Question 1

A middleman

Accepted Answer

A) attempts to prevent buyers from finding sellers. 
B) promotes trade by lowering the transaction costs of buyers and sellers. 
C) acts as a liaison between top management and the hourly employees. 
D) adds to the seller's expense and the buyer's price without providing a service to either.

Question 2

Which of the following statements about exchange is true?

Accepted Answer

A) If everyone starts off with the same quantities of each good, it would be impossible to realize gains from trade. 
B) Exchange tends to move each good toward those individuals who value the good more highly. 
C) Exchange always results in one party being made better off and the other being made worse off. 
D) For trade to occur, everyone must start off with the same value of the good that is traded.

Question 3

Figure 2-10
 
-Refer to Figure 2-10. What is the opportunity cost of the movement from point A to point C?

Accepted Answer

A) 50 baseballs 
B) 100 baseballs 
C) 100 bananas 
D) 300 bananas

Question 4

Steve values his Honda Accord at $10,000, and Jennifer values it at $14,000. If Jennifer buys it from Steve for $11,000, which of the following is true?

Accepted Answer

A) Steve gains $1,000 of value, and Jennifer gains $3,000 of value. 
B) Steve gains $11,000 of value, and Jennifer loses $11,000 of value. 
C) Steve gains $10,000 of value, and Jennifer loses $14,000 of value. 
D) Steve and Jennifer both gain $11,000 of value.

Question 5

Figure 2-9
 
-Refer to Figure 2-9. If the economy moves from point A to point D, the opportunity cost is

Accepted Answer

A) 10 toasters. 
B) 20 toasters. 
C) 30 toasters. 
D) 30 toothbrushes.

Question 6

Which of the following most accurately states the function of middlemen?

Accepted Answer

A) Middlemen reduce transaction costs. 
B) Middlemen add to the expense of buyers and sellers without providing any benefit. 
C) Our economy would work just as well without middlemen since they do not expand the availability of physical goods. 
D) Middlemen reduce the number of transactions since they increase the buyer's price and reduce the seller's net receipts.

Question 7

"Henry Ford made millions of dollars producing and marketing automobiles. Many workers and consumers must have suffered in order for Ford to amass such enormous wealth." The person who made this observation

Accepted Answer

A) has failed to understand the principle of opportunity cost. 
B) has failed to comprehend the fallacy of composition. 
C) has failed to understand that specialization and exchange generally result in mutual economic gain. 
D) has utilized the economic way of thinking by thinking the gains of producers are made primarily at the expense of consumers and workers.

Question 8

Which of the following will most likely cause an outward shift in the production possibilities curve?

Accepted Answer

A) a reduction in the man-made productive resources available to the economy as the result of a decline in investment 
B) an increase in government payments to farmers for taking land out of production 
C) an increase from 40 to 50 hours in the average number of hours worked per week 
D) None of the above would cause an outward shift in the production possibilities curve.

Question 9

Which of the following best describes the implications of the law of comparative advantage? If each person sells goods for which he or she has the greatest comparative advantage in production and buys those for which his or her comparative advantage is least, the

Accepted Answer

A) total output available to each person can be expanded by specialization and exchange. 
B) total output will fall. 
C) buyers of goods will gain at the expense of sellers. 
D) sellers of goods will gain at the expense of buyers.

Question 10

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

Question 11

The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that

Accepted Answer

A) students will take better care of these commonly owned bicycles than they do their own bicycles. 
B) students will take equally as good care of these commonly owned bicycles as they do their own bicycles. 
C) students will not take as good of care of these commonly owned bicycles as they do their own bicycles. 
D) because universities have a lot of money, these bikes will be better maintained than the ones owned privately by college students who tend to have little money.

Question 12

Which of the following is a private owner prohibited from doing?

Accepted Answer

A) selling the property to another person 
B) erecting a fence designed to keep others from using the property 
C) painting the property a color that others do not like 
D) using the property in a manner that invades or infringes on the property of another

Question 13

Entrepreneurs are

Accepted Answer

A) profit-seeking decision makers who decide which business projects to undertake. 
B) people who loan money to other business decision makers. 
C) managers who generally work for a salary because they are unwilling to take risks. 
D) none of the above.

Question 14

Which of the following is true of exchange?

Accepted Answer

A) The value of a good is determined by the cost of the resources required to produce the good. 
B) Exchange makes it possible for trading partners to produce more goods through division of labor and adoption of mass production methods. 
C) Nothing new is created by exchange; if one party to an exchange gains, the other must lose an equal amount. 
D) Both a and b are true.

Question 15

Given your knowledge of the incentives created by private ownership, which of the following would you expect to be false?

Accepted Answer

A) People will take better care of their own personal automobile than they will a rental car. 
B) People will take better care of a home they own than they will of a home they rent. 
C) Property owned privately will tend to be better conserved and kept than public property or property owned in common. 
D) People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the side of an interstate highway.

Question 16

Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if

Accepted Answer

A) she also spends more time doing other things. 
B) she spends less time doing other things. 
C) Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour. 
D) none of the above.

Question 17

The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughtered every year for their ivory. Despite this, cows can be found everywhere while elephants are on the verge of extinction in some countries. Which of the following best explains this difference?

Accepted Answer

A) Cows can be privately owned while in many countries elephants can not. 
B) The demand for ivory far exceeds the demand for beef. 
C) Animals slaughtered for their meat are generally better conserved by humans than animals slaughtered for nonfood uses. 
D) People tend to protest more every year to prevent cow extinction than they do for elephant extinction.

Question 18

In the fictitious country of Lebos, the government allows private ownership of pigs but not of cows. If the people of Lebos permanently increase their desire to purchase more pork and beef, in the long run, we would expect

Accepted Answer

A) the population of pigs to rise and the population of cows to fall. 
B) the population of cows to rise and the population of pigs to fall. 
C) the populations of both pigs and cows to increase. 
D) both pigs and cows to become extinct in Lebos unless the government places the animals on the endangered species list.

Question 19

Figure 2-7
 
-If an economy operates at point A on the production possibilities curve shown in Figure 2-7,

Accepted Answer

A) to produce more food, it would have to reduce its production of clothing. 
B) to produce more clothing, it would have to reduce the production of food. 
C) it is operating efficiently. 
D) all of the above would be correct.

Question 20

Opportunity costs differ among nations primarily because

Accepted Answer

A) nations employ different currencies. 
B) nations have different amounts of land, labor skills, capital, and technology. 
C) nations have different religious, political, and economic institutions. 
D) the work-leisure preferences of people vary considerably from one nation to another.

Exam 2: A: Some Tools of the Economist