 coconuts in exchange for 1,000 fish. 
A) accept because you will then have a total of 2,500 fish. 
B) refuse because the trade would leave you at a level of consumption that is less than what you could produce on your own. 
C) accept because the trade will leave you at a level of consumption that is more than what you could produce on your own. 
D) counter,offering to give them 400 coconuts in exchange for 1,000 fish.

Question 3

Smith and Jones comprise a two-person economy.Their hourly rates of production are shown below. $\begin{array}{ccc}
\underline{\text { Good }}&\underline{\text { Smith }} & \underline{\text { Jones }} \
\text { Computers } & 10 & 6 \
\text { Calculators } & 100 & 120
\end{array}$
Refer to the table above.Suppose Smith and Jones begin by producing 0 computers and 220 calculators per hour.If they wish to produce 2 computers and 200 calculators per hour,then Smith will spend __________ and Jones will spend __________.

Accepted Answer

A) 30 minutes on each;30 minutes on each 
B) 48 minutes on computers and 12 minutes on calculators;1 hour on calculators 
C) 1 hour on calculators;10 minutes on computers and 50 minutes on calculators 
D) 12 minutes on computers and 48 minutes on calculators;1 hour on calculators 
A) 30 minutes on each;30 minutes on each 
B) 48 minutes on computers and 12 minutes on calculators;1 hour on calculators 
C) 1 hour on calculators;10 minutes on computers and 50 minutes on calculators 
D) 12 minutes on computers and 48 minutes on calculators;1 hour on calculators

Question 4

To say that an individual possesses an absolute advantage in the production of software means that individual:

Accepted Answer

A) has a lower opportunity cost of producing software. 
B) can produce more and/or higher quality software in a given amount of time. 
C) was the first to create the software. 
D) charges the lowest price for software. 
A) has a lower opportunity cost of producing software. 
B) can produce more and/or higher quality software in a given amount of time. 
C) was the first to create the software. 
D) charges the lowest price for software.

Question 5

Earth Movers & Shakers operates 3 iron ore mines.This table shows their daily production rates and the current number of miners at each mine.All of the miners work for the same wage and each miner in any given mine produces the same number of tons as each other miner in that mine. $$\begin{array} { | l | l | l | } 
\hline \text { Mine } & \text { Tons } & \begin{array} { l } 
\text { Number of } \
\text { Miners }
\end{array} \
\hline \text { Mother Lode } & 100 & 25 \
\hline \text { Scraping Bottom } & 30 & 10 \
\hline \text { Middle Drift } & 75 & 15 \
\hline
\end{array}$$
Refer to the table above.The daily opportunity cost of moving one miner from Mother Lode to Scraping Bottom is:

Accepted Answer

A) 2 tons. 
B) 3 tons. 
C) 4 tons. 
D) 1 ton. 
A) 2 tons. 
B) 3 tons. 
C) 4 tons. 
D) 1 ton.

Question 6

The benefits of specialization can be used to explain why:

Accepted Answer

A) workers prefer to work on a variety of tasks during the day. 
B) machines are more productive than human workers. 
C) trade can make both parties to the trade better off. 
D) big companies take advantage of smaller ones. 
A) workers prefer to work on a variety of tasks during the day. 
B) machines are more productive than human workers. 
C) trade can make both parties to the trade better off. 
D) big companies take advantage of smaller ones.

Question 7

If your linear,two-good production possibilities graph has a slope steeper than -1:

Accepted Answer

A) you would have to give up more than one unit of the good measured on the horizontal axis to gain an additional unit of the good measured on the vertical axis. 
B) you would have to give up less than one unit of the good measured on the horizontal axis to gain an additional unit of the good measured on the vertical axis. 
C) by specializing in the good measured on the horizontal axis you would be able to make more total units than you would if you specialized in the good measured on the vertical axis. 
D) you have a comparative advantage in the good measured on the vertical axis. 
A) you would have to give up more than one unit of the good measured on the horizontal axis to gain an additional unit of the good measured on the vertical axis. 
B) you would have to give up less than one unit of the good measured on the horizontal axis to gain an additional unit of the good measured on the vertical axis. 
C) by specializing in the good measured on the horizontal axis you would be able to make more total units than you would if you specialized in the good measured on the vertical axis. 
D) you have a comparative advantage in the good measured on the vertical axis.

