Deck 2: Model Building and Gains From Trade

Question 1

The scientific method and the tools of economics are useful in examining

A) only how individuals make decisions.
B) only how business firms make decisions.
C) only how government policies affect macroeconomic outcomes.
D) only the trade-offs evident in the production possibilities frontier PPF).
E) anything; economists will use their tools to study anything in the world around them.

Answer 1

anything; economists will use their tools to study anything in the world around them.

Question 2

Variables that are NOT accounted for in a model are called

A) endogenous factors.
B) exogenous factors.
C) normative statements.
D) positive statements.
E) the scientific method.

Answer 2

exogenous factors.

Question 3

The important act of holding all other variables constant while examining a particular variable is known as

A) endogeneity.
B) a normative statement.
C) a positive statement.
D) macroeconomics.
E) ceteris paribus.

Answer 3

ceteris paribus.

Question 4

Which of the following is a positive statement?

A) Winters in Arkansas are too cold.
B) Everyone should work in a bank to understand the true value of money.
C) Harvard University is the top education institution in the country.
D) On average, people save 15 percent when they switch to GEICO.
E) Everyone ought to have a life insurance policy.

Question 5

Nadine is considering the "dress well, test well" theory, which argues that one performs better on exams when one dresses nicer than one does when wearing sweatpants. If Nadine wants to test this theory over the course of the semester, which of the following would be an endogenous factor in her experiment?

A) her innate ability in the subject
B) the difficulty of the exam
C) the relative mix of multiple-choice and short-answer questions
D) her clothing choice for the exam
E) the amount of time Nadine spends studying for the exam

Question 6

Which of the following is necessary to build a good economic model?

A) normative statements
B) assumptions
C) opinions
D) complex math
E) realism

Question 7

Which of the following is a positive statement?

A) Nelly's dog should lose some weight.
B) Legally requiring dogs to have rabies shots will reduce the number of rabid dogs.
C) Nelly should take her dog to the veterinarian once a year for a checkup.
D) Chihuahuas are cuter than bulldogs.
E) All dogs should be required to wear leashes at all times.

Question 8

Which of the following is a normative statement?

A) One should wear a helmet when cycling.
B) The sky is blue.
C) A bicycle has two wheels.
D) A unicycle has five wheels.
E) Electricity follows the path of least resistance.

Question 9

Ceteris paribus means

A) in sets of two.
B) constant opportunity cost.
C) other things being equal.
D) buyer beware.
E) there is no reason to argue about people's tastes.

Question 10

Why do economists use models?

A) Models are used to add complexity to a simple world.
B) Models allow us to study a simplified version of a complex world.
C) Models allow us to control exogenous factors.
D) Models make the world harder to understand.
E) Models allow us to examine more factors than what actually exists in our world.

Question 11

Which of the following is a positive statement?

A) Individuals should make good long-term decisions.
B) Corporations should maximize shareholder value.
C) The government should reduce the level of unemployment.
D) The most important effects of policy happen in the short term.
E) The unemployment rate is 8 percent.

Question 12

The process of examining a change in one variable in a model while assuming that all the other variables remain constant is called

A) exogenous factors.
B) ceteris paribus.
C) normative analysis.
D) positive analysis.
E) faulty assumptions.

Question 13

Economists use the scientific method and the tools of economics to study

A) only the decisions of individuals.
B) only the decisions of business firms.
C) only economic growth and gross domestic product GDP).
D) only the production possibilities curve.
E) anything around them; the world is the economist's laboratory.

Question 14

Which of the following is a normative statement?

A) The current exchange rate is 0.7 British pounds per U.S. dollar.
B) In January, the average temperature in Fargo, North Dakota, is 56 degrees.
C) Winters in Arkansas are too cold.
D) On average, people save 15 percent when they switch to GEICO.
E) University of Virginia graduates earn more than Duke University graduates.

Question 15

On the television show MythBusters, the hosts design experiments, collect data, and test theories based on popular myths. This is an example of

A) the scientific method.
B) economic growth.
C) gains from trade.
D) production possibilities.
E) absolute advantage.

Question 16

Which of the following is a positive statement?

A) An economist should test every theory at least twice.
B) Increases in the minimum wage cause unemployment.
C) We ought to deregulate the mortgage market.
D) The government must provide unlimited health care to citizens.
E) We should forgo some current consumption in order to invest in the future.

Question 17

A positive statement

A) is a claim that can be tested.
B) is a statement about what ought to be.
C) is a declaration of opinion.
D) is a claim that cannot be tested.
E) cannot be evaluated using the scientific method.

