Deck 3: Exchange and Markets

Question 1

An example of a public good is:

A) a levee.
B) profit.
C) a monopoly.
D) imperfect information.

Answer 1

a levee.

Question 2

Table 3.2
Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Which of the following is true?

A) Sharon has an absolute advantage in producing both goods.
B) Sharon has an absolute advantage in producing fish but not coconuts.
C) Sharon has an absolute advantage in producing coconuts but not fish.
D) Sharon does not have an absolute advantage in producing either good.

Answer 2

Sharon has an absolute advantage in producing fish but not coconuts.

Question 3

Accounting rules:

A) specifies the term of exchange facilitating exchange between strangers.
B) increases the risk faced by entrepreneurs.
C) provides the public with reliable information about the performance of a firm.
D) increases the profitability of inventions encouraging firms to develop new products.

Answer 3

provides the public with reliable information about the performance of a firm.

Question 4

A market failure could be caused by:

A) capitalism.
B) firms competing against each other for customers.
C) profit.
D) firms not bearing the full costs of production.

Question 5

One of the most obvious clues to the relative scarcity of a product in a market economy is:

A) the variations in available sizes.
B) the limited selection of colors.
C) its current market price.
D) none of the above

Question 6

For country A, an import is a good produced in:

A) country A and purchased by residents of country A.
B) country B and purchased by residents of country B.
C) country B and purchased by residents of country A.
D) country A and purchased by residents of country B.

Question 7

When a specialized worker gains insights into a particular task that leads to better production methods it is called:

A) continuity.
B) repetition.
C) innovation.
D) specialization.

Question 8

When the market does not produce the most efficient outcomes, it is known as:

A) capitalism.
B) corruption.
C) market failure.
D) fraud.

Question 9

Patents:

A) provides the public with reliable information about the performance of a firm.
B) increases the risk faced by entrepreneurs.
C) specifies the term of exchange facilitating exchange between strangers.
D) increases the profitability of inventions encouraging firms to develop new products.

Question 10

The main reason why the government enforces contracts and maintains a legal system that punishes those who violate contracts is:

A) to increase uncertainty.
B) to decrease imperfect competition.
C) to decrease imperfect information.
D) to facilitate exchange.

Question 11

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions:
According to the application, the US sugar import restrictions aim to:

A) protect consumers of sugar in the US.
B) protect candy consumers in the US.
C) protect the jobs of domestic sugar producers in the US.
D) protect candy manufacturers in the US.

Question 12

Suppose a US "World of Warcraft" player's opportunity cost is $8.00 an hour and can collect 25 coins per hour playing in the game. If the player wants to use a shortcut, it would be worthwhile for him to buy virtual coins if the price is:

A) less than $0.25 per coin
B) less than $0.32 per coin.
C) more than $0.32 per coin.
D) more than $0.25 per coin.

Question 13

Table 3.3
Consider two individuals, Bob and Jerry, who produce guitars and banjos. Bob and Jerry's weekly productivity are shown in Table 3.3. Which of the following is true?

A) Bob has a comparative advantage in producing banjos but not guitars.
B) Bob has a comparative advantage in producing guitars but not banjos.
C) Bob has a comparative advantage in producing both goods.
D) Bob does not have a comparative advantage in producing either good.

Question 14

Suppose a product suddenly loses popularity and the firms producing the product begin to realize large losses. In response, entrepreneurs would:

A) exit the market and decrease production.
B) enter the market and increase production.
C) enter the market and decrease production.
D) exit the market and increase production.

Question 15

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

A) Blythe has an absolute advantage in producing neither good.
B) Blythe has an absolute advantage in producing both goods.
C) Blythe has an absolute advantage in producing carrots but not apples.
D) Blythe has an absolute advantage in producing apples but not carrots.

Question 16

Producer A has a comparative advantage over Producer B if, in producing a good:

A) A has a higher opportunity cost of producing the good than does B.
B) A has a lower opportunity cost of producing the good than does B.
C) A can produce more of the good than B can in a given time period.
D) A has to trade off more than B does to produce the good.

Question 17

In a market economy, what is the role of the government with regards to public goods?

A) The government must take over the production of all goods in the market, public or private.
B) The government has to facilitate the collective decision making in the production of public goods.
C) The government must hold a referendum before any public good is produced.
D) The government must force the firms to produce all the public goods.

Question 18

The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n):

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

Question 19

Recall Application 2, "Gold Farming for World of Warcraft," to answer the following questions:
According to the application, which of the following was not a market that the Shakers dominated in the 19th century?

A) the market for packaged lettuce seeds
B) the market for packaged onion seeds
C) the market for packaged pea seeds
D) the market for coconut seeds

Question 20

Insurance:

A) reduces the risk of entrepreneurs.
B) specifies the term of exchange facilitating exchange between strangers.
C) increases the risk faced by entrepreneurs.
D) provides the public with reliable information about the performance of a firm.

