TEST BANK for Principles of Microeconomics 10th Edition by Gregory Mankiw

TEST BANK FOR Principles of Microeconomics 10th Edition by Gregory Mankiw

TABLE OF CONTENTS Chapter 1: Ten Principles of Economics Chapter 2: Thinking Like an Economist Chapter 3: Interdependence and the Gains from Trade Chapter 4: The Market Forces of Supply and Demand Chapter 6: Supply, Demand, and Government Policies Chapter 7: Consumers, Producers, and the Efficiency of Markets Chapter 8: Application: The Costs of Taxation Chapter 9: Application: International Trade Chapter 10: Externalities Chapter 11: Public Goods and Common Resources Chapter 12: The Economics of Healthcare Chapter 13: The Design of the Tax System Chapter 14: The Costs of Production Chapter 15: Firms in Competitive Markets Chapter 16: Monopoly Chapter 17: Monopolistic Competition Chapter 18: Oligopoly

Chapter 19: The Markets for the Factors of Production Chapter 20: Earnings and Discrimination Chapter 21: Income Inequality and Poverty Chapter 22: The Theory of Consumer Choice Chapter 23: Frontiers of Microeconomics Chapter 24: Appendix: How Economists Use Data

Chapter 1: Ten Principles of Economics Indicate the answer choice that best completes the statement or answers the question. 1. Resources are a. scarce for households but plentiful for economies. b. plentiful for households but scarce for economies. c. scarce for households and scarce for economies. d. plentiful for households and plentiful for economies. 2. Fundamentally, economics deals with a. scarcity. b. money. c. poverty. d. banking. 3. The overriding reason why households and societies face many decisions is that a. resources are scarce. b. goods and services are not scarce. c. incomes fluctuate with business cycles. d. people, by nature, tend to disagree. 4. The phenomenon of scarcity stems from the fact that a. most economies' production methods are not very good. b. in most economies, wealthy people consume disproportionate quantities of goods and services. c. governments restrict production of too many goods and services. d. resources are limited. 5. In most societies, resources are allocated by a. a single central planner. b. a small number of central planners. c. those firms that use resources to provide goods and services. d. the combined actions of millions of households and firms. 6. Coal is considered to be a nonrenewable energy source. Which of the following statements is correct? a. Coal is an unlimited resource. b. Coal is a scarce resource. c. Coal is a nonscarce resource. d. Coal is not a resource. 7. Economics is the study of how society manages its a. limited wants and unlimited resources. b. unlimited wants and unlimited resources. c. limited wants and limited resources. d. unlimited wants and limited resources. 8. What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services .

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Ch 01: Ten Principles of Economics people wish to have? a. inefficiency b. inequality c. scarcity d. market failure 9. The adage, "There ain't no such thing as a free lunch," means a. even people who receive TANF benefits have to pay for food. b. the cost of living is always increasing. c. people face tradeoffs. d. all costs are included in the price of a product. 10. Which of the following statements best represents the principle of the adage, "There ain't no such thing as a free lunch"? a. Diego can attend the concert only by carpooling with siblings. b. Justin leaves wallet at home and misses lunch. c. Zehra must repair the bike tire before riding it to school. d. Dani must decide between going to Florida or Brazil for spring break. 11. Suppose that you plan your activities for a hot summer day. You would like to go to the local swimming pool and see the latest blockbuster movie. However, the only available ticket is for the same time that the pool is open. So you can only choose one activity. This illustrates the basic principle that a. people respond to incentives. b. rational people think at the margin. c. people face tradeoffs. d. improvements in efficiency sometimes come at the expense of equality. 12. While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that a. trade can make everyone better off. b. rational people think at the margin. c. people face tradeoffs. d. people respond to incentives. 13. When society requires that firms reduce pollution, there is a. a tradeoff because of reduced incomes to the firms' owners and workers. b. a tradeoff only if some firms are forced to close. c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements. d. no tradeoff, since everyone benefits from reduced pollution. 14. Efficiency means that a. society is conserving resources in order to save them for the future. b. society's goods and services are distributed equally among society's members. c. society's goods and services are distributed fairly, though not necessarily equally, among society's members. .

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Ch 01: Ten Principles of Economics d. society is getting the most it can from its scarce resources. 15. The property of society getting the most it can from its scarce resources is called a. efficiency. b. equality. c. externality. d. productivity. 16. Efficiency a. and equality both refer to how much a society can produce with its resources. b. and equality both refer to how fairly the benefits from using resources are distributed between members of a society. c. refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society. d. refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resources. 17. The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits. c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits. d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs. 18. When society gets the most it can from its scarce resources, then the outcome is called a. equitable. b. efficient. c. normal. d. marginal. 19. A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between a. guns and butter. b. efficiency and equality. c. inflation and unemployment. d. work and leisure. 20. Which of the following is true? a. Efficiency refers to the size of the economic pie; equality refers to how the pie is divided. b. Government policies usually improve upon both equality and efficiency. c. As long as the economic pie continually gets larger, no one will have to go hungry. .

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Ch 01: Ten Principles of Economics d. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces. 21. When the government redistributes income from individuals in the top one percent of income to individuals in the lowest income decile, a. efficiency is improved, but equality is not. b. individuals with both high levels of income and low levels of income benefit directly. c. people work less and produce fewer goods and services. d. the government collects more revenue in total. 22. When the government implements programs such as progressive income tax rates, which of the following is likely to occur? a. Equality is increased and efficiency is increased. b. Equality is increased and efficiency is decreased. c. Equality is decreased and efficiency is increased. d. Equality is decreased and efficiency is decreased. 23. Senator Jackson argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Feldman objects that this policy would benefit individuals in the top one percent of income at the expense of individuals in the lowest income category. a. Both senators' arguments are primarily about equality. b. Both senators' arguments are primarily about efficiency. c. Senator Jackson's argument is primarily about equality, while Senator Feldman's argument is primarily about efficiency. d. Senator Jackson's argument is primarily about efficiency, while Senator Feldman's argument is primarily about equality. 24. Suppose the government taxes the wealthy at a higher rate than it taxes low-income individuals and then develops programs to redistribute the tax revenue from the wealthy to low-income individuals. This redistribution of wealth a. is more efficient and more equal for society. b. is more efficient but less equal for society. c. is more equal but less efficient for society. d. is less equal and less efficient for society. 25. The opportunity cost of an item is a. the number of hours needed to earn money to buy the item. b. what you give up to get that item. c. usually less than the dollar value of the item. d. the dollar value of the item. 26. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is a. $0. b. $15. c. $305. .

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Ch 01: Ten Principles of Economics d. $315. 27. When computing the opportunity cost of attending a concert you should include a. the price you pay for the ticket and the value of your time. b. the price you pay for the ticket, but not the value of your time. c. the value of your time, but not the price you pay for the ticket. d. neither the price of the ticket nor the value of your time. 28. Mina decides to spend three hours working overtime rather than going to the park with friends. Because Mina earns $20 per hour for overtime work, Mina's opportunity cost of working is a. the $60 earned by working. b. the $60 minus the enjoyment Mina would have received from going to the park. c. the enjoyment Mina would have received by going to the park. d. nothing, since Mina would have received less than $60 worth of enjoyment from going to the park. 29. Liyam considers going to college. Currently, the costs of tuition is $21,000, room and board $11,000, and books cost $1,800. Not going to college, Liyam will earn $16,000 working in a store and spend $7,200 on room and board. Liyam's cost of going to college is a. $33,800. b. $42,600. c. $49,800. d. $57,000. 30. For which of the following individuals would the opportunity cost of going to college be highest? a. A promising young mathematician who will command a high salary once they earn their college degree b. A student with average grades who has never held a job c. A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree d. A student who is the best player on their college basketball team, but who lacks the skills necessary to play professional basketball 31. Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of attending college a. even if the amount Chloe would have to pay for room and board if Chloe didn't attend college rose by the same amount. An increase in opportunity cost reduces Chloe's incentive to attend college. b. even if the amount Chloe would have to pay for room and board if Chloe didn't attend college rose by the same amount. An increase in opportunity cost increases Chloe's incentive to attend college. c. only if the amount Chloe would have to pay for room and board if Chloe didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend college. d. only if the amount Chloe would have to pay for room and board if Chloe didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost increases Chloe's incentive to attend college. 32. Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot. How would this affect your opportunity cost of attending college? .

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Ch 01: Ten Principles of Economics a. The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to pay for parking otherwise. b. The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise. c. Only half of the cost of the parking permit is part of the opportunity cost of attending college. d. The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances. 33. Elena decides how to spend a $100 birthday gift between four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally, Elena decides on Option B. The opportunity cost of this decision is a. the value of the option Elena would have chosen had Option B not been available. b. the value to Elena of Options A, C, and D combined. c. the average of the values to Elena of Options A, C, and D. d. $100. 34. You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include a. both the cost of driving the first 800 miles and the next 15 miles. b. the cost of driving the first 800 miles, but not the cost of driving the next 15 miles. c. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles. d. neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles. 35. A rational decision maker a. ignores marginal changes and focuses instead on "the big picture." b. ignores the likely effects of government policies while making choices. c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action. d. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions. 36. Making rational decisions at the margin means that people a. make those decisions that do not impose a marginal cost. b. evaluate how easily a decision can be reversed if problems arise. c. compare the marginal costs and marginal benefits of each decision. d. always calculate the dollar costs for each decision. 37. People are willing to pay more for a diamond than for a bottle of water because a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. d. water prices are held artificially low by governments, since water is necessary for life. 38. The marginal benefit Sabrina gets from purchasing a third pair of gloves is a. the same as the total benefit from purchasing three pairs of gloves. .

