Question 1

Kelly is an attorney and also an excellent typist. She can type 120 words per minute, but she charges attorney fees at $100 per hour. Todd would like some typing work but can only type 60 words per minute. According to the law of comparative advantage, Kelly should hire Todd to do her typing if and only if his wage rate is less than

Accepted Answer

A) $10 per hour. 
B) $50 per hour. 
C) $60 per hour. 
D) $100 per hour.

Question 2

Table 2-3
 
-Refer to Table 2-3. The opportunity cost of 1 pound of potatoes for the farmer is

Accepted Answer

A) 8 hours of labor. 
B) 2 hours of labor. 
C) 4 pounds of meat. 
D) 1/4 pound of meat.

Question 3

As a general rule, technological progress

Accepted Answer

A) shifts the production possibilities curve outward, away from the origin. 
B) reduces the slope of the production possibilities curve, making it flatter. 
C) increases the slope of the production possibilities curve, making it steeper. 
D) shifts the production possibilities curve inward, toward the origin.

Question 4

Because private owners are held responsible for damages their property causes to the property of others, private owners have

Accepted Answer

A) a strong incentive to take steps to reduce the chance that they will harm the property of others. 
B) a strong incentive to use their property now rather than conserving it for the future. 
C) little incentive to take good care of the property. 
D) little incentive to consider the harm their property may do to the property of others.

Question 5

High transaction costs will tend to

Accepted Answer

A) reduce the number of mutually beneficial exchanges that occur. 
B) allow easier specialization according to the law of comparative advantage. 
C) increase the value created by exchanges in an economy. 
D) increase the number of mutually beneficial exchanges that occur.

Question 6

If Harry Bartolini's Ford dealership sells Rosa Brown a new automobile for $30,000, economic analysis indicates that

Accepted Answer

A) both parties to the transaction will gain. 
B) Mr. Bartolini will gain from the transaction, while Rosa Brown will lose. 
C) Rosa Brown will gain from the transaction, while Mr. Bartolini will lose. 
D) the well-being of both parties will be unchanged.

Question 7

Which of the following is an implication of the law of comparative advantage?

Accepted Answer

A) Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities. 
B) Since workers in high-income countries utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries. 
C) Countries that are high cost producers of agricultural products should trade those products for goods they can produce only at a low opportunity cost. 
D) Countries that are low opportunity cost producers of timber products should trade those products for goods they can produce only at a high opportunity cost.

Question 8

Three basic decisions must be made by all economies. What are they?

Accepted Answer

A) How much will be produced; when will it be produced; who will produce it? 
B) What goods will be produced; how will goods be produced; for whom will goods be produced? 
C) What will be consumed; how will goods be consumed; for whom will goods be consumed? 
D) How will the opportunity cost principle be applied; if the law of comparative advantage will be utilized, how will it be utilized; will the production possibilities constraint apply?

Question 9

Suppose you can type a paper in two hours or mow the lawn in four hours. It takes your friend Ann eight hours to type a paper of the same length and five hours to mow the same size of lawn. Which of the following is true?

Accepted Answer

A) Ann is the high-opportunity cost producer of both typing and mowing. 
B) Since you can type papers and mow lawns faster than Ann, you and Ann cannot benefit from specialization and trade. 
C) You and Ann could expand output and gain from trade if she specialized in mowing lawns and you specialized in typing papers. 
D) You and Ann could expand output and gain from trade if she specialized in typing papers and you specialized in mowing lawns.

Question 10

Sean can build sandboxes twice as fast as Matt. Sean can assemble swing sets three times as fast as Matt. The law of comparative advantage suggests that

Accepted Answer

A) Sean can gain only at Matt's expense. 
B) Matt can gain only at Sean's expense. 
C) both can gain if Sean specializes in assembling swing sets and Matt in building sandboxes. 
D) both can gain if Sean specializes in building sandboxes and Matt in assembling swing sets.

Question 11

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

Accepted Answer

A) the law of absolute advantage. 
B) the law of comparative advantage. 
C) the law of production possibilities. 
D) the exchange maximum principle.

Question 12

The law of comparative advantage applies to exchange between

Accepted Answer

A) individuals. 
B) regions. 
C) nations. 
D) all of the above.

Question 13

Figure 2-9
 
-Refer to Figure 2-9. The opportunity cost of obtaining 10 additional toasters by moving from point B to point A is

Accepted Answer

A) 10 toothbrushes. 
B) 20 toothbrushes. 
C) 30 toothbrushes. 
D) zero, since the economy has the additional resources to produce 10 additional toasters.

Question 14

If an economy is operating at a point inside the production possibilities curve,

Accepted Answer

A) its resources are not being used efficiently. 
B) the curve will begin to shift inward. 
C) the curve will begin to shift outward. 
D) This is a trick question because an economy cannot produce at a point inside the curve.

Question 15

Other things constant, which of the following would you expect to increase the output growth rate of a country?

Accepted Answer

A) an increase in the rate of taxation on personal income 
B) an increase in the rate of investment as a share of total output 
C) passage of regulations restricting international trade 
D) passage of regulations restricting domestic trade

Question 16

Figure 2-10
 
-Refer to Figure 2-10. If the economy moves from point C to point B, then which of the following statements is correct?

Accepted Answer

A) The economy benefited from a technological advance in the production of baseballs. 
B) The opportunity cost of each additional baseball is 2 bananas. 
C) The opportunity cost of each additional banana is 2 baseballs. 
D) The move involves no opportunity cost; it simply reflects the desires of the economy's citizens.

Question 17

Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost of producing ten monitors?

Accepted Answer

A) $5,000 
B) the other goods that could be produced with the resources that produce the ten monitors 
C) the profits that Hutch earns when it sells the ten monitors 
D) the profits that Hutch loses if it does not produce the monitors 
E) All of the above are correct.

Question 18

Figure 2-9
 
-Refer to Figure 2-9. The opportunity cost of obtaining 15 additional toasters by moving from point D to point C is

Accepted Answer

A) 10 toothbrushes. 
B) 20 toothbrushes. 
C) 30 toothbrushes. 
D) none of the above; the economy cannot move from point D to point C.

Question 19

Economic analysis suggests that gains from specialization and exchange

Accepted Answer

A) will not be realized unless a central planning authority requires that all goods be produced by the low opportunity cost supplier. 
B) will be realized if individuals are allowed to pursue goals that are in their own self-interest. 
C) will not be realized unless business firms employ economists when making decisions about the proper combination of resources to utilize in the production process. 
D) will be realized if individuals place the public interest above the pursuit of their own self-interest.

Question 20

Table 2-2

-Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. 
If Crusoe and Friday want to maximize their consumption possibilities,

Accepted Answer

A) Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed. 
B) Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption. 
C) Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption. 
D) both individuals should strive for self-sufficiency, which always maximizes output.

Exam 2: A: Some Tools of the Economist

Table 2-3 -Refer to Table 2-3. The opportunity cost of 1 pound of potatoes for the farmer is