Question 21

During World War II before there was trade among camps, items not consumed by the majority of the camp (such as coffee in British camps and beef in Sikh camps) were

A) cheaper than in other camps.
B) more expensive than in other camps.
C) scarcer than in other camps.
D) not provided to the prisoners.

Question 22

Suppose Bob can produce more jeans than Joe in a day. Bob has _______ advantage over Joe in sewing jeans.

A) a comparative
B) an absolute and a comparative
C) an absolute
D) neither an absolute nor a comparative

Question 23

A rich nation will trade with a poor nation because the:

A) poor nation has the absolute advantage in all products.
B) poor nation has the comparative advantage in a product.
C) rich nation has the absolute advantage in all products.
D) rich nation has the comparative advantage in all products.

Question 24

Suppose that a vehicle is invented such that it emits no pollutants into the atmosphere. To achieve an efficient market outcome, the government must:

A) outlaw SUV and other vehicles that pollute the environment.
B) allow other vehicles that emit pollutants into the atmosphere, as long as vehicle owners pay all the costs associated with their pollution.
C) require all auto makers to produce the vehicles that produces zero emissions.
D) be the sole producer of that vehicle.

Question 25

A product produced in the home country and sold in another country is:

A) investment.
B) an import.
C) savings.
D) an export.

Question 26

Suppose that in the time it takes for him to bake a cake, Bob can produce sew 5 pairs of jeans. In the time it takes for Joe to bake a cake, he can produce sew 8 pairs of jeans day. In this example, who has the absolute advantage in baking a cake?

A) both Bob and Joe
B) Joe
C) Bob
D) There is insufficient information to answer this question.

Question 27

A market failure could be caused by:

A) capitalism.
B) imperfect information.
C) competition.
D) profit.

Question 28

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions:
According to the application, the US sugar import restrictions hurt:

A) candy manufacturers in the US.
B) candy consumers in the US.
C) consumers of sugar in the US.
D) all of the above are correct.

Question 29

In a market system, prices:

A) are unfair.
B) are too high.
C) signal the relative scarcity of a product.
D) all of the above.

Question 30

If the banking industry is unable to review a borrower's credit history, then the market will experience a bank failure caused by:

A) imperfect information.
B) imperfect competition.
C) public goods.
D) perfect information.

Question 31

Table 3.2
Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Sharon's opportunity cost of producing 1 fish is:

A) 4 coconuts.
B) 1 1/3 coconuts.
C) 3/4 coconut.
D) 3 coconuts.

Question 32

In a market system profits:

A) are unfair.
B) signal to entrepreneur what to produce.
C) are too high.
D) all of the above.

Question 33

Table 3.2
Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Rose's opportunity cost of producing 1 coconut is:

A) 1/3 fish.
B) 3 fish.
C) 6 fish.
D) 1 1/2 fish.

Question 34

During World War II, trade among camps caused the price of beef in camps with mainly Sikh prisoners who did not eat beef to:

A) become roughly equal to the price in other camps.
B) remain unchanged.
C) fall dramatically compared to the price other camps.
D) rise above the price in other camps.

Question 35

For country A, an export is a good produced in:

A) country A and purchased by residents of country B.
B) country A and purchased by residents of country A.
C) country B and purchased by residents of country A.
D) country B and purchased by residents of country B.

Question 36

Table 3.3
Consider two individuals, Bob and Jerry, who produce guitars and banjos. Bob and Jerry's weekly productivity are shown in Table 3.3. Which of the following is true?

A) Bob has an absolute advantage in producing both goods, but no one has a comparative advantage in producing either good.
B) Bob has an absolute and a comparative advantage in producing both goods.
C) Bob has an absolute advantage in producing both goods, and a comparative advantage in producing guitars.
D) Bob has an absolute advantage in producing both goods, and a comparative advantage in producing banjos.

Question 37

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. Based on the table, Willy's opportunity cost of 1 apple is:

A) 1 carrot.
B) 6 carrots.
C) 4 carrots.
D) 2/3 carrot.

Question 38

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

A) Willy has an absolute advantage in producing carrots but not apples.
B) Willy has an absolute advantage in producing both goods.
C) Willy has an absolute advantage in producing apples but not carrots.
D) Willy does not have an absolute advantage in producing either good.

Question 39

In modern economies, individuals in markets make most of the decisions about:

A) how to produce.
B) for whom to produce.
C) what to produce.
D) all of the above

Question 40

Suppose a product suddenly loses popularity and the firms producing the product begin to realize large losses. As firms exit the market, the equilibrium price in the market will

A) decrease and make the remaining firms stay in business.
B) decrease further while making the remaining firms realize profits again.
C) increase and make the remaining firms stay in business.
D) decrease further and push more firms out of business.