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Ch 01: Ten Principles of Economics b. more than the marginal cost of purchasing the third pair of gloves. c. the total benefit from purchasing three pairs of gloves minus the total benefit from purchasing two pairs of gloves. d. the total benefit from purchasing four pairs of gloves minus the total benefit from purchasing three pairs of gloves. 39. After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision? a. The marginal benefit of going to Spain increases. b. The marginal cost of going to Spain increases. c. The marginal benefit of going to Ireland increases. d. The marginal cost of going to Ireland decreases. 40. A hair stylist who cuts and colors hair for 50 clients per week and earns a profit is expanding to serve more clients. Is this a good business decision? a. Yes, because cutting hair is profitable. b. No, because it is very hard to sell more services. c. It depends on the marginal cost of serving more clients and the marginal revenue earned from serving more clients. d. It depends on the average cost of serving more clients and the average revenue earned from serving more clients. 41. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the marginal cost. b. sell the ticket because the marginal benefit exceeds the average cost. c. not sell the ticket because the marginal benefit is less than the marginal cost. d. not sell the ticket because the marginal benefit is less than the average cost. 42. Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is a. $50. b. $500. c. $50,000. d. This cannot be determined from the information given. 43. Savion is restoring a car and has already spent $4,000 on the restoration. Savion expects to be able to sell the car for $5,800 but needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. Savion could also sell the car now, without completing the additional work, for $3,800. What should Savion do? a. Sell the car now for $3,800. b. Keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then sell it for only $5,800. c. Complete the additional work and sell the car for $5,800. d. It does not matter which action Savion takes since the outcome will be the same either way. 44. Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the .

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Ch 01: Ten Principles of Economics company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct? a. For the first 24 houses, the average cost per house was $205,000. b. The marginal cost of the 25th house, if it is built, will equal $250,000. c. If the company can sell the 25th house for at least $202,000, then it should build it. d. The company should never build the 25th house because this increases its total cost. 45. Suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay a. more than $40; because the average benefit will exceed the marginal cost. b. more than $40; because the marginal benefit will exceed the marginal cost. c. more than $80; because the average benefit will exceed the marginal cost. d. more than $80; because the marginal benefit will exceed the marginal cost. 46. A bagel shop sells fresh-baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has eight dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive? a. Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen. b. Lower the price of the remaining bagels, but under no circumstances should the price fall below $1.00 per dozen. c. Throw the bagels away and produce eight fewer dozen bagels tomorrow. d. Starting tomorrow, lower the price on all bagels so they will all be sold earlier in the day. 47. Yvette buys and sells real estate. Two weeks ago, Yvette paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Yvette purchased. As a result of the city's announced plan, Yvette is weighing two alternatives: Go ahead with the $50,000 in repairs and then sell the house for $290,000, or forgo the repairs and sell the house as it is for $250,000. Yvette most likely will a. keep the house and live in it. b. go ahead with the $50,000 in repairs and sell the house for $290,000. c. forgo the repairs and sell the house as it is for $250,000. d. move the house from Pine Street to a more desirable location, regardless of the cost of doing so. 48. You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should a. compare the total cost of your education to the total benefits of your education. b. compare the total cost of your education to the benefits of staying one more semester. c. compare the cost of staying one more semester to the benefits of staying one more semester. d. compare the total benefits of your education to the cost of staying one more semester. 49. You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? a. The amount you value the first movie + $3 .

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Ch 01: Ten Principles of Economics b. The amount you value the first movie + $9 c. $3 d. $9 50. Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that a. they should leave the price at $10. b. it does not matter if they charge $10 or $15. c. they would do better charging $15 than $10. d. they should raise the price even more. 51. Your professor who loves teaching economics has been offered another position in the corporate world that would increase income by 25 percent. Still the professor has decided to continue teaching. This decision would not change unless the marginal a. cost of teaching increased. b. benefit of teaching increased. c. cost of a corporate job increased. d. benefit of a corporate job decreased. 52. Your management professor accepted an offer of a corporate job with a 30 percent pay increase because the marginal a. cost of leaving was greater than the marginal benefit. b. benefit of leaving was greater than the marginal cost. c. benefit of teaching was greater than the marginal cost. d. benefit of teaching was negative. 53. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate? a. People respond to incentives. b. Rational people think at the margin. c. Trade can make everyone better off. d. Markets are usually a good way to organize economic activity. 54. Which of the following statements exemplifies a principle of individual decision making? a. Trade can make everyone better off. b. Governments can sometimes improve market outcomes. c. The cost of something is what you give up to get it. d. Prices rise when the government prints too much money. 55. Which of the following is not an example of a group responding to an incentive? a. Students attend class because of an attendance policy that reduces their grade for absences. b. Consumers buy more of a product when it is on sale at a reduced price. c. Universities offer fewer online classes when they generate more revenue at the same cost than traditional .

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Ch 01: Ten Principles of Economics classes. d. Employees work harder to earn higher commissions. 56. Timothy decides to spend four hours playing video games rather than attending classes. Timothy 's opportunity cost of playing games is a. the value of the knowledge Timothy would have received by attending classes. b. income Timothy could have earned working a job for those four hours. c. the value of time playing video games minus the value of attending classes. d. nothing, since Timothy valued playing video games more than attending classes. 57. Which of the following industries has a marginal cost that is close to zero? a. Automobile b. Aircraft c. Software d. Furniture 58. Which is the most accurate statement about trade? a. Trade can make every nation better off. b. Trade makes some nations better off and others worse off. c. Trading for a good can make a nation better off only if the nation cannot produce that good itself. d. Trade helps rich nations and hurts poor nations. 59. Which of the following statements about trade is false? a. Trade increases competition. b. With trade, one country must win and one country must lose. c. Bulgaria can benefit, potentially, from trade with any other country. d. Trade allows people to buy a greater variety of goods and services at lower cost. 60. If the United States decides to trade with Yemen, we know that a. Yemen will benefit, but trade with a less developed country could not benefit the United States. b. it will not benefit Yemen because workers in the United States are more productive. c. Yemen and the United States can both benefit. d. it will not benefit either country because their cultural differences are too vast. 61. Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics? a. Trade can make everyone better off. b. Markets are usually a good way to organize economic activity. c. Governments can sometimes improve market outcomes. d. Prices rise when the government prints too much money. 62. Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence's daughter to play the guitar in exchange for Terrence tiling Dale's kitchen floor, a. only Dale is made better off by trade. .

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Ch 01: Ten Principles of Economics b. only Terrence is made better off by trade. c. both Dale and Terrence are made better off by trade. d. neither Dale nor Terrence are made better off by trade. 63. Trade between countries tends to a. reduce both competition and specialization. b. reduce competition and increase specialization. c. increase competition and reduce specialization. d. increase both competition and specialization. 64. Trade a. allows specialization, which increases costs. b. allows specialization, which reduces costs. c. reduces specialization, which increases costs. d. reduces specialization, which reduces costs. 65. Central planning refers to a. markets guiding economic activity. Today many countries that had this system have abandoned it. b. markets guiding economic activity. Today many countries that did not have this system have implemented it. c. government guiding economic activity. Today many countries that had this system have abandoned it. d. government guiding economic activity. Today many countries that did not have this system have implemented it. 66. The basic principles of economics suggest that a. markets are seldom, if ever, a good way to organize economic activity. b. government should become involved in markets when trade between countries is involved. c. government should become involved in markets when those markets fail to produce efficient or fair outcomes. d. government should never become involved in markets. 67. Communist countries worked under the premise that a. people, when left on their own without government intervention, will find the best use of available resources. b. central planners were in the best position to determine the allocation of scarce resources in the economy. c. households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce resources. d. allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources. 68. Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by a. a market economy. b. a strong reliance on prices and individuals' self-interests. c. a system of large privately owned firms. d. the actions of government central planners. .

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Ch 01: Ten Principles of Economics 69. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations? a. There is no such thing as a free lunch. b. People buy more when prices are high than when prices are low. c. No matter how much people earn, they tend to spend more than they earn. d. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes. 70. The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book? a. David Ricardo b. Thorstein Veblen c. John Maynard Keynes d. Adam Smith 71. The "invisible hand" refers to a. how central planners made economic decisions. b. how the decisions of households and firms lead to desirable market outcomes. c. the control that large firms have over the economy. d. government regulations without which the economy would be less efficient. 72. The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by a. government actions that distort prices. b. increased competition in markets. c. enforcement of property rights. d. too much attention paid to efficiency. 73. In a market economy, who makes the decisions that guide most economic activity? a. Firms only b. Households only c. Firms and households d. Government 74. In a market economy, economic activity is guided by a. the government. b. public-interest groups. c. central planners. d. self-interest and prices. 75. Which of the following statements does not apply to a market economy? a. Firms decide whom to hire and what to produce. b. The "invisible hand" usually maximizes the income of society as a whole. c. Households decide which firms to work for and what to buy with their incomes. d. Government policies are the primary forces that guide the decisions of firms and households. .

