Deck 2: The Economic Way of Thinking

Question 1

The production possibilities curve marks the boundary between attainable and unattainable combinations of output.

Answer 1

True

Question 2

In a market economy, government officials make most production decisions in a centralized manner.

Answer 2

False

Question 3

An increase in available resources will tend to cause a society's production possibilities curve to shift inward.

Answer 3

False

Question 4

Marginal cost is the additional cost incurred as a result of an economic decision.

Question 5

When considering whether or not to consume a second slice of cake, an individual is following marginal thinking if she compares the total cost of consuming both the first and second slices with their total benefit before making a decision.

Question 6

An increase in the production of one good can have zero opportunity cost only if an economy initially operated at a point inside the production possibilities curve.

Question 7

Consumer sovereignty means that consumers vote with their dollars in a market economy, which helps determine what is produced.

Question 8

Since it is possible to grow coffee in the United States, the government of the U.S. should clearly create a U.S. coffee industry and no longer import coffee from Brazil.

Question 9

If Xavier gives up a job in which he earns $23,000 per year in order to go to college full time, his foregone income is part of the opportunity cost of going to college.

Question 10

An economy that has many unemployed workers and idle factories is not operating efficiently.

Question 11

In a market economy, prices help determine the distribution of goods and services but not the allocation of resources.

Question 12

A country has a comparative advantage in the production of DVD players if it can produce DVD players at a lower opportunity cost than others.

Question 13

Output combinations outside the production possibilities curve are attainable in the current period only if prices decrease.

Question 14

The opportunity cost of a decision is the value of all the available alternatives that were not chosen.

Question 15

An improvement in technology will tend to cause a society's production possibilities curve to shift inward.

Question 16

The opportunity cost of attending college is likely higher for a high school graduate who leaves a job grilling hamburgers than it is for someone who leaves a job working as a computer network administrator.

Question 17

Small, developing countries must first become self-sufficient before they can benefit from international trade.

Question 18

A decrease in the unemployment rate will shift an economy's production possibilities curve outward.

Question 19

A permanent change to a much higher price of gasoline would lead us to expect fewer gas guzzlers on the road, ceteris paribus.

Question 20

The opportunity cost of a decision is the value of the best foregone alternative.

Question 21

High wage countries like the United States tend to use less labor-intensive production methods than low wage countries like Mexico.

Question 22

Opportunity cost includes:

A)monetary costs only.
B)non-monetary costs only.
C)both monetary and non-monetary costs.
D)neither monetary nor non-monetary costs.
E)all the costs of living.

Question 23

Which of the following best defines rational behavior?

A)Analyzing the total costs of a decision
B)Analyzing the total benefits of a decision
C)Undertaking an activity as long as the total benefit of all activities exceeds the total cost of all activities
D)Undertaking activities whenever the marginal expected benefit exceeds the marginal expected cost
E)Undertaking activities whenever the average expected benefit exceeds the average expected cost

Question 24

Which of the following is true?

A)Intangible services cannot be subjected to economic analysis.
B)Wealthy individuals who decide to donate money to charity do not face the constraints of scarcity.
C)An increase in production would enable us to eliminate scarcity.
D)Intangible services can be subjected to economic analysis.
E)Abundant resources are not subjected to economic analysis.

Question 25

Economic choices or tradeoffs are the result of:

A)basic human greed.
B)scarcity.
C)poverty.
D)private ownership of resources.
E)the government's intervention in production.

Question 26

The opportunity cost of an item is:

A)greater during periods of inflation and lower during periods of deflation.
B)the highest valued alternative you give up to get that item.
C)the value of all available alternatives you sacrifice to get that item.
D)always equal to the dollar value of the item.
E)lower during periods of inflation and higher during periods of deflation.

Question 27

According to the rule of rational choice, an individual will undertake an activity as long as:

A)the expected marginal benefits are less than the expected marginal costs.
B)the expected marginal benefits are greater than the expected marginal costs.
C)total costs exceed total benefits.
D)total benefits exceed total costs.
E)the expected average benefits are greater than the expected average costs.

Question 28

Airlines that restrict the use of frequent flyer miles during the holiday season likely do so because:

A)the opportunity cost to the airlines of filling seats with frequent flyers is lower at these times.
B)the opportunity cost to the airlines of filling seats with frequent flyers is higher at these times.
C)passengers have more transportation alternatives available to them at these times.
D)the airlines want to protect their most loyal customers from the discomfort of overcrowded airplanes.
E)the opportunity cost to the airlines of filling seats with frequent flyers is zero.