Question 18

Variables that are controlled for in a model are called

A) normative statements.
B) positive statements.
C) endogenous factors.
D) exogenous factors.
E) the scientific method.

Question 19

Which of the following is a normative statement?

A) The sky is blue.
B) The sky is green with pink polka dots.
C) Points on the production possibilities frontier PPF) are efficient.
D) Points outside the production possibilities frontier PPF) are unattainable with current resources.
E) We should strive to push the production possibilities frontier PPF) outward.

Question 20

An economist's use of experiments and real-world data to test a theory is an example of

A) the scientific method in economics.
B) macroeconomics.
C) economic growth.
D) normative analysis.
E) comparative advantage.

Question 21

Think of the production possibilities frontier PPF) model. When society is producing the largest possible output from its resources, it is operating

A) inefficiently.
B) efficiently.
C) with no opportunity cost.
D) inside within) the PPF.
E) beyond its opportunity cost.

Question 22

A model without any simplifying assumptions

A) is highly complex and likely unworkable.
B) excludes important predictive variables.
C) is very helpful for solving tough, real-world problems.
D) does not look like the real-world problem it is meant to address.
E) provides simplified solutions to complex problems.

Question 23

The_______ illustrates the various combinations of output that a society can produce if all of its resources are being used efficiently.

A) concept of absolute advantage
B) law of positive statements
C) law of demand
D) production possibilities frontier PPF)
E) principle of comparative advantage

Question 24

At full employment, a society produces

A) somewhere within its production possibilities frontier PPF).
B) somewhere outside its PPF.
C) at the origin on its PPF graph.
D) on its PPF.
E) only one good.

Question 25

One reason that economists make assumptions when designing models is to

A) exclude variables that do not add predictive power to the model.
B) make models more like the real world.
C) make models more complex.
D) increase endogenous factors.
E) ensure that all possible factors are included.

Question 26

Refer to the following figure to answer the next questions.

Which point in the corresponding figure represents a combination of smoothies and milk shakes that society CANNOT currently produce?

A) point A
B) point B
C) point C
D) point D
E) point E

Question 27

Refer to the following figure to answer the next questions.

In the figure, point A is

A) an efficient point.
B) unattainable with current resources.
C) an inefficient point.
D) the equilibrium.
E) the point where society would prefer to consume.

Question 28

When testing a paper airplane on a campus quad, which of the following would be an exogenous factor?

A) the weight of the paper used in making the plane
B) the ratio of wingspan to plane length
C) the height of the body of the plane
D) the level of wind encountered
E) the number of folds in the wings

Question 29

Refer to the following figure to answer the next questions.

In the figure, point E is

A) an efficient point.
B) unattainable with current resources.
C) an inefficient point.
D) the equilibrium.
E) evidence that trade does not enrich society.

Question 30

Car companies build wind tunnels to test the aerodynamics and the handling capabilities of their car designs. The many variables that can be precisely controlled inside the wind tunnel are considered _______ factors.

A) normative
B) positive
C) comparative
D) endogenous
E) exogenous

Question 31

The production possibilities frontier PPF) shows

A) the trade-off between the efficient production of two different goods.
B) the difference between microanalysis and macroanalysis.
C) the difference between normative and positive analysis.
D) how a firm should price a new product.
E) how price and quantity are related for a single good.

Question 32

How will a reduction in the national unemployment rate affect a nation's production possibilities frontier PPF)?

A) It will cause the PPF to shift inward.
B) It will cause the PPF to shift outward.
C) It will move society to a point inward, to a point farther away from the PPF.
D) It will move society outward, to a point closer to or on the PPF.
E) It will push society to a point outside its PPF.

Question 33

A society that is producing its maximum combination of goods and using all available resources for production

A) has minimized its opportunity cost.
B) has maximized its opportunity cost.
C) is operating on its production possibilities frontier PPF).
D) is operating outside its PPF.
E) has eliminated scarcity.

Question 34

A graph that shows the maximum attainable combinations of two goods when society efficiently uses its productive resources is called

A) a production possibilities frontier PPF).
B) a supply curve.
C) opportunity cost.
D) a consumer demand curve.
E) absolute advantage.

Question 35

Which of the following is NOT an assumption that economists make when developing a production possibilities frontier PPF)?

A) We live in a world with only two goods.
B) There are no increases in technology.
C) There is no change in available resources.
D) Society will always be producing somewhere on the PPF.
E) There are no decreases in technology.