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Ch 01: Ten Principles of Economics 76. Prices direct economic activity in a market economy by a. influencing the actions of buyers and sellers. b. reducing scarcity of the goods and services produced. c. reducing opportunity cost of goods and services produced. d. allocating goods and services in the most equitable way. 77. If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome, a. an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide. b. an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. c. a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide. d. a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. 78. If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome, a. an increase in the number of unskilled jobs available. b. a decrease in the number of unskilled jobs available. c. a decrease in the number of workers wanting unskilled jobs. d. an increase in the number of businesses using unskilled workers. 79. When the government prevents prices from adjusting naturally to supply and demand, it a. equates the amount buyers want to buy with the amount sellers want to sell. b. adversely affects the allocation of resources. c. improves equality and efficiency. d. improves efficiency but reduces equality. 80. The ability of an individual to own and exercise control over scarce resources is called a. market failure. b. property rights. c. externality. d. market power. 81. The term used to describe a situation in which markets do not allocate resources efficiently is a. economic meltdown. b. market failure. c. equilibrium. d. the effect of the invisible hand. 82. The term market failure refers to a. a situation in which the market on its own fails to allocate resources efficiently. b. an unsuccessful advertising campaign which reduces demand for a product. .

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Ch 01: Ten Principles of Economics c. a situation in which competition among firms becomes ruthless. d. a firm that is forced out of business because of losses. 83. Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market? a. To promote efficiency b. To promote equality c. To enforce property rights d. To protect an industry from foreign competition 84. Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of a. a market failure caused by an externality. b. a market failure caused by market power. c. a market failure caused by equality. d. no market failure. 85. If an externality is present in a market, economic efficiency may be enhanced by a. government intervention. b. a decrease in foreign competition. c. fewer market participants. d. weaker property rights. 86. Which of the following is an example of an externality? a. Mia purchases a new dress. b. Antonio's dog barks loudly during the night, waking the neighborhood. c. Harold sells a book to Sydney, who reads the book and then gives it to Zyavonta as a gift. d. Gloria watches a scary movie. 87. The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as a. productivity. b. an externality. c. market power. d. property rights. 88. Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce a. efficiency. b. equality. c. externalities. d. productivity. 89. Which of these activities will most likely impose an external cost? a. An athlete works out at a gym. .

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Ch 01: Ten Principles of Economics b. A postal worker smokes a cigarette in a crowded break room. c. A young father pushes his baby in a stroller. d. A construction worker eats a hotdog during their lunch break. 90. Which of these activities will most likely result in an external benefit? a. A college student buys a deck of cards to play solitaire in her dorm room. b. A group of neighbors plant a flower garden on the vacant lot next to their houses. c. An executive purchases a book to read on a business trip. d. A ten-year-old spending a $100 allowance to buy new Nike shoes. 91. Market power refers to the a. power of a single person or small group to influence market prices. b. ability of a person or small group to successfully market new products. c. power of the government to regulate a market. d. importance of a certain market in relation to the overall economy. 92. Which of the following firms is likely to have the greatest market power? a. A utility company b. A farmer c. A grocery store d. A local electronics retailer 93. Productivity is defined as the a. amount of goods and services produced from each unit of labor input. b. number of workers required to produce a given amount of goods and services. c. amount of labor that can be saved by replacing workers with machines. d. actual amount of effort workers put into an hour of working time. 94. The primary determinant of a country's standard of living is a. the country's ability to prevail over foreign competition. b. the country's ability to produce goods and services. c. the total supply of money in the economy. d. the average age of the country's labor force. 95. The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by a. unstable economic conditions in Eastern Europe. b. increased competition from abroad. c. a decline in the rate of increase in U.S. productivity. d. a strong U.S. dollar abroad, hurting U.S. exports. 96. Suppose that in Brazil total annual output is worth $600 million and people work 30 million hours. In Peru, total annual output is worth $800 million and people work 50 million hours. Productivity is higher a. in Brazil. Most variation in the standard of living across countries is due to differences in productivity. b. in Brazil. Differences in productivity explain very little of the variation in the standard of living across countries. .

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Ch 01: Ten Principles of Economics c. in Peru. Most variation in the standard of living across countries is due to differences in productivity. d. in Peru. Differences in productivity explain very little of the variation in the standard of living across countries. 97. In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker a. decreased by 1.7 percent between 1998 and 2008. b. remained unchanged between 1998 and 2008. c. increased by 4.75 percent between 1998 and 2008. d. increased by 6.25 percent between 1998 and 2008. 98. A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages? a. U.S. textile workers belong to a union, whereas Vietnamese textile workers do not belong to a union. b. There is little demand for cotton cloth in Vietnam and great demand in the United States. c. Labor is more productive making cotton cloth with a mechanical loom than with a hand loom. d. Vietnam has a low-wage policy to make its textile industry more competitive in world markets. 99. To improve living standards, policymakers should a. impose restrictions on foreign competition. b. formulate policies designed to increase productivity. c. impose tougher immigration policies. d. provide tax breaks for the middle class. 100. An increase in the overall level of prices in an economy is referred to as a. the income effect. b. inflation. c. deflation. d. the substitution effect. 101. Large or persistent inflation is almost always caused by a. excessive government spending. b. excessive growth in the quantity of money. c. foreign competition. d. higher-than-normal levels of productivity. 102. In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy? a. 3 percent per year b. 5 percent per year c. 7 percent per year d. 9 percent per year 103. In the short run, an increase in the money supply is likely to lead to .

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Ch 01: Ten Principles of Economics a. lower unemployment and lower inflation. b. lower unemployment and higher inflation. c. higher unemployment and lower inflation. d. higher unemployment and higher inflation. 104. Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because a. the Federal Reserve is worried about inflation. b. the Federal Reserve is worried about unemployment. c. the Federal Reserve is hoping to reduce the demand for goods and services. d. the Federal Reserve is worried that the economy is growing too quickly. 105. Which of the following is the most correct statement about the relationship between inflation and unemployment? a. In the short run, falling inflation is associated with falling unemployment. b. In the short run, falling inflation is associated with rising unemployment. c. In the long run, falling inflation is associated with falling unemployment. d. In the long run, falling inflation is associated with rising unemployment. 106. Which of the following is an important cause of inflation in an economy? a. Increases in productivity in the economy b. The influence of positive externalities on the economy c. Lack of property rights in the economy d. Growth in the quantity of money in the economy 107. Which of the following claims is consistent with the views of mainstream economists? a. If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily fall. b. If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily rise. c. If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will permanently fall. d. If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will permanently rise. 108. For a very long time the country of Zeeland has had an inflation rate of 9 percent. Suddenly its inflation rate drops to 3 percent. The drop in the inflation rate a. could be due to slower money supply growth. We would expect unemployment to be higher. b. could be due to slower money supply growth. We would expect unemployment to be lower. c. could be due to higher money supply growth. We would expect unemployment to be higher. d. could be due to higher money supply growth. We would expect unemployment to be lower. 109. For a number of years country A had inflation of 3 percent but for the last five years has had inflation of 6 percent. Country B had inflation of 4 percent for many years, but very recently inflation unexpectedly rose to 9 percent. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment? a. both country A and country B .

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Ch 01: Ten Principles of Economics b. neither country A nor country B c. country A but not country B d. country B but not country A 110. During the 1990s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. A likely explanation of these facts is that a. the United Kingdom has a better education system than Turkey. b. the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey. c. workers in Turkey are more productive than workers in the United Kingdom. d. there are more instances of market power in Turkey than in the United Kingdom. 111. In the short run, which of the following is not correct? a. Increasing the money supply increases the demand for goods and services. b. Increasing the money supply encourages firms to hire more workers. c. Lowering the money supply leads to a higher level of unemployment. d. Policies that encourage higher employment will also induce a lower rate of inflation. 112. The business cycle is the a. relationship between unemployment and inflation. b. irregular fluctuations in economic activity. c. positive relationship between the quantity of money in an economy and inflation. d. predictable changes in economic activity due to changes in government spending and taxes. 113. Both the production of goods and services and the unemployment rate are used to measure a. the business cycle. b. productivity. c. the interest rate. d. inflation.

Indicate whether the statement is true or false. 114. Scarcity means that there is less of a good or resource available than people wish to have. a. True b. False 115. Economics is the study of how evenly goods and services are distributed within society. a. True b. False 116. Economics is the study of how society allocates its unlimited resources. a. True b. False 117. Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires. a. True .

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Ch 01: Ten Principles of Economics b. False 118. Equality means distributing society’s resources in the most efficient manner. a. True b. False 119. Economists study how people make decisions. a. True b. False 120. With careful planning, we can usually get something that we like without having to give up something else that we like. a. True b. False 121. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff. a. True b. False 122. The classic tradeoff between “guns and butter” states that when a society spends more on national defense, it has less to spend on consumer goods to raise the standard of living. a. True b. False 123. Efficiency means everyone in the economy should receive an equal share of the goods and services produced. a. True b. False 124. Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie. a. True b. False 125. Government policies that improve equality usually increase efficiency at the same time. a. True b. False 126. Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality. a. True b. False 127. An individual deciding how to allocate their limited time is dealing with both scarcity and trade-offs. a. True b. False 128. The cost of an action is measured in terms of foregone opportunities. a. True .