Question 29

A university offers a free shuttle service around campus. The opportunity cost of the shuttle service to the university is equal to:

A)zero, since it is free to the students who use it.
B)the wages paid to the shuttle drivers.
C)the wages paid to the shuttle drivers plus the gasoline expenses.
D)the highest valued alternative uses of all the resources devoted to the shuttle program.
E)the cost of the shuttle plus the gasoline expenses.

Question 30

The opportunity cost of an action is equal to:

A)the monetary payment received for the action.
B)the total time spent by all parties in carrying out the action.
C)the highest valued opportunity that must be sacrificed in order to take the action.
D)the value of all of alternative actions that could have been taken.
E)zero if the action yields an income.

Question 31

Table 2-1 shows possible exam scores with three alternative uses of a student's time. The student has only a few hours to prepare for two different exams in one morning. The opportunity cost of scoring an 84 on the history exam rather than a 76 is a reduction of:Table 2-1

A)10 points on the economics exam.
B)7 points on the economics exam.
C)8 points on the history exam.
D)12 points on the economics exam.
E)15 points on the history exam.

Question 32

The opportunity cost of an airplane flight:

A)differs across passengers only to the extent that each traveler pays a different airfare.
B)is identical for all passengers and equal to the number of hours a particular flight takes.
C)differs across passengers to the extent that both the airfare paid and the highest valued use of travel time vary.
D)is equal to the cost of traveling by bus, the next best alternative to flying.
E)differs across passengers because of the differences in the paying capacities of passengers.

Question 33

The additional satisfaction received by a consumer as a result of undertaking an action is:

A)the opportunity cost.
B)the marginal cost.
C)the marginal benefit.
D)the total benefit.
E)the average benefit.

Question 34

The opportunity cost of attending university for a year is measured by:

A)the tuition fees incurred.
B)the size of the student loan the student becomes responsible for.
C)the sum of all expenditures on rent, food, books, and tuition incurred during the school year.
D)the value of the best opportunity or opportunities foregone in order to enroll for the year.
E)the sum of expenditures on tuition and hostel fees.

Question 35

Marginal thinking is best demonstrated by:

A)choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the time sacrificed.
B)deciding to never purchase a coat made of animal skin or fur.
C)acquiring all information relevant to a choice before making that choice.
D)measuring all the costs of a meal against all its benefits when deciding on whether to order a second milkshake.
E)deciding to never buy an airline ticket during the holiday period.

Question 36

Jamie and Danny both attend the same college and incur the same expenses for tuition, books, and school supplies. Jamie gave up a lucrative job modeling in Paris to attend school full-time, and Danny gave up a part-time job as a sales clerk in a department store. It follows that:

A)the opportunity cost of attending college is the same for both since they are enrolled at the same academic institution.
B)the opportunity cost of attending college is likely greater for Jamie than for Danny.
C)the opportunity cost of attending college is likely greater for Danny than for Jamie.
D)the opportunity cost is minimal for both, since, on average, college graduates are paid much higher than high school graduates.
E)the opportunity cost of attending college for both Jamie and Danny is equal to zero.

Question 37

Because of scarcity, _____.

A)we must sacrifice valuable alternatives to obtain more of the goods and services we desire
B)the opportunity cost of consumption is zero
C)we can obtain more of a desirable good without sacrificing other goods and services
D)society wants a proportion of its population to remain poor
E)the opportunity cost of production is zero

Question 38

Which of the following statements is true?

A)The opportunity cost of a decision is equal to the explicit cost in monetary terms.
B)The opportunity cost of a decision is the value of the best foregone alternative.
C)Some economic decisions have zero opportunity cost.
D)The opportunity cost of attending college is the same for all students at the same university but may differ among students at different universities.
E)The opportunity cost of producing a good is negative during inflation.

Question 39

The opportunity cost of going to college includes:

A)both tuition and the value of the student's time.
B)tuition, but not the value of the student's time.
C)neither tuition nor the value of the student's time since obtaining a college degree makes one's income higher in the future.
D)neither tuition nor the value of the student's time.
E)all the costs of living for that period.