Question 36

Ceteris paribus, if a society is producing at a point on the production possibilities frontier PPF), it can only increase the production of one good by

A) also increasing the production of the second good.
B) decreasing the production of the second good.
C) increasing the price of the second good.
D) decreasing the price of the second good.
E) reducing the resources available for production.

Question 37

Refer to the following figure to answer the next questions.

Which point in the corresponding figure shows that productive resources are NOT fully employed?

A) point A
B) point B
C) point C
D) point D
E) point E

Question 38

When testing a model rocket on a campus quad, which of the following would be an endogenous factor?

A) the current wind speed across the quad
B) the quad's elevation and air pressure
C) the extent of precipitation
D) the gravitational pull of Earth
E) the size of the rocket engine

Question 39

The _______ area inside( within) the production possibilities frontier (PPF) contains points.

A) normative
B) positive
C) efficient
D) inefficient
E) high opportunity cost

Question 40

On a production possibilities frontier PPF) that shows the trade-off between consumer goods and capital goods given a fixed amount of labor, unemployment is illustrated by

A) movement from a point within the frontier to a point on the frontier.
B) a point outside the frontier.
C) a point within the frontier.
D) movement from a point on the frontier to another point on the frontier.
E) a point on the frontier.

Question 41

The_______ states that the opportunity cost of producing a good always rises as one produces more of it.

A) law of increasing relative cost
B) law of positive economics
C) law of demand
D) production possibilities frontier PPF) model
E) zero-sum game

Question 42

Consider the production possibilities frontier PPF) shown in the figure below to answer the next questions.

Given current resources and technology, the unattainable range is best described as

A) only area O: points outside the PPF.
B) points on the PPF only.
C) only area I: points inside the PPF.
D) area I: inside the PPF and points on the PPF.
E) area O: outside the PPF and points on the PPF.

Question 43

The movie Saving Private Ryan is about a military mission to find and recover a particular soldier-Private Ryan. The movie is predominantly about how much was given up in an effort to save this one particular soldier. The main economic theme of the movie is

A) absolute advantage.
B) opportunity cost.
C) normative analysis.
D) comparative advantage.
E) positive advantage.

Question 44

Refer to the accompanying figure to answer the next questions.

Unemployed resources are evident at

A) point A.
B) point B.
C) point C.
D) point D.
E) points B, C, and E.

Question 45

Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the next questions
What is Stefan's opportunity cost of a sculpture?

A) 1/2 painting
B) 1/3 painting
C) 3 paintings
D) 1/3 sculpture
E) 3/5 sculpture

Question 46

Suppose someone is studying a production possibilities frontier PPF) that has a bowed-out shape relative to the origin. What causes this shape?

A) economic growth
B) the law of increasing relative cost
C) absolute advantage
D) normative economics
E) more resources

Question 47

Suppose someone finds a production possibilities frontier PPF) that is shaped like a straight line. What can one determine about the production of the two goods?

A) Production of the two goods is subject to decreasing relative cost.
B) Production of the two goods is subject to increasing relative cost.
C) Production of the two goods is subject to constant opportunity cost anywhere along the PPF.
D) One producer must have an absolute advantage in production.
E) More resources will not cause the PPF to shift.

Question 48

Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the next questions
Based on the table, does Mikhail or Stefan have an absolute advantage?

A) Yes, Mikhail has an absolute advantage in both sculptures and paintings.
B) Yes, Stefan has an absolute advantage in both sculptures and paintings.
C) Yes, Mikhail has an absolute advantage in paintings, and Stefan has an absolute advantage in sculptures.
D) Yes, Mikhail has an absolute advantage in sculptures, and Stefan has an absolute advantage in paintings.
E) No, neither has an absolute advantage.

Question 49

Refer to the following figure to answer the next questions.

Which statement best describes the opportunity cost evident in the production possibilities frontier PPF) for the accompanying figure?

A) The law of increasing relative cost applies because the PPF is a straight line.
B) The law of increasing relative cost applies because the PPF is bowed outward.
C) The opportunity cost is constant because the PPF is a straight line.
D) The opportunity cost is constant because the PPF is bowed outward.
E) The opportunity cost decreases because the line has negative slope.

Question 50

When the opportunity cost of producing a good rises as someone produces more of it, one experiences

A) normative economics.
B) increasing relative costs.
C) downward-sloping demand.
D) inferior goods.
E) increasing marginal utility.

Question 51

Refer to the accompanying figure to answer the next questions.