Question 41

The reason why the government taxes the gasoline used by pollution- causing automobiles is because it is trying to:

A) make the government face the full cost of the driver's driving decisions.
B) make the people who suffer from asthma face the full cost of the driver's driving decisions.
C) make the oil companies face the full cost of the driver's driving decisions.
D) make the drivers face the full cost of their driving decisions.

Question 42

Recall Application 2, "Gold Farming for World of Warcraft," to answer the following questions:
According to the application, the purchase of virtual gold coins were done by online gamers who had:

A) a low opportunity cost of their time.
B) a high opportunity cost of their time.
C) no use for the virtual gold coins.
D) the least need for the gold coins.

Question 43

Suppose a car is completely produced and assembled in Germany and is sold to the United States. In this example, the country that imports the car is _______ while the country that exports the car is _______.

A) the United States; Germany
B) Germany; the United States
C) Germany; Germany
D) the United States; the United States

Question 44

Suppose that in the time it takes for him to bake a cake, Bob can sew 5 pairs of jeans. In the time it takes for Joe to bake a cake, he can sew 8 pairs of jeans day. In this example, Bob has advantage _______over Joe in cake baking.

A) an absolute
B) a comparative
C) an absolute and a comparative
D) neither an absolute nor a comparative

Question 45

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions:
According to the application, even though about 90% of the worlds candy canes are consumed in the US and domestic producers dominated the market, domestic producers moved production to Mexico because:

A) the US restricts sugar imports leading to higher domestic prices for sugar.
B) of corporate law breaking.
C) of corporate exploitation of Mexican workers.
D) US sugar prices are held artificially low.

Question 46

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

A) Willy should specialize in both goods.
B) Willy should specialize in apples and trade for carrots.
C) Willy should specialize in carrots and trade for apples.
D) Blithe should specialize in both goods.

Question 47

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions:
According to the application, US producers moved their candy cane production overseas due to:

A) absolute advantage.
B) artificially high US sugar prices due to US sugar import restrictions offsetting the lower transportation cost due to being close to US consumers.
C) corporate law breaking.
D) because US corporations want to exploit Mexican workers.

Question 48

A contract:

A) increases the profitability of inventions encouraging firms to develop new products.
B) provides the public with reliable information about the performance of a firm.
C) increases the risk faced by entrepreneurs.
D) specifies the term of exchange, facilitating exchange between strangers.

Question 49

Suppose a car is completely produced and assembled in Germany and is sold to the United States. In this example, if the United States restricts the purchase of the car from Germany, then the country whose overall welfare would be reduced by this policy would be:

A) the United States.
B) Germany.
C) neither Germany nor the United States.
D) both Germany and the United States.

Question 50

A specialized worker does not spend time switching from one task to another. This is called:

A) repetition.
B) innovation.
C) continuity.
D) functionality.

Question 51

_______ occurs when a firm is shifting part of its production to another country.

A) Exporting
B) Importing
C) Outsourcing
D) All of the above are correct.

Question 52

Which of the following is not a public good?

A) national defense
B) levees
C) a hamburger
D) space exploration

Question 53

Markets exist:

A) because people specialize in the production of one or two products.
B) because people are not self- sufficient.
C) as an arrangement that allows buyers and sellers to exchange things.
D) all of the above

Question 54

_______ is another term for "offshoring."

A) Importing
B) Exporting
C) Insourcing
D) Outsourcing

Question 55

Among the roles of the government in a market economy is to:

A) enforce property rights.
B) determine what is produced.
C) own the means of production.
D) all of the above

Question 56

When the government filed a lawsuit against Microsoft in 1998 alleging that Microsoft illegally bundled Internet Explorer in its operating software, the government's objective was to:

A) reduce uncertainty.
B) combat pollution.
C) reduce imperfect information.
D) foster competition.

Question 57

The ability of one person or nation to produce a good at a lower absolute cost than another is called a(n):

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

Question 58

Recall Application 2, "Gold Farming for World of Warcraft," to answer the following questions:
Suppose a US "World of Warcraft" player's opportunity cost is $8.00 an hour and can collect 25 coins per hour playing in the game. If the price of the virtual coins was $0.20 each, the player would find it worth their while to:

A) quit their job.
B) buy the virtual coins.
C) sell the virtual coins.
D) not buy the virtual coins.

Question 59

Which of the following best defines a public good?

A) A public good is a good that uses public funds to finance its production.
B) A public good is a good that is sold to other people in the market.
C) A public good is a good that requires government approval before it can be produced.
D) A public good is available for anyone to utilize, regardless on who pays and who doesn't.