Question 40

Table 2-1 shows possible exam scores with three alternative uses of a student's time. The student has only a few hours to prepare for two different exams in one afternoon. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is a reduction of:Table 2-1

A)8 points on the history exam.
B)15 points on the history exam.
C)76 points on the history exam.
D)91 points on the history exam.
E)17 points on the history exam.

Question 41

Specialization is a way:

A)for individuals to make the best use of resources by devoting themselves to one primary productive activity.
B)for society to become wealthier while not using their resources.
C)for people to avoid trade.
D)of increasing the opportunity cost of an activity.
E)for society to become more self-sufficient.

Question 42

Resources are used more efficiently if people, regions, and countries specialize in goods for which they have a(n):

A)disincentive to trade with others.
B)higher opportunity cost.
C)absolute advantage in production.
D)comparative advantage in production.
E)comparative disadvantage in production.

Question 43

When a country possesses a comparative advantage in the production of one good or service, it:

A)means that the country's opportunity cost is higher than of the other countries.
B)discourages specialization.
C)promotes greater self-sufficiency.
D)permits gains from trade to be realized due to a more efficient use of resources.
E)means that the country uses a capital intensive method of production.

Question 44

The expected marginal benefit to Todd from purchasing a new sport utility vehicle is $20,000, and the price of the new sport utility vehicle is $22,000. Given that Todd is a rational consumer, which of the following statements is true?

A)Todd will borrow $2,000 and purchase the new sport utility vehicle.
B)Todd will not purchase the new sport utility vehicle at this time.
C)If Todd does not purchase the new sport utility vehicle, his net loss will be $2,000.
D)Todd will purchase the sport utility vehicle when the marginal cost of doing so falls to $21,000.
E)Todd will buy the sport utility vehicle and rent it to other people.

Question 45

Table 2-3 shows the marginal benefit to a consumer from viewing theatrical-release films each month. If the price of a movie ticket is $8, a consumer following the rule of rational choice will purchase:Table 2-3

A)2 movie tickets per month.
B)3 movie tickets per month.
C)4 movie tickets per month.
D)5 movie tickets per month.
E)6 movie tickets per month.

Question 46

The rule of rational choice:

A)requires the availability of complete information before decisions can be made.
B)can only be applied in business decisions.
C)involves "marginal thinking."
D)is the basis on which only greedy people make decisions.
E)requires the availability of information on only the average benefits and costs of an activity.

Question 47

Rational choices:

A)are based on a comparison between total benefits and total costs.
B)can only be made by those who are economists.
C)are made based on expectations of the additional benefits and additional costs involved.
D)measure benefits based on the past.
E)are based on the experiences of the past.

Question 48

Ted has decided to buy a burger and fries at a restaurant but is considering whether to buy a drink as well. If the price of a burger is $2, fries is $1, a drink is $1, but a value meal with all three is $3.80, the marginal cost to Ted of the drink is:

A)$0.20.
B)$0.80.
C)$1.00.
D)$3.80.
E)0.

Question 49

Individuals will only pursue an activity if:

A)E(MB) ≤ E(MC).
B)E(MB) = E(MC).
C)E(MB) > E(MC).
D)E(MB) < E(MC).
E)E(MB) = E(MC) = 0.

Question 50

Two parties can capture gains from specialization and trade whenever:​

A)one party is twice as good at producing all goods as the other.
B)the opportunity costs of producing each good are the same for both parties.
C)both parties can produce equal amounts of both goods.
D)there is a difference in the endowment of resources in the two countries.
E)they both produce the same good or service, but in differing amounts.

Question 51

In the process of economic growth, achieving a perfectly clean atmosphere is not possible because:

A)the marginal cost of achieving perfectly clean air would outweigh the marginal benefits of achieving it.
B)the total benefit of zero air pollution would just be equal to the total cost of pollution reduction.
C)scientifically it is impossible to achieve a zero level of air pollution.
D)the marginal benefits of achieving perfectly clean air would outweigh the marginal costs of achieving it.
E)the average benefit of achieving perfectly clean air outweighs the total benefit of achieving it.

Question 52

If people follow the rule of rational choice, they will choose options that they think will:​

A)create more average benefits than average costs.
B)create more additional costs than additional benefits.
C)create equivalent additional benefits and additional costs.
D)create more additional benefits than additional costs.
E)create more average costs than average benefits.