The inefficient points) is/are

A) point A.
B) points C and D.
C) point C.
D) point D.
E) points B, C, and E.

Question 52

Refer to the accompanying figure to answer the next questions.

Given the current resources, one would need even more hours in each day in order to attain

A) point A.
B) point B.
C) point C.
D) point D.
E) point E.

Question 53

Consider the production possibilities frontier PPF) shown in the figure below to answer the next questions.

Given current resources and technology, the attainable range is best described as

A) only area O: points outside the PPF.
B) points on the PPF only.
C) only area I: points inside the PPF.
D) area I: points inside the PPF and points on the PPF.
E) area O: points outside the PPF and points on the PPF.

Question 54

Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the next questions
What is Mikhail's opportunity cost of a painting?

A) 1/2 painting
B) 1/2 sculpture
C) 3 paintings
D) 2 sculptures
E) 2 paintings

Question 55

Opportunity cost is evident on the production possibilities frontier PPF) graph

A) as we move from one point on the frontier to another point on the frontier.
B) as we move from the origin to any inefficient point.
C) as we move from one unattainable point to an efficient point on the frontier.
D) as we move from an inefficient point to the origin.
E) at any one single point on the graph.

Question 56

Refer to the accompanying figure to answer the next questions.

How is opportunity cost illustrated?

A) a move from point A to point B
B) a move from point A to point C
C) a move from point C to point D
D) a move from point B to point C
E) a move from point D to point E

Question 57

As we move from one efficient point on the production possibilities frontier PPF) to another efficient point on the PPF, we experience

A) decreasing relative cost.
B) opportunity cost.
C) macroeconomics.
D) unlimited resources.
E) unattainable combinations.

Question 58

Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the next questions
What is Mikhail's opportunity cost of a sculpture?

A) 2 paintings
B) 1/2 painting
C) 3 paintings
D) 1/3 sculpture
E) 1/2 sculpture

Question 59

Consider the production possibilities frontier PPF) shown in the figure below to answer the next questions.

The set of efficient points is best described as

A) only area O: points outside the PPF.
B) points on the PPF only.
C) only area I: points inside the PPF.
D) area I: inside the PPF and points on the PPF.
E) area O: outside the PPF and points on the PPF.

Question 60

Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the next questions
What is Stefan's opportunity cost of a painting?

A) 1/3 painting
B) 1/3 sculpture
C) 2/5 sculpture
D) 3 paintings
E) 3 sculptures

Question 61

Economic growth can be depicted on a production possibilities frontier PPF) as an

A) inward shift of the PPF.
B) outward shift of the PPF.
C) inward rotation along the x axis.
D) inward rotation along the y axis.
E) increase in opportunity cost.

Question 62

The figures below depict the production possibilities frontiers PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the next questions.

Which statement best describes the absolute advantage as shown in the graphs?

A) Kenzi has an absolute advantage in the production of both.
B) Bo has an absolute advantage in the production of both.
C) Bo has an absolute advantage in the production of pizzas, and Kenzi has an absolute advantage in the production of stromboli.
D) Kenzi has an absolute advantage in the production of pizzas, and Bo has an absolute advantage in the production of stromboli.
E) They both have an absolute advantage in the production of stromboli.

Question 63

Refer to the following figure for the next questions.



As we move from points N to M to L, the opportunity cost of additional apple pie

A) decreases due to the law of increasing relative cost.
B) increases due to the law of increasing relative cost.
C) decreases due to the law of normative economics.
D) increases due to the law of marginal analysis.
E) decreases due to enhancements in technology.

Question 64

An increase in the labor force would be reflected in a society's production possibilities frontier PPF) by an

A) increase in opportunity cost.
B) inward shift of the PPF.
C) outward shift of the PPF.
D) outward rotation along the x axis.
E) outward rotation along the y axis.

Question 65

Refer to the following figure to answer the next questions.

Which of the following represents a point that is unattainable with current resources and technology?

A) point B
B) point C
C) point D
D) point E
E) point F

Question 66

A town on the Gulf Coast is battered by a massive hurricane that destroys most of its productive resources. The community's production possibilities frontier PPF) would show an

A) inward shift of the PPF.
B) outward shift of the PPF.
C) outward rotation along the x axis.
D) outward rotation along the y axis.
E) increase in opportunity cost.

Question 67

Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the next questions
Based on the table, does Mikhail or Stefan have a comparative advantage?