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Ch 01: Ten Principles of Economics b. False 129. Tuition is the single-largest cost of attending college for most students. a. True b. False 130. If wages for accountants rose, then accountants’ leisure time would have a lower opportunity cost. a. True b. False 131. A marginal change is a small incremental adjustment to an existing plan of action. a. True b. False 132. An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity. a. True b. False 133. If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75. a. True b. False 134. The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior. a. True b. False 135. A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit. a. True b. False 136. Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates the principle that people respond to incentives. a. True b. False 137. A tax on gasoline is an incentive that encourages people to drive smaller and more fuel-efficient cars. a. True b. False 138. To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change. a. True .

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Ch 01: Ten Principles of Economics b. False 139. One of the effects of gas prices rising from about $2 to about $4 per gallon was airlines ordering new, fuel-efficient aircraft. a. True b. False 140. Trade allows each person to specialize in the activities they do best, thus increasing each individual's productivity. a. True b. False 141. Trade with any nation can be mutually beneficial. a. True b. False 142. Trade can make everyone better off except in the case where one person is better at doing everything. a. True b. False 143. The invisible hand ensures that economic prosperity is distributed equally. a. True b. False 144. A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests. a. True b. False 145. Communist countries worked on the premise that government officials were in the best position to allocate the economy’s scarce resources. a. True b. False 146. The government can potentially improve market outcomes if market inequalities or market failure exists. a. True b. False 147. One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources. a. True b. False 148. Market failure refers to a situation in which the market does not allocate resources efficiently. a. True b. False .

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Ch 01: Ten Principles of Economics 149. Market power and externalities are two possible causes of market failure. a. True b. False 150. Market failure occurs when no individual has the ability to substantially influence market prices. a. True b. False 151. Productivity is defined as the quantity of goods and services produced from each unit of labor input. a. True b. False 152. Inflation is the primary determinant of a country's living standards. a. True b. False 153. Inflation increases the value of money. a. True b. False 154. Inflation measures the increase in the quantity of goods and services produced from each hour of a worker’s time. a. True b. False 155. The goal of President Obama’s stimulus package and increased government spending following the deep economic downturn in 2008 and 2009 was to reduce inflation. a. True b. False 156. Variations in the standard of living across countries is due almost entirely to differences in each nation’s total output of goods and services. a. True b. False 157. In the short-run, society faces a tradeoff between inflation and unemployment. a. True b. False 158. In the long run the primary effect of increasing the quantity of money is higher prices. a. True b. False 159. The business cycle refers to fluctuations in economic activity such as employment and production. a. True b. False .

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Ch 01: Ten Principles of Economics 160. The opportunity cost of working one hour is the sum of the values you would have received from all other activities you could have done in that hour. a. True b. False 161. The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour. a. True b. False 162. Inflation and unemployment both increase as the money supply increases. a. True b. False 163. A rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost. a. True b. False 164. The "invisible hand" influences market behavior through trade. a. True b. False

165. Economics is the study of ______ . 166. The term ______ refers to the size of the economic pie, and the term ______ refers to how the pie is divided. 167. Explain how government policies that redistribute income from the rich to the poor might reduce efficiency. 168. Scenario 1-1 You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $8.00 on a ticket and $4.50 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 10 points. Refer to Scenario 1-1. What is your opportunity cost of going to the movies? 169. Scenario 1-1 You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $8.00 on a ticket and $4.50 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 10 points. Refer to Scenario 1-1. What is your opportunity cost of studying economics? 170. Scenario 1-2 Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour. Refer to Scenario 1-2. What is your opportunity cost of going to the movies? .

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Ch 01: Ten Principles of Economics 171. Scenario 1-2 Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour. Refer to Scenario 1-2. What is your opportunity cost of working? 172. Debbie quits her job, which pays $30,000 a year, to finish her college degree. Her annual college expenses are $10,000 for tuition, $2,000 for books, and $700 for food. What is her opportunity cost of attending college for the year? 173. Zack quits a consulting firm, which pays $40,000 a year, to enroll in a two-year graduate program. Zack's annual school expenses are $30,000 for tuition, $2,000 for books, and $600 for food. What is Zack's opportunity cost of attending the two-year graduate program? 174. Give an example of a trade-off faced by society. 175. Scenario 1-3 It costs a company $35,000 to produce 700 graphing calculators. The company’s cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators. Refer to Scenario 1-3. What is the company’s average cost? 176. Scenario 1-3 It costs a company $35,000 to produce 700 graphing calculators. The company’s cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators. Refer to Scenario 1-3. What is the company’s marginal cost? 177. Scenario 1-3 It costs a company $35,000 to produce 700 graphing calculators. The company’s cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators. Refer to Scenario 1-3. A customer is willing to pay $60 for the 701th calculator. Should the company produce and sell it? Explain. 178. Scenario 1-3 It costs a company $35,000 to produce 700 graphing calculators. The company’s cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators. Refer to Scenario 1-3. What is the minimum price the company will charge for the 701th calculator? 179. Scenario 1-4 You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $12.00 on a ticket and $4.75 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 15 points. Refer to Scenario 1-4. What is your opportunity cost of going to the movies? 180. Scenario 1-4 You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $12.00 on a ticket and $4.75 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 15 points. Refer to Scenario 1-4. What is your opportunity cost of studying economics? 181. What is another word for “marginal”? .

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Ch 01: Ten Principles of Economics 182. The term ______ refers to a small incremental adjustment to an existing plan of action. 183. Scenario 1-5 Suppose that you have a choice between going to the movies with a friend for three hours or working at your job. If you go to the movies, you will spend $12 on a ticket and $6 on popcorn. If you choose to work, you will earn $10 an hour. Refer to Scenario 1-5. What is your opportunity cost of going to the movies? 184. Scenario 1-5 Suppose that you have a choice between going to the movies with a friend for three hours or working at your job. If you go to the movies, you will spend $12 on a ticket and $6 on popcorn. If you choose to work, you will earn $10 an hour. Refer to Scenario 1-5. What is your opportunity cost of working? 185. Scenario 1-6 It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors. Refer to Scenario 1-6. What is the company’s average cost? 186. Scenario 1-6 It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors. Refer to Scenario 1-6. What is the company’s marginal cost? 187. Scenario 1-6 It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors. Refer to Scenario 1-6. A customer is willing to pay $60 for the 601st heart rate monitor. Should the company produce and sell it? Explain. 188. Scenario 1-6 It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will be $30,070 if it produces an additional heart rate monitor. The company is currently producing 600 heart rate monitors. Refer to Scenario 1-6. What is the minimum price that would induce this company to produce the 601st heart rate monitor? 189. Tracy quits her job, which pays $25,000 a year, to finish her college degree. Her annual college expenses are $12,000 for tuition and fees and $1,000 for books. What is her opportunity cost of attending college for the year? 190. Melinda quits her job at a bank, which pays $30,000 a year, to enroll in a two-year graduate program. Her annual school expenses are $22,000 for tuition and fees and $2,000 for books. What is her opportunity cost of attending the twoyear graduate program? 191. What does the term “marginal change” mean? 192. Rational people make decisions “at the margin” by comparing ______. .

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Ch 01: Ten Principles of Economics 193. In a centrally-planned economy, economic activity is guided by ______. 194. Explain how trade with other countries is beneficial. 195. What are the two basic types of economies? 196. What is the main difference between a centrally planned economy and a market economy? 197. Invisible hand is a term used by the economist ______ to describe how the decisions of households and firms lead to desirable market outcomes. 198. Economists use the term ______ to refer to a situation in which the market on its own fails to produce an efficient allocation of resources. 199. What are the two possible causes of market failure? 200. Explain the concept of externality and give an example. 201. What are the two reasons for the government to intervene in a market? 202. What does the “invisible hand” refers to? 203. Invisible hand is a term used by the economist ______ in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations. 204. What do prices reflect in a market economy? 205. Explain the concept of market failure. 206. Economists use the term ______ to refer to the ability of a single person (or a small group) to have a substantial influence on market prices. 207. Give an example of government intervention that is intended to reduce an externality. 208. Give an example of government intervention that is intended to improve equality. 209. Economists use the term ______ to refer to an increase in the overall level of prices in the economy. 210. In the short run, an increase in the money supply is likely to lead to ______ inflation and ______ unemployment. 211. Economists use the term ______ to refer to fluctuations in economic activity, such as employment and production. 212. Consider two countries, Muria and Zenya. In Muria total annual output is worth $800 million and people work 40 million hours. In Zenya total annual output is worth $900 million and people work 50 million hours. In which country is productivity higher? 213. Suppose that in Germany total annual output is worth $600 million and people work 40 million hours. In France total annual output is worth $700 million and people work 50 million hours. In which country do people enjoy a higher standard of living? 214. What are the two short-run effects of increasing the quantity of nation’s money? .

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Ch 01: Ten Principles of Economics 215. How does the study of economics depend upon the phenomenon of scarcity? 216. One tradeoff society faces is between efficiency and equality. Define each term. If the U.S. government redistributes income from the rich to the poor, explain how this action affects equality as well as efficiency in the economy. 217. Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today? 218. With the understanding that people respond to incentives, outline the possible outcome for teachers if the K-12 school year is extended to 11 months per year instead of the existing 9 months per year. 219. Under what conditions might government intervention in a market economy improve the economy’s performance? 220. Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

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Ch 01: Ten Principles of Economics Answer Key 1. c 2. a 3. a 4. d 5. d 6. b 7. d 8. c 9. c 10. d 11. c 12. c 13. a 14. d 15. a 16. c 17. a 18. b 19. b 20. a 21. c 22. b 23. d 24. c 25. b .