Question 8

You are the Minister of Trade for a small island country in the South Pacific with the following annual production possibilities curve:  
You are negotiating a deal with a neighboring island that has the following annual PPC:  
Refer to the figure above.Both islands specialize exclusively in the product for which they have a comparative advantage.You have agreed to sell the other island 350 coconuts in exchange for 1,300 fish.After the trade your island has a total of _____ coconuts and _____ fish.

Accepted Answer

A) 150;2,800 
B) 500;1,300 
C) 150;1,300 
D) 500;1,500 
A) 150;2,800 
B) 500;1,300 
C) 150;1,300 
D) 500;1,500

Question 9

Moe divides his time between studying Physics and studying Economics.He has discovered that he can earn grades as shown on this production possibilities curve.  
Refer to the figure above.Moe's PPC is bowed out because:

Accepted Answer

A) he is better at physics than at economics. 
B) his studying is subject to the principle of increasing opportunity costs. 
C) he is better at economics than at physics. 
D) he has failed to take advantage of his comparative advantage. 
A) he is better at physics than at economics. 
B) his studying is subject to the principle of increasing opportunity costs. 
C) he is better at economics than at physics. 
D) he has failed to take advantage of his comparative advantage.

Question 10

According to the textbook,the largest factor explaining the variance in the performance of the economies of the world is the:

Accepted Answer

A) degree of specialization. 
B) technological sophistication. 
C) location of the country. 
D) type of government. 
A) degree of specialization. 
B) technological sophistication. 
C) location of the country. 
D) type of government.

Question 11

Moe divides his time between studying Physics and studying Economics.He has discovered that he can earn grades as shown on this production possibilities curve.  
Refer to the figure above.According to Moe's PPF,moving from a grade of 80 in economics to a grade of 90 in economics:

Accepted Answer

A) is inefficient. 
B) comes at a lower opportunity cost than moving from a 90 to a 100 in economics. 
C) is not feasible. 
D) comes at a higher opportunity cost than moving from a 90 to a 100 in economics. 
A) is inefficient. 
B) comes at a lower opportunity cost than moving from a 90 to a 100 in economics. 
C) is not feasible. 
D) comes at a higher opportunity cost than moving from a 90 to a 100 in economics.

Question 12

Points that lie below the production possibilities curve are inefficient because:

Accepted Answer

A) more of one or both goods could be produced using currently available resources without giving up production of another good. 
B) producers are not specializing. 
C) producers face scarcity. 
D) too many goods are being produced. 
A) more of one or both goods could be produced using currently available resources without giving up production of another good. 
B) producers are not specializing. 
C) producers face scarcity. 
D) too many goods are being produced.

Question 13

Which of the following factors would not contribute to increasing an existing comparative advantage?

Accepted Answer

A) Productivity improvements from greater experience. 
B) Less time lost by switching tasks. 
C) Import restrictions. 
D) Efficiency improvements due to learning. 
A) Productivity improvements from greater experience. 
B) Less time lost by switching tasks. 
C) Import restrictions. 
D) Efficiency improvements due to learning.

Question 14

If Scout has an absolute advantage over Dill:

Accepted Answer

A) Scout has more money than Dill. 
B) the problem of scarcity applies to Dill,but not to Scout. 
C) the problem of scarcity applies to Scout,but not to Dill. 
D) Scout can accomplish more in a given period of time than can Dill. 
A) Scout has more money than Dill. 
B) the problem of scarcity applies to Dill,but not to Scout. 
C) the problem of scarcity applies to Scout,but not to Dill. 
D) Scout can accomplish more in a given period of time than can Dill.

Question 15

You have noticed that your next-door neighbor,Mary,always works in the garden and her husband,Joe,always walks the dog.Based on this observation,you conclude that:

Accepted Answer

A) Mary has an absolute advantage in gardening. 
B) Joe has a comparative advantage in walking the dog. 
C) Mary does not understand the principle of low-hanging fruit. 
D) Joe experiences increasing opportunity costs when he gardens,but not when he walks the dog. 
A) Mary has an absolute advantage in gardening. 
B) Joe has a comparative advantage in walking the dog. 
C) Mary does not understand the principle of low-hanging fruit. 
D) Joe experiences increasing opportunity costs when he gardens,but not when he walks the dog.