A) Yes, Mikhail has a comparative advantage in both sculptures and paintings.
B) Yes, Stefan has a comparative advantage in both sculptures and paintings.
C) Yes, Mikhail has a comparative advantage in paintings, and Stefan has a comparative advantage in sculptures.
D) Yes, Mikhail has a comparative advantage in sculptures, and Stefan has a comparative advantage in paintings.
E) No, neither has a comparative advantage.

Question 68

Refer to the following figure for the next questions.

The opportunity cost of increasing production of apple pies from 14 to 16 pies is _______pies.

A) 2 blueberry
B) 14 apple
C) 7 blueberry
D) 4 blueberry
E) 16 blueberry

Question 69

The figures below depict the production possibilities frontiers PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the next questions.

What is Kenzi's opportunity cost of making 1 stromboli?

A) 30 pizzas
B) 20 stromboli
C) 2 pizzas
D) 1.5 pizzas
E) 2/3 pizza

Question 70

The figures below depict the production possibilities frontiers PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the next questions.

If Bo and Kenzi were to specialize and trade, at what exchange rate would they find some quantity of trade to be mutually beneficial?

A) 3 pizzas for 1 stromboli
B) 1 pizza for 1 stromboli
C) 10 pizzas for 2 stromboli
D) 1 pizza for 1/2 stromboli
E) 1 pizza for 1/4 stromboli

Question 71

Refer to the following figure to answer the next questions.

Which of the following represents an inefficient point?

A) point A
B) point B
C) point C
D) point D
E) point F

Question 72

The figures below depict the production possibilities frontiers PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the next questions.

Based on the figure, which statement about comparative advantage is true?

A) Bo has a comparative advantage in the production of stromboli because her opportunity cost is lower.
B) Bo has a comparative advantage in the production of stromboli because her opportunity cost is higher.
C) Bo has a comparative advantage in the production of pizzas because her opportunity cost is lower.
D) Bo has a comparative advantage in the production of pizzas because her opportunity cost is higher.
E) Bo has a comparative advantage in the production of both pizzas and stromboli.

Question 73

Refer to the following figure to answer the next questions.

We can see that the opportunity cost of moving from point D to point E is different from the opportunity cost of moving from point D to point C because

A) growing rice requires more water than growing wheat for pasta does.
B) the slope of the production possibilities frontier PPF) is different in each of the two segments.
C) they are all efficient points.
D) they are all attainable points.
E) the opportunity cost is constant along the PPF.

Question 74

Economic growth is represented on a production possibilities frontier PPF) by the PPF

A) getting steeper.
B) getting flatter.
C) shifting inward.
D) shifting outward.
E) rotating downward.

Question 75

Refer to the following figure for the next questions.

The opportunity cost of increasing the production of apple pies from 12 to 14 pies is_______ pies.

A) 2 blueberry
B) 14 apple
C) 7 blueberry
D) 4 blueberry
E) 2 apple

Question 76

The figures below depict the production possibilities frontiers PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the next questions.

What is Bo's opportunity cost of making 1 stromboli?

A) 1/2 pizza
B) 2/3 pizza
C) 2 pizzas
D) 2 stromboli
E) 25 pizzas

Question 77

Refer to the following figure for the next questions.



According to the figure, a new technology that makes it easier to peel, core, and prepare apples will cause

A) the entire production possibilities frontier PPF) to shift outward.
B) the entire production possibilities frontier PPF) to shift inward.
C) the production possibilities frontier PPF) to rotate outward to a larger maximum quantity of apple pies with no change in maximum blueberry pies.
D) the production possibilities frontier PPF) to rotate outward to a larger maximum quantity of blueberry pies with no change in maximum apple pies.
E) the production possibilities frontier PPF) to stay exactly the same because there is no change in resources.

Question 78

The figures below depict the production possibilities frontiers PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the next questions.

What is Bo's opportunity cost of making 1 pizza?

A) 50 stromboli
B) 20 stromboli
C) 2.5 stromboli
D) 2 stromboli
E) 1.5 stromboli

Question 79

Refer to the following figure for the next questions.

The opportunity cost of increasing production of blueberry pies from 7 to 11 pies is_______ pies.

A) 2 blueberry
B) 14 apple
C) 7 blueberry
D) 4 apple
E) 2 apple

Question 80

An increase in general resources that affects the production of both goods on a production possibilities frontier PPF) would cause an

A) inward shift of the PPF.
B) outward shift of the PPF.
C) outward rotation along the x axis.
D) outward rotation along the y axis.
E) increase in opportunity cost.