Question 53

Specialization:

A)leads to greater self-sufficiency and less trade.
B)can lead to an increase in overall production and trade.
C)is always the result of an inefficient use of resources.
D)allows workers to develop skills by working on a large number of tasks.
E)allows firms to produce different varieties of products.

Question 54

Table 2-2 shows the marginal benefit to a consumer of DVD rentals. If the price of a DVD rental is $4, a consumer following the rule of rational choice will rent:Table 2-2

A)2 DVDs per month.
B)3 DVDs per month.
C)4 DVDs per month.
D)5 DVDs per month.
E)6 DVDs per month.

Question 55

To obtain the greatest gains from trade, a country should specialize in and ____ those goods in which it has a comparative advantage and ____ those goods in which other countries have a comparative advantage.

A)export; export
B)import; import
C)export; import
D)import; export
E)import; produce

Question 56

The additional burden incurred as a result of undertaking an action is:

A)the opportunity benefit.
B)the marginal benefit.
C)the total cost.
D)the marginal cost.
E)the average cost.

Question 57

The rule of rational choice suggests that one will engage in more of an activity if:

A)the total benefit from that activity exceeds the total cost of the activity.
B)the total cost from that activity exceeds the total benefit of the activity.
C)the additional cost incurred as a result of the activity exceeds the additional benefit received.
D)the additional benefit received as a result of the activity exceeds the additional cost incurred.
E)the average cost incurred as a result of the activity exceeds the additional benefit received.

Question 58

Milk at a local grocery store is priced at one gallon for $4.00 or two gallons for $6.00. The marginal cost of buying a second gallon of milk is equal to _____.

A)$6.00
B)$4.00
C)$3.00
D)$2.00
E)$9.00

Question 59

An advantage of specialization is that it:

A)reduces interdependence.
B)leads to the exploitation of comparative advantage.
C)gives countries the ability to be self-sufficient.
D)discourages a capitalistic economic system.
E)encourages a closed economic system.

Question 60

Country A has a comparative advantage over Country B in the production of a particular good if Country A:

A)can produce the good at a higher opportunity cost than Country B.
B)is more self-sufficient than Country B.
C)can produce the good at a lower opportunity cost than Country B.
D)has a GDP higher than Country B.
E)has a GDP lower than Country B.

Question 61

Figure 2-2 shows the production possibilities curve of an economy in the production of consumption goods and capital goods. Other things being equal, the economy will achieve the greatest economic growth over time if it currently operates at _____.Figure 2-2

A)Point A
B)Point C
C)Point E
D)Point G
E)Point F

Question 62

A production possibilities curve is negatively sloped because:

A)the price of a good falls as you move down along the curve.
B)resources are wasted as you move along the curve.
C)it is not possible to adjust production decisions at all once an economy operates on the curve.
D)once on the frontier, it is only possible to increase production of one good by reducing production of the other.
E)of the law of diminishing returns to scale.

Question 63

Figure 2-1 shows the production possibilities curve of an economy that produces bread and wine. The economy was operating at full employment, and then, the workers in the bread industry were laid off. This change could be portrayed in the movement from:Figure 2-1

A)A to B.
B)B to E.
C)C to F.
D)G to F.
E)B to C.

Question 64

Figure 2-2 shows the production possibilities curve of an economy in the production of consumption goods and capital goods. Considering only points on the frontier, the economy will experience the least amount of economic growth over time, ceteris paribus, if it chooses to produce at:Figure 2-2

A)Point D.
B)Point C.
C)Point F.
D)Point E.
E)Point A.

Question 65

Economic efficiency is defined as:

A)the maximization of output from available resources.
B)the maximization of revenue from available resources.
C)the maximization of inputs using available resources.
D)the creation of a surplus using available resources.
E)the minimization of cost using available resources.

Question 66

If additional units of output could be produced at constant opportunity cost, the production possibilities curve would be:

A)bowed inward toward the origin.
B)bowed outward away from the origin.
C)positively sloped with a concave curvature.
D)a straight line with a negative slope.
E)positively sloped with a convex curvature.

Question 67

Which of the following distinguishes a "straight-line" production possibilities curve from one that is "bowed out"?