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Ch 01: Ten Principles of Economics 26. d 27. a 28. c 29. b 30. c 31. c 32. b 33. a 34. c 35. c 36. c 37. b 38. c 39. a 40. c 41. a 42. d 43. a 44. b 45. b 46. a 47. c 48. c 49. a 50. c 51. a .

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Ch 01: Ten Principles of Economics 52. b 53. a 54. c 55. c 56. a 57. c 58. a 59. b 60. c 61. a 62. c 63. d 64. b 65. c 66. c 67. b 68. d 69. d 70. d 71. b 72. a 73. c 74. d 75. d 76. a .

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Ch 01: Ten Principles of Economics 77. b 78. b 79. b 80. b 81. b 82. a 83. d 84. a 85. a 86. b 87. b 88. c 89. b 90. b 91. a 92. a 93. a 94. b 95. c 96. a 97. d 98. c 99. b 100. b 101. b 102. d .

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Ch 01: Ten Principles of Economics 103. b 104. b 105. b 106. d 107. a 108. a 109. d 110. b 111. d 112. b 113. a 114. True 115. False 116. False 117. True 118. False 119. True 120. False 121. True 122. True 123. False 124. True 125. False 126. True 127. True .

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Ch 01: Ten Principles of Economics 128. True 129. False 130. False 131. True 132. False 133. False 134. False 135. False 136. True 137. True 138. True 139. True 140. True 141. True 142. False 143. False 144. False 145. True 146. True 147. True 148. True 149. True 150. False 151. True 152. False 153. False .

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Ch 01: Ten Principles of Economics 154. False 155. False 156. False 157. True 158. True 159. True 160. False 161. True 162. False 163. True 164. False 165. how society manages its scarce resources. 166. efficiency; equality 167. They reduce the reward for working hard. As a result, people work less and produce fewer goods and services. 168. $12.50 and 10 points on your exam grade 169. The enjoyment you would have received from going to the movies with your friend. 170. $32 171. The enjoyment you would have received from going to the movies with your friend. 172. $42,000 173. $144,000 174. Efficiency and equality; a clean environment and a high level of income; guns and butter (national defense and consumer goods) 175. $50 176. $70 177. No, because the marginal cost ($70) is less than the marginal benefit ($60). 178. $70 .

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Ch 01: Ten Principles of Economics 179. $16.75 and 15 points on your exam grade 180. The enjoyment you would have received from going to the movies with your friend. 181. incremental; additional 182. Marginal change 183. $48 184. The enjoyment you would have received from going to the movies with your friend. 185. $50 186. $70 187. No, because the marginal cost ($70) exceeds the marginal benefit ($60). 188. $70 189. $38,000 190. $108,000 191. A small incremental adjustment to a plan of action 192. marginal costs and marginal benefits 193. the government 194. Trade allows countries to specialize in what they do best, which increases total output. 195. Centrally planned economies and market economies 196. In a market economy, decisions are guided by prices and individual self-interest. In a centrally planned economy, economic activity is guided by the government. 197. Adam Smith 198. market failure 199. Externality and market power 200. The impact of one person’s actions on the well-being of a bystander; pollution 201. To promote efficiency and equality 202. How the decisions of self-interested households and firms lead to desirable market outcomes. 203. Adam Smith .

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Ch 01: Ten Principles of Economics 204. The value of a good to society and the cost to society of making the good 205. Market failure is a situation in which the market on its own fails to produce an efficient allocation of resources. 206. market power 207. Laws that restrict the smoking of cigarettes in public places 208. The income tax; the welfare system 209. Inflation 210. higher; lower 211. business cycle 212. In Muria 213. In Germany. Almost all variation in the standard of living across countries is due to differences in productivity. 214. Higher inflation and lower unemployment 215. Because economics is the study of how society allocates its scarce resources, if there were no scarcity, there would be no need for economics. Everyone could have all the goods and services they wanted. No one would have to make decisions based on tradeoffs, because there would be no opportunity cost associated with the decision. (It is difficult to conceive of a situation where time is not scarce, however). 216. Efficiency is the property of society getting the most it can from its scarce resources. Equality is defined as the property of distributing economic prosperity evenly among the members of society. Often, these two goals conflict. When the government redistributes income from the rich to the poor, it reduces the reward for working hard. Fewer goods and services are produced and the economic pie gets smaller. When the government tries to cut the economic pie into more equal slices, the pie gets smaller. Policies aimed at achieving a more equal distribution of economic well-being, such as the welfare system, try to help those members of society who are most in need. The individual income tax asks the financially successful to contribute more than others to support the government. 217. Whatever must be given up to obtain some item it its opportunity cost. Basically, this would be a person's second choice. The opportunity cost of a person attending college is the value of the best alternative use of that person's time, as well as the additional costs the person incurs by making the choice to attend college. For most students this would be the income the student gives up by not working plus the cost of tuition and books, and any other costs they incur by attending college that they would not incur if they chose not to attend college. A student's opportunity cost of coming to class was the value of the best opportunity the student gave up. (For most students, that seems to be sleep.) 218. The concept of working longer per year would be perceived by many teachers as a definite increase in the cost of teaching. Even with additional compensation, many teachers look at summers off as a major benefit of the education profession. If this benefit were eliminated or diminished, some teachers may perceive that the marginal cost of teaching would now be greater than the marginal benefit and would choose to leave teaching. 219. If there is a market failure, such as an externality or monopoly, government regulation might improve the well-being of society by promoting efficiency. If the distribution of income or wealth is considered to be unfair by society, government intervention might achieve a more equal distribution of economic well-being. .

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Ch 01: Ten Principles of Economics 220. To lower inflation, the government may choose to reduce the money supply in the economy. When the money supply is reduced, prices don't adjust immediately. Lower spending, combined with prices that are too high, reduces sales and causes workers to be laid off. Hence, the lower price level is associated with higher unemployment.

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Ch 02: Thinking Like an Economist

Indicate the answer choice that best completes the statement or answers the question. 1. How are economists not like mathematicians, physicists, and biologists? a. They use models to represent the real world. b. They try to address their subject with a scientist's objectivity. c. They devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories. d. They cannot run lab experiments in the same way that other scientists can. 2. Which of the following steps does an economist not take when studying the economy? a. Devise theories b. Collect data c. Analyze data d. Publish theories before testing them 3. Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step? a. Collect and analyze data b. Go to a laboratory and generate data to test the theory c. Publish the theory without testing it d. Consult with other economists to see if they agree with the theory 4. The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in a. performing an experiment in an economic system. b. applying mathematical methods to economic analysis. c. analyzing available data. d. formulating theories about economic events. 5. Instead of conducting laboratory experiments to generate data to test their theories, economists often a. ask winners of the Nobel Prize in Economics to evaluate their theories. b. argue that data is impossible to collect in economics. c. gather data from historical episodes of economic change. d. assume that data would support their theories. 6. Economists make assumptions to a. mimic the methodologies employed by other scientists. b. minimize the number of experiments that yield no useful data. c. minimize the likelihood that some aspect of the problem at hand is being overlooked. d. focus their thinking on the essence of the problem at hand. 7. The art in scientific thinking—whether in chemistry, economics, or biology—is a. the design and implementation of laboratory experiments. b. knowing when to stop collecting data and when to start analyzing the data. c. deciding which assumptions to make. d. being able to mathematically model natural phenomena. .

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Ch 02: Thinking Like an Economist 8. Which of the following statements about models is correct? a. The more details a model includes, the better the model. b. Models assume away irrelevant details. c. Models cannot be used to explain how the economy functions. d. Models cannot be used to make predictions. 9. A circular-flow diagram is a model that a. helps to explain how consumers and the government interact with one another. b. explains how countries trade with each other. c. incorporates all aspects of the real economy. d. helps to explain how the economy is organized. 10. In the simple circular-flow diagram, the participants in the economy are a. firms and government. b. households and firms. c. households and government. d. households, firms, and government. 11. In the circular-flow diagram, which of the following is not a factor of production? a. Labor b. Land c. Capital d. Money 12. Another term for factors of production is a. inputs. b. output. c. goods. d. services. 13. Which of the following is an example of a capital input? a. A computer b. A share of stock c. An hour of a worker's time d. $50,000 14. In the simple circular-flow diagram, which of the following is not true. a. Households own the factors of production. b. Households buy all the goods and services that firms produce. c. Land, labor, and capital flow from households to firms. d. Firms own the factors of production. 15. In the circular-flow diagram, in the markets for a. goods and services, households and firms are both sellers. .