Question 16

Application of the Principle of Comparative Advantage leads to:

Accepted Answer

A) greater specialization of labor and other factors of production. 
B) less specialization of labor and other factors of production. 
C) societies without any specialization of labor. 
D) lower total output. 
A) greater specialization of labor and other factors of production. 
B) less specialization of labor and other factors of production. 
C) societies without any specialization of labor. 
D) lower total output.

Question 17

If a nation can produce a good more quickly than any other nation,that nation has a(n):

Accepted Answer

A) comparative advantage. 
B) absolute advantage. 
C) relative advantage. 
D) specialization advantage. 
A) comparative advantage. 
B) absolute advantage. 
C) relative advantage. 
D) specialization advantage.

Question 18

Smith and Jones comprise a two-person economy.Their hourly rates of production are shown below. $\begin{array}{ccc}
\underline{\text { Good }}&\underline{\text { Smith }} & \underline{\text { Jones }} \
\text { Computers } & 10 & 6 \
\text { Calculators } & 100 & 120
\end{array}$
Refer to the table above.If Smith and Jones are dividing their time efficiently and producing more than 10 computers and fewer than 120 calculators per hour,Smith will __________ and Jones will __________.

Accepted Answer

A) produce only computers;produce only calculators 
B) produce only computers;split his time between computers and calculators 
C) split his time between computers and calculators;produce only computers 
D) produce only calculators;produce only computers 
A) produce only computers;produce only calculators 
B) produce only computers;split his time between computers and calculators 
C) split his time between computers and calculators;produce only computers 
D) produce only calculators;produce only computers

Question 19

The main reason that firms outsource is that:

Accepted Answer

A) low-wage workers in other countries are more productive than are U.S.workers. 
B) hiring low-wage workers reduces firms' costs. 
C) hiring low-wage workers provides a tax deduction to firms. 
D) U.S.workers cannot perform the tasks performed by workers in other countries. 
A) low-wage workers in other countries are more productive than are U.S.workers. 
B) hiring low-wage workers reduces firms' costs. 
C) hiring low-wage workers provides a tax deduction to firms. 
D) U.S.workers cannot perform the tasks performed by workers in other countries.

Question 20

It was expected that consumers in _____ would benefit from reduced prices of goods that will be freely traded under the NAFTA.

Accepted Answer

A) Canada 
B) the United States 
C) China 
D) Mexico 
A) Canada 
B) the United States 
C) China 
D) Mexico

Exam 2: Comparative Advantage

The core principle that is illustrated by the production possibilities curve is:

To say that an individual possesses an absolute advantage in the production of software means that individual:

The benefits of specialization can be used to explain why:

If your linear,two-good production possibilities graph has a slope steeper than -1:

Moe divides his time between studying Physics and studying Economics.He has discovered that he can earn grades as shown on this production possibilities curve. Refer to the figure above.Moe's PPC is bowed out because:

According to the textbook,the largest factor explaining the variance in the performance of the economies of the world is the:

Moe divides his time between studying Physics and studying Economics.He has discovered that he can earn grades as shown on this production possibilities curve. Refer to the figure above.According to Moe's PPF,moving from a grade of 80 in economics to a grade of 90 in economics:

Points that lie below the production possibilities curve are inefficient because:

Which of the following factors would not contribute to increasing an existing comparative advantage?

If Scout has an absolute advantage over Dill:

You have noticed that your next-door neighbor,Mary,always works in the garden and her husband,Joe,always walks the dog.Based on this observation,you conclude that:

Application of the Principle of Comparative Advantage leads to:

If a nation can produce a good more quickly than any other nation,that nation has a(n):

The main reason that firms outsource is that:

It was expected that consumers in _____ would benefit from reduced prices of goods that will be freely traded under the NAFTA.

Thinking Like an Economist

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

Externalities and Property Rights

The Economics of Information

Labor Markets, Poverty, and Income Distribution

The Environment, Health, and Safety

Public Goods and Tax Policy

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Monetary Policy and the Federal Reserve

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

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