A)A straight-line production possibilities curve exhibits increasing opportunity costs, whereas a bowed production possibilities curve does not.
B)A straight-line production possibilities curve exhibits decreasing opportunity costs, whereas a bowed production possibilities curve exhibits constant opportunity costs.
C)A straight-line production possibilities curve exhibits constant opportunity costs, whereas a bowed production possibilities curve exhibits increasing opportunity costs.
D)A straight-line production possibilities curve is upward sloping, whereas a bowed production possibilities curve is not.
E)A straight-line production possibilities curve exhibits constant opportunity costs, whereas a bowed production possibilities curve exhibits decreasing opportunity costs.

Question 68

The production possibilities curve illustrates:

A)the minimum quantity of two resources necessary to produce a given level of output.
B)that when resources are currently being used inefficiently, it is possible to increase the production of one good only by sacrificing another good.
C)that when resources are currently being used efficiently, it is possible to increase the production of one good only by sacrificing another good.
D)the minimum quantities of output that can be produced using available resources.
E)the law of diminishing returns to scale.

Question 69

Figure 2-1 shows the production possibilities curve of an economy that produces bread and wine. The most inefficient point depicted is:.Figure 2-1

A)Point A.
B)Point C.
C)Point D.
D)Point G.
E)Point E.

Question 70

Which of the following scenarios would cause an outward shift in the production possibilities curve of a country?

A)A temporary shutdown of mines due to frequent accidents
B)The discovery of large mineral deposits
C)A tougher environmental legislation
D)A shortage of skilled labor
E)A huge migration of labor from the country

Question 71

A technological advancement that increases the productivity of all inputs is best illustrated as:

A)a movement along the production possibilities curve.
B)a flattening of the production possibilities curve.
C)an inward shift of the production possibilities curve.
D)an outward shift of the production possibilities curve.
E)a change in the curvature of the production possibilities curve.

Question 72

Figure 2-2 shows the production possibilities curve of an economy in the production of consumption goods and capital goods. A movement from Point ____ to Point ____ will result in an increase in the quantity of both capital and consumption goods produced in the economy.Figure 2-2

A)B; A
B)F; A
C)D; F
D)F; D
E)A; G

Question 73

An economy's production possibilities curve is concave to the origin because of the impact of:

A)the law of demand.
B)the law of supply.
C)the law of increasing opportunity cost.
D)the law of diminishing marginal utility.
E)the law of diminishing marginal returns.

Question 74

Figure 2-2 shows the production possibilities curve of an economy in the production of consumption goods and capital goods. Currently, Point ____ is impossible to achieve.Figure 2-2

A)A
B)C
C)E
D)G
E)B

Question 75

Economic growth can be illustrated by:

A)a movement along the production possibilities curve.
B)a movement from a point on the production possibilities curve to a point inside the production possibilities curve.
C)an inward shift of the production possibilities curve.
D)an outward shift of the production possibilities curve.
E)decrease in the curvature of the production possibilities curve.

Question 76

Figure 2-1 shows the production possibilities curve of an economy that produces bread and wine. A movement from Point B to Point C:Figure 2-1

A)involves sacrificing bread in order to produce a greater quantity of wine.
B)involves sacrificing wine in order to produce a greater quantity of bread.
C)involves no sacrifice, as the opportunity cost of production is zero everywhere along the production possibilities curve.
D)will increase the level of unemployment in the economy.
E)will decrease the level of unemployment in the economy.

Question 77

Figure 2-1 shows the production possibilities curve of an economy that produces bread and wine. Along the production possibilities curve, _____ is an economically efficient point of production.Figure 2-1

A)Point G
B)Point F
C)Point E
D)Point B
E)the origin

Question 78

When resources are used efficiently, a country can produce more of one good, ceteris paribus, only by:

A)printing more money.
B)charging a lower price for output.
C)charging a higher price for output.
D)producing less of another good.
E)reducing the amounts of inputs.

Question 79

Figure 2-1 shows the production possibilities curve of an economy that produces bread and wine. Currently, it is not possible to produce at:Figure 2-1

A)Point A.
B)Point B.
C)Point E.
D)Point G.
E)Point C

Question 80

Figure 2-3 shows the production possibilities curve of an economy in the production of food and clothing. If the economy operates at Point A on the production possibilities curve shown above, then:Figure 2-3

A)it cannot increase its output of food.
B)it cannot increase its output of clothing.
C)it cannot simultaneously increase its output of both food and clothing.
D)it is not utilizing its resources inefficiently.
E)it cannot decrease its output of food.