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Ch 02: Thinking Like an Economist b. goods and services, households are buyers and firms are sellers. c. the factors of production, households are buyers and firms are sellers. d. the factors of production, households and firms are both buyers. 16. In the markets for goods and services in the circular-flow diagram, a. households provide firms with savings for investment. b. households provide firms with labor, land, and capital. c. firms provide households with output. d. firms provide households with profit. 17. Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram? a. A landowner leases land to a farmer b. A farmer hires a teenager to help with harvest c. A construction company rents trucks for its business d. A woman buys corn for dinner 18. The outer loop of the circular-flow diagram represents the flow of dollars in the economy. Which of the following is not measured in dollars and therefore does not appear on the outer loop? a. Wages b. Income c. Capital d. Rent 19. In the circular-flow diagram, a. profit flows from households to firms. b. labor flows from households to firms. c. services flow from households to firms. d. goods flow from households to firms. 20. In the circular-flow diagram, which of the following items flows from households to firms through the markets for goods and services? a. Goods and services b. Dollars paid to land, labor, and capital c. Dollars spent on goods and services d. Wages, rent, and profit 21. In the simple-circular flow diagram, the flow of money from the firms to the markets for factors of production is called a. spending. b. revenue. c. income. d. wages, rent, and profit. 22. According to the circular-flow diagram, if Jalyssa is a worker who delivers flowers for Happy Day Flower Company, .

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Ch 02: Thinking Like an Economist she participates a. in the markets for factors of production exchanging labor for income. b. in the markets for factors of production exchanging flowers for revenue. c. in the markets for goods and services exchanging flowers for wages, rent, and profit. d. in the markets for goods and services exchanging labor for income. 23. Figure 2-1

Refer to Figure 2-1. Which arrow represents the flow of goods and services? a. A b. B c. C d. D 24. Figure 2-1

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Ch 02: Thinking Like an Economist

Refer to Figure 2-1. Morgan buys a refrigerator for his new home. To which of the arrows does this transaction directly contribute? a. A only b. A and B c. C only d. C and D 25. Figure 2-2

Refer to Figure 2-2. If boxes A and B represent households and firms, then boxes C and D of this circular-flow diagram represent a. government and foreigners. .

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Ch 02: Thinking Like an Economist b. consumers and producers. c. the markets for goods and services and the markets for financial assets. d. the markets for goods and services and the markets for factors of production. 26. Figure 2-2

Refer to Figure 2-2. Devin works as an attorney for a corporation and is paid a salary in exchange for the legal services he performs. If Devin's income is represented by a flow of dollars from Box D to Box B of this circular-flow diagram, then the revenue earned by a firm selling its product is represented by a flow of dollars a. from Box A to Box C. b. from Box C to Box A. c. from Box B to Box C. d. from Box C to Box B. 27. When constructing a production possibilities frontier, which of the following assumptions is not made? a. The economy produces only two goods or two types of goods. b. Firms produce goods using factors of production. c. The technology available to firms is given. d. The quantities of the factors of production that are available are increasing over the relevant time period. 28. Where can an economy not produce? a. Inside its production possibilities frontier b. On its production possibilities frontier c. Outside its production possibilities frontier d. At the endpoints of its production possibilities frontier 29. An economy's production of two goods is efficient if a. all members of society consume equal portions of the goods. .

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Ch 02: Thinking Like an Economist b. the goods are produced using only some of society's available resources. c. it is impossible to produce more of one good without producing less of the other. d. the opportunity cost of producing more of one good is zero. 30. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. the nation is producing beyond its capacity, so inflation will occur. b. the nation is not using all available resources or is using inferior technology or both. c. the nation is producing an efficient combination of goods. d. there will be a large opportunity cost if the nation tries to increase production of any good. 31. The production possibilities frontier provides an illustration of the principle that a. trade can make everyone better off. b. governments can sometimes improve market outcomes. c. people face trade-offs. d. people respond to incentives. 32. The bowed-outward shape of the production possibilities frontier can be explained by the fact that a. all resources are scarce. b. economic growth is always occurring. c. the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing. d. the only way to get more of one good is to get less of the other. 33. Table 2-1 Production Possibilities Tennis Rackets Tennis Balls 100 8,000 200 6,500 300 ?

Refer to Table 2-1. If the production possibilities frontier is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced? a. 6,000. b. 5,500. c. 5,000. d. 4,500. 34. Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1,000 units of food and 47 machines. This year, it experienced a technological advance in its machine-making industry. As a result, this year, the society wants to produce 1,050 units of food and 47 machines. Which of the following statements is correct? a. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 47. .

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Ch 02: Thinking Like an Economist b. Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry. c. In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies. d. The technological advance reduced the amount of resources needed to produce 47 machines, so these resources could be used to produce more food. 35. Table 2-2 Footville's Production Possibilities Shoes Socks 800 0 600 400 400 700 200 900 0 1,000

Refer to Table 2-2. What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600? a. 400 socks b. 300 socks c. 200 socks d. 100 socks 36. Table 2-2 Footville's Production Possibilities Shoes Socks 800 0 600 400 400 700 200 900 0 1,000

Refer to Table 2-2. Which of the following statements is correct? a. The opportunity cost of an additional 200 shoes is constant at 200 socks. b. The opportunity cost of an additional 200 shoes is constant at 300 socks. c. Footville's production possibilities frontier is a straight, downward-sloping line. d. The opportunity cost of an additional 200 shoes increases as more shoes are produced. 37. Figure 2-3

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-3. If this economy devotes all of its resources to the production of dryers, then it will produce a. 0 dryers and 100 washers. b. 60 dryers and 50 washers. c. 80 dryers and 0 washers. d. 80 dryers and 50 washers. 38. Figure 2-3

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-3. It is not possible for this economy to produce at point a. A. b. B. c. C. d. D. 39. Figure 2-3

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-3. This economy cannot currently produce 70 washers and 70 dryers because a. it is not using all of its resources. b. it is not using the most efficient production process. c. it does not have the resources and technology to produce that level of output. d. consumers don't want that many washers and dryers. 40. Figure 2-3

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-3. Suppose this economy is producing at point D. Which of the following statements would best explain this situation? a. The economy has insufficient resources to produce at a more desirable point. b. The economy's available technology prevents it from producing at a more desirable point. c. There is widespread unemployment in the economy. d. The economy is experiencing economic growth. 41. Figure 2-3

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-3. Efficient production is represented by which point(s)? a. A, B b. A, B, and D c. A, B, and C d. C 42. Figure 2-3

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Ch 02: Thinking Like an Economist

Refer to Figure 2-3. The opportunity cost of obtaining 40 additional dryers by moving from point D to point C is a. 0 washers. b. 20 washers. c. 40 washers. d. impossible to calculate because the economy cannot move from point D to point C. 43. Figure 2-4 Graph (a)

.

Graph (b)

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Ch 02: Thinking Like an Economist

Refer to Figure 2-4, Graph (a). Production at point K is a. possible and efficient. b. possible but inefficient. c. impossible but efficient. d. impossible and inefficient. 44. Figure 2-4 Graph (a)

.

Graph (b)

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Ch 02: Thinking Like an Economist

Refer to Figure 2-4, Graph (a). Production is a. possible at points J, K, L, and M, but efficient only at points J, L, and M. b. possible at points J, K, L, and M, but efficient only at point K. c. possible at points J, L, M, and N, but efficient only at points J, L, and M. d. possible at points J, L, M, and N, but efficient only at point N. 45. Figure 2-4 Graph (a)

.

Graph (b)

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Ch 02: Thinking Like an Economist

Refer to Figure 2-4, Graph (a). The movement from point M to point K could be caused by a. an advance in production technology. b. an improvement in efficiency. c. economic growth. d. unemployment. 46. Figure 2-4 Graph (a)

.

Graph (b)

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Ch 02: Thinking Like an Economist

Refer to Figure 2-4, Graph (a) and Graph (b). A shift of the economy's production possibilities frontier from Graph (a) to Graph (b) could be caused by a. unemployment. b. an improvement in donut production technology. c. an improvement in coffee production technology. d. an improvement in both donut and coffee production technology. 47. Figure 2-4 Graph (a)

.

Graph (b)

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Ch 02: Thinking Like an Economist

Refer to Figure 2-4, Graph (a) and Graph (b). Which of the following is not a result of the shift of the economy's production possibilities frontier from Graph (a) to Graph (b)? a. The trade-off between the production of donuts and coffee changes. b. The opportunity cost of a cup of coffee is higher at all levels of coffee production. c. Production of four donuts and two cups of coffee becomes possible. d. Production of one donut and four cups of coffee becomes efficient. 48. Figure 2-5

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-5. Which of the following events would explain the shift of the production possibilities frontier from A to B? a. The economy's citizens developed an enhanced taste for books. b. The economy experienced a technological advance in the production of books. c. More capital became available in the economy. d. More labor became available in the economy. 49. Table 2-3 Production Possibilities Corn Wheat (Bushels) (Bushels) 2,000 0 1,600 700 1,200 1,300 800 1,800 400 2,200 0 2,500

Refer to Table 2-3. What is the opportunity cost of increasing the production of corn from 400 bushels to 800 bushels? a. 200 bushels of wheat b. 400 bushels of wheat c. 600 bushels of wheat .