Question 60

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

A) Willy has a comparative advantage in producing both goods.
B) Willy has a comparative advantage in producing carrots but not apples.
C) Willy has a comparative advantage in producing apples but not carrots.
D) Willy does not have a comparative advantage in producing either good.

Question 61

A product produced in a foreign country and purchased by residents of the home country is:

A) an import.
B) investment.
C) savings.
D) an export.

Question 62

Which of the following tend to reduce economic uncertainty?

A) health insurance
B) social security
C) unemployment insurance
D) all of the above are correct.

Question 63

An individual or country that has a comparative advantage in the production of one good:

A) may or may not have an absolute advantage in the good's production.
B) must not have an absolute advantage in the production of the other good.
C) must have an absolute advantage in the good's production.
D) must not have an absolute advantage in the good's production.

Question 64

Recall Application 3, "The Shakers and the Market for Garden Seeds," to answer the following questions:
According to the application, which of the following gave the Shakers an advantage over other farms in their agricultural operations?

A) The size of their operations were smaller than that of other farms.
B) The Shakers had more productive land than other farms.
C) The size of their operations were larger than that of other farms.
D) The weather was more favorable in the areas where the Shakers operated their farms.

Question 65

Suppose a new use for aluminum has been discovered, making aluminum more expensive. In a market system:

A) the aluminum roof producers may choose to look for other substitutes for aluminum.
B) aluminum producers will choose to increase production of aluminum.
C) auto manufacturers will find it in their best interest to use more aluminum.
D) A and B are correct.

Question 66

Recall Application 2, "Gold Farming for World of Warcraft," to answer the following questions:
According to the application, the price of virtual coins increased when:

A) gold farming was banned by the company that runs the "World of Warcraft."
B) gold farming became more prevalent in China.
C) gold farming was introduced by the company that runs the "World of Warcraft."
D) gold farming was encouraged by the company that runs the "World of Warcraft."

Question 67

The ability of one person or nation to produce a good at a lower resource cost than another is called a(n):

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

Question 68

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

A) Willy has neither an absolute nor a comparative advantage in carrot production.
B) Willy has neither an absolute nor comparative advantage in apple production.
C) Willy has both an absolute and comparative advantage in apple production.
D) Willy has both an absolute and comparative advantage in carrot production.

Question 69

An example of a public good is:

A) national defense
B) an apple.
C) a seat in a bus.
D) Pay- Per- View broadcasts.

Question 70

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

A) Willy should specialize in both goods.
B) Blythe should specialize in apples and trade for carrots.
C) Blythe should specialize in both goods.
D) Blythe should specialize in carrots and trade for apples.

Question 71

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:if Willy and Blythe choose to specialize and trade, then:

A) Blythe will specialize in carrots and trade carrots for apples.
B) Willy will specialize in apples and trade apples for carrots.
C) Willy will specialize in carrots and trade carrots for apples.
D) None of the above; specialization and trade are not beneficial for Willy and Blythe.

Question 72

Table 3.2
Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Which of the following is true?

A) Rose has a comparative advantage in producing both goods.
B) Rose has a comparative advantage in producing fish but not coconuts.
C) Rose has a comparative advantage in producing coconuts but not fish.
D) Rose does not have a comparative advantage in producing either good.

Question 73

Table 3.2
Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Rose's opportunity cost of producing 1 fish is:

A) 1 1/2 coconuts.
B) 6 coconuts.
C) 3 coconuts.
D) 1/3 coconut.

Question 74

The decrease in the scarcity of a product usually results in:

A) more colors being available.
B) more stores selling the product.
C) an increased number of sizes.
D) lower prices.

Question 75

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. Based on the table, Blythe's opportunity cost of 1 carrot is:

A) 4 apples.
B) 6 apples.
C) 3 apples.
D) 1.5 apples.

Question 76

Table 3.2
Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Which of the following is true?

A) Rose has neither an absolute nor a comparative advantage in fish production.
B) Rose has neither an absolute nor comparative advantage in coconut production.
C) Rose has both an absolute and comparative advantage in fish production.
D) Rose has both an absolute and comparative advantage in coconut production.

Question 77

Suppose a product suddenly becomes very popular and the firms producing the product begin to realize large profits. In response, entrepreneurs would:

A) exit the market and increase production.
B) exit the market and decrease production.
C) enter the market and increase production.
D) enter the market and decrease production.

Question 78

Table 3.1
Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. Based on the table, Blythe's opportunity cost of 1 apple is:

A) 1/3 carrot.
B) 6 carrots.
C) 1 carrot.
D) 4 carrots.

Question 79

The more times a worker performs a particular task, the more proficient the worker becomes at that task. This is called:

A) repetition.
B) specialization.
C) continuity.
D) innovation.

Question 80

An example of a market failure due to a firm not fully bearing the costs of its production decision is:

A) profit.
B) imperfect information.
C) pollution.
D) a levee.