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Ch 02: Thinking Like an Economist d. 800 bushels of wheat 50. Table 2-3 Production Possibilities Corn Wheat (Bushels) (Bushels) 2,000 0 1,600 700 1,200 1,300 800 1,800 400 2,200 0 2,500

Refer to Table 2-3. Based on the values in the table, the production possibilities frontier is a. bowed outward indicating increasing opportunity costs. b. bowed outward indicating decreasing opportunity costs. c. a straight line indicating constant opportunity costs. d. bowed inward indicating increasing opportunity costs. 51. Table 2-3 Production Possibilities Corn Wheat (Bushels) (Bushels) 2,000 0 1,600 700 1,200 1,300 800 1,800 400 2,200 0 2,500

Refer to Table 2-3. Which of the following combinations of corn and wheat is not currently attainable but would be attainable if there was an improvement in overall production technology? a. 1,600 bushels of corn and 300 bushels of wheat b. 1,200 bushels of corn and 800 bushels of wheat c. 1,000 bushels of corn and 2,200 bushels of wheat d. 400 bushels of corn and 1,800 bushels of wheat 52. Figure 2-6

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-6. Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of each car is a. the slope of the production possibilities frontier, or 2/3 of a sofa. b. the reciprocal of the slope of the production possibilities frontier, or 3/2 sofas. c. the reciprocal of the slope of the production possibilities frontier, or 2/3 of a sofa. d. the slope of the production possibilities frontier, or 3/2 sofas. 53. Figure 2-6

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Ch 02: Thinking Like an Economist

Refer to Figure 2-6. Consider the production possibilities frontier for an economy that produces only sofas and cars. When society moves from point A to point B, a. the opportunity cost is the same as when society moves from point B to point C. b. it is giving up cars to get sofas. c. the opportunity cost is increasing. d. it moves from an inefficient point to an efficient point. 54. Microeconomics is the study of a. how money affects the economy. b. how individual households and firms make decisions. c. how government affects the economy. d. how the economy as a whole works. 55. Which of the following would likely be studied by a microeconomist rather than a macroeconomist? a. The effect of foreign direct investment on economic growth b. The effect of a sales tax on the cigarette industry c. The effect of an investment tax credit on the economy's capital stock d. The effect of a war on government spending 56. Which of the following areas of study typifies macroeconomics as opposed to microeconomics? a. The effects of rent control on the availability of housing in New York City b. The economic impact of tornadoes on cities and towns in Oklahoma .

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Ch 02: Thinking Like an Economist c. How tariffs on shoes affect the shoe industry d. The effect on the economy of changes in the nation's unemployment rate 57. Which of the following statements is correct about the roles of economists? a. Economists are best viewed as policy advisers. b. Economists are best viewed as scientists. c. In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists. d. In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers. 58. Positive statements are a. prescriptive. b. claims about how the world should be. c. claims about how the world is. d. made by economists speaking as policy advisers. 59. When recommending specific policies to undertake, economists make a. claims about how the world is. b. descriptive statements. c. normative statements. d. positive statements. 60. Which of the following is an example of a positive, as opposed to a normative, statement? a. Decreasing inflation should be a top priority since inflation is more harmful to the economy than unemployment. b. Welfare payments should be increased because they lead to a better world for everyone. c. Prices rise when the government prints too much money. d. When public policies are evaluated, the benefits to the economy of improved equality should be considered more important than the costs of reduced efficiency. 61. Which of the following is an example of a normative, as opposed to a positive, statement? a. Universal healthcare would be good for U.S. citizens. b. An increase in the cigarette tax would cause a decrease in the number of smokers. c. A decrease in the minimum wage would decrease unemployment. d. A law requiring the federal government to balance its budget would increase economic growth. 62. Duties of the Council of Economic Advisers include a. advising the president and writing the annual Economic Report of the President. b. implementing the president's tax policies. c. managing of the nation's money supply. d. managing the Social Security program. 63. Economists at which of the following government offices help formulate spending plans and regulatory policies? a. Office of Management and Budget .

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Ch 02: Thinking Like an Economist b. Department of the Treasury c. Congressional Budget Office d. The Federal Reserve 64. Economists at the Department of the Treasury a. design U.S. currency and coins. b. provide Congress with the annual budget. c. enforce the U.S. antitrust laws. d. provide advice on tax policy to the President. 65. Analysis of data on workers and those looking for work is conducted by economists at the a. Office of Management and Budget. b. Department of Labor. c. Congressional Budget Office. d. Department of the Treasury. 66. Economists at the Department of Justice a. track the behavior of the nation's money supply. b. advise Congress on economic matters. c. help enforce the nation's antitrust laws. d. prepare the federal budget. 67. Some, but not all, government economists are employed within the administrative branch of government. Which of the following government agencies employ economists outside of the administrative branch? a. The Department of Labor b. The Department of the Treasury c. The Congressional Budget Office d. The Council of Economic Advisers 68. Economists sometimes give conflicting advice because a. graduate students in economics are encouraged to argue with each other. b. economists have different values and scientific judgments. c. economists acting as scientists do not like to agree with economists acting as policy advisers. d. economics is more of a belief system than a science. 69. Sometimes economists disagree because their scientific judgments differ. Which of the following instances best reflects this source of disagreement? a. One economist believes everyone should pay the same percentage of their income in taxes; another economist believes that wealthier citizens should pay a higher percentage of their income in taxes. b. One economist believes that manufacturing firms should face greater regulation to preserve the environment; another economist believes the government should not intervene in free markets. c. One economist believes that equality should be valued over efficiency in policy decisions; another economist believes that efficiency should be valued over equality in policy decisions. d. One economist believes the government should tax a household's income; another economist believes the government should tax a household's consumption because it will cause households to save more. .

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Ch 02: Thinking Like an Economist 70. Emily and Betsey are economists. Emily thinks that the wealthiest 10 percent of the U.S. population should be taxed a rate higher than the rest of society because they can better afford it. Betsey thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Emily and Betsey a. disagree about the validity of a positive theory. b. have different normative views about tax policy. c. must both be incorrect because tax policy is never that simple. d. disagree because they have access to contradicting positive statements. 71. Eva wants to create a graph containing the prices of concert tickets and the corresponding quantities of concert tickets demanded by customers. She should use a a. pie chart. b. bar graph. c. time-series graph. d. coordinate system. 72. The x-coordinate of an ordered pair specifies the a. diagonal location of the point. b. vertical location of the point. c. horizontal location of the point. d. quadrant location in which the point is located. 73. In the ordered pair (20, 30), 20 is the a. the x-coordinate and the vertical location of the point. b. the y-coordinate and the horizontal location of the point. c. the y-coordinate and the vertical location of the point. d. the x-coordinate and the horizontal location of the point. 74. The point where both x and y are zero is known as the a. origin. b. null. c. zero coordinate. d. center. 75. When two variables have a positive correlation, a. they tend to move in opposite directions. b. they tend to move in the same direction. c. one variable will move while the other remains constant. d. the variables' values are never negative. 76. Figure 2-7

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-7. The graph shown is known as a a. time-series graph. b. bar graph. c. scatterplot. d. pie chart. 77. Figure 2-7

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-7. Taking cause and effect into account, which of the following interpretations would be most reasonable regarding the relationship between coffee and hours without sleep? a. The less coffee a person drinks per day, the more time he can go without sleep. b. There is no relationship between how much coffee per day a person drinks and how long he can go without sleep. c. The more coffee a person drinks per day, the more time he can go without sleep. d. The more coffee a person drinks per day, the less time he can go without sleep. 78. When two variables move in opposite directions, the curve relating them is a. upward sloping, and we say the variables are positively related. b. upward sloping, and we say the variables are negatively related. c. downward sloping, and we say the variables are positively related. d. downward sloping, and we say the variables are negatively related. 79. When a relevant variable that is not named on either axis changes, a. there will be a movement along the curve. b. the curve will rotate clockwise. c. the curve will be unaffected since only the variables on the axis affect the curve. d. the curve will shift. 80. Suppose price is measured along the vertical axis on a graph. When price changes, there will be a a. rotation of the curve. b. shift of the curve. c. movement along the curve. .

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Ch 02: Thinking Like an Economist d. change in the slope of the curve. 81. Figure 2-8

Refer to Figure 2-8. The movement from point A to point B is a. a shift of the demand curve. b. an indication of a change in preferences for grapes. c. a movement along the demand curve. d. an indication of an increase in income. 82. Figure 2-8

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-8. The slope of the curve between points A and B is a. -5. b. -1/5. c. 1/5. d. 5. 83. Which of the following is correct? a. A horizontal line has an infinite slope, and a vertical line has a zero slope. b. A horizontal line has a slope of 1, and a vertical line has a slope of −1. c. A horizontal line has a zero slope, and a vertical line has an infinite slope. d. A horizontal line has a slope of −1, and a vertical line has a slope of 1. 84. The slope of a line that passes through the points (20, 30) and (40, 14) is a. -5/4. b. -4/5. c. 4/5. d. 5/4. 85. In the early 19th century, the Russian government sent doctors to southern Russian villages to provide assistance during a cholera epidemic. The villagers noticed that wherever doctors appeared, people died. Therefore, many doctors were chased away from villages, and some were even killed. This reaction to the correlation between doctors and deaths is most likely a problem of a. omitted variables. b. reverse causality. .

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Ch 02: Thinking Like an Economist c. government propaganda. d. medical incompetence. 86. Figure 2-9 Commuter Rail Passengers by Frequency of Service

Refer to Figure 2-9. Which of the following conclusions should not be drawn from observing this graph? a. There is a positive correlation between the frequency of service and the number of passengers. b. When there are five stops per hour, there are approximately 200 passengers. c. More stops per hour is associated with more passengers per hour. d. No other factors besides the frequency of service affect the number of passengers.

Indicate whether the statement is true or false. 87. Economists try to address their subject with a scientist’s objectivity. a. True b. False 88. Economists devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories. a. True b. False 89. The scientific method is the dispassionate development and testing of theories about how the world works. .

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Ch 02: Thinking Like an Economist a. True b. False 90. The scientific method can be applied to the study of economics. a. True b. False 91. While the scientific method is applicable to studying natural sciences, it is not applicable to studying a nation’s economy. a. True b. False 92. For economists, conducting experiments is often difficult and sometimes impossible. a. True b. False 93. Economists usually have to make do with whatever data the world happens to give them. a. True b. False 94. It is difficult for economists to make observations and develop theories, but it is easy for economists to run experiments to generate data to test their theories. a. True b. False 95. Since economists cannot use natural experiments offered by history, they must use carefully constructed laboratory experiments instead. a. True b. False 96. Historical episodes are not valuable to economists. a. True b. False 97. Historical episodes allow economists to illustrate and evaluate current economic theories. a. True b. False 98. Good assumptions simplify a problem without substantially affecting the answer. a. True b. False 99. Assumptions can simplify the complex world and make it easier to understand. a. True b. False .

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Ch 02: Thinking Like an Economist 100. Economists often find it worthwhile to make assumptions that do not necessarily describe the real world. a. True b. False 101. Economists use one standard set of assumptions to answer all economic questions. a. True b. False 102. Economic models are most often composed of diagrams and equations. a. True b. False 103. Economic models omit many details to allow us to see what is truly important. a. True b. False 104. Economic models can help us understand reality only when they include all details of the economy. a. True b. False 105. An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world. a. True b. False 106. All scientific models, including economic models, simplify reality in order to improve our understanding of it. a. True b. False 107. The circular-flow diagram explains, in general terms, how the economy is organized and how participants in the economy interact with one another. a. True b. False 108. A circular-flow diagram is a visual model of the economy. a. True b. False 109. The circular flow model is not used anymore because it fails to perfectly replicate real world situations. a. True b. False 110. In the circular-flow diagram, households and firms are the decision makers. a. True b. False .

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Ch 02: Thinking Like an Economist 111. In the circular-flow diagram, firms produce goods and services using the factors of production. a. True b. False 112. In the circular-flow diagram, factors of production are the goods and services produced by firms. a. True b. False 113. In the circular-flow diagram, factors of production include land, labor, and capital. a. True b. False 114. In the circular-flow diagram, firms own the factors of production and use them to produce goods and services. a. True b. False 115. In the circular-flow diagram, firms consume all the goods and services that they produce. a. True b. False 116. In the circular-flow diagram, the two types of markets in which households and firms interact are the markets for goods and services and the markets for factors of production. a. True b. False 117. In the markets for goods and services in the circular-flow diagram, households are buyers and firms are sellers. a. True b. False 118. In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are sellers. a. True b. False 119. In the circular-flow diagram, one loop represents the flow of goods, services, and factors of production, and the other loop represents the corresponding flow of dollars. a. True b. False 120. In the circular-flow diagram, one loop represents the flow of goods and services, and the other loop represents the flow of factors of production. a. True b. False 121. In the circular-flow diagram, payments for labor, land, and capital flow from firms to households through the markets for the factors of production. a. True .

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Ch 02: Thinking Like an Economist b. False 122. The production possibilities frontier is a graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology. a. True b. False 123. Figure 2-10

Refer to Figure 2-10. If this economy uses all its resources in the dishwasher industry, it produces 35 dishwashers and no doghouses. a. True b. False 124. Figure 2-10

Refer to Figure 2-10. It is possible for this economy to produce 75 doghouses. a. True .

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Ch 02: Thinking Like an Economist b. False 125. Figure 2-10

Refer to Figure 2-10. It is possible for this economy to produce 30 doghouses and 20 dishwashers. a. True b. False 126. Figure 2-10

Refer to Figure 2-10. It is possible for this economy to produce 45 doghouses and 30 dishwashers. a. True b. False 127. Figure 2-10

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-10. When this economy produces 30 doghouses and 25 dishwashers there is full employment. a. True b. False 128. Figure 2-10

Refer to Figure 2-10. This economy fully employs its resources when it produces 35 dishwashers and zero doghouses. a. True b. False 129. Figure 2-10

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-10. Given the technology available for manufacturing doghouses and dishwashers, this economy does not have enough of the factors of production to support the level of output represented by point C. a. True b. False 130. Figure 2-10

Refer to Figure 2-10. Points A, B, and D represent feasible outcomes for this economy. a. True b. False 131. Figure 2-10

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-10. Points B and C represent infeasible outcomes for this economy. a. True b. False 132. Figure 2-10

Refer to Figure 2-10. Points A, B, and D represent efficient outcomes for this economy. a. True b. False 133. Figure 2-10

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-10. Point B represents an inefficient outcome for this economy. a. True b. False 134. Figure 2-10

Refer to Figure 2-10. Unemployment could cause this economy to produce at point B. a. True b. False 135. Figure 2-10

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-10. The opportunity cost of moving from point A to point D is 10 dishwashers. a. True b. False 136. Figure 2-10

Refer to Figure 2-10. The opportunity cost of moving from point B to point D is 15 doghouses. a. True b. False 137. Figure 2-10

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-10. The opportunity cost of moving from point B to point A is zero. a. True b. False 138. Figure 2-10

Refer to Figure 2-10. The opportunity cost of an additional doghouse increases as more doghouses are produced. a. True b. False 139. Figure 2-11

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-11. Point B represents an inefficient outcome for this economy. a. True b. False 140. Figure 2-11

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-11. The opportunity cost of moving from point A to point B is zero. a. True b. False 141. Figure 2-11

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-11. The opportunity cost of producing an additional pair of shoes increases as more shoes are produced. a. True b. False 142. Figure 2-11

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-11. This economy fully employs its resources when it produces 4000 shoes and zero t-shirts. a. True b. False 143. Figure 2-11

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-11. It is possible for this economy to produce 1000 shoes. a. True b. False 144. With the resources it has, an economy can produce at any point on or outside the production possibilities frontier, but it cannot produce at points inside the frontier. a. True b. False 145. Points inside the production possibilities frontier represent feasible levels of production. a. True b. False 146. Points inside the production possibilities frontier represent inefficient levels of production. a. True b. False 147. Points on the production possibilities frontier represent efficient levels of production. a. True b. False 148. Points outside the production possibilities frontier represent infeasible levels of production. a. True b. False .

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Ch 02: Thinking Like an Economist 149. If a major union goes on strike, then the country would be operating inside its production possibilities frontier. a. True b. False 150. An outcome is said to be efficient if an economy is getting all it can from the scarce resources it has available. a. True b. False 151. An outcome is said to be efficient if an economy is conserving the largest possible quantity of its scarce resources while still meeting the basic needs of society. a. True b. False 152. A production point is said to be efficient if there is no way for the economy to produce more of one good without producing less of another. a. True b. False 153. If an economy can produce more of one good without giving up any of another good, then the economy’s current production point is inefficient. a. True b. False 154. Unemployment causes production levels to be inefficient. a. True b. False 155. The opportunity cost of something is what you give up to get it. a. True b. False 156. The production possibilities frontier shows the opportunity cost of one good as measured in terms of the other good. a. True b. False 157. When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other is constant. a. True b. False 158. When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other depends on how much of each good is being produced. a. True b. False 159. When a production possibilities frontier is bowed outward, the opportunity cost of the first good in terms of the .

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Ch 02: Thinking Like an Economist second good increases as more of the second good is produced. a. True b. False 160. When a production possibilities frontier is bowed outward, the opportunity cost of the second good in terms of the first good increases as more of the second good is produced. a. True b. False 161. A production possibilities frontier has a bowed shape if the opportunity cost is constant at all levels of output. a. True b. False 162. Economists believe that production possibilities frontiers rarely have a bowed shape. a. True b. False 163. A production possibilities frontier will be bowed outward if some of the economy’s resources are better suited to producing one good than another. a. True b. False 164. The trade-off between the production of one good and the production of another good can change over time because of technological advances. a. True b. False 165. A technological advance in the production of the first good increases the opportunity cost of the first good in terms of the second good. a. True b. False 166. While the production possibilities frontier is a useful model, it cannot be used to illustrate economic growth. a. True b. False 167. Economic growth causes a production possibilities frontier to shift outward. a. True b. False 168. If new government regulations designed to protect wetlands remove very productive farmland from production, then the production possibilities frontier will shift inward. a. True b. False 169. Production possibilities frontiers can be used to illustrate scarcity, trade-offs, opportunity cost, efficiency, unemployment, technological advances, and economic growth. .

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Ch 02: Thinking Like an Economist a. True b. False 170. Microeconomics is the study of how households and firms make decisions and how they interact in specific markets. a. True b. False 171. Macroeconomics is the study of economy-wide phenomena. a. True b. False 172. The effects of borrowing by the federal government would be studied by a microeconomist rather than a macroeconomist. a. True b. False 173. The effects of foreign competition on the U.S. textile industry would be studied by a microeconomist rather than a macroeconomist. a. True b. False 174. A macroeconomist, rather than a microeconomist, would study the effects on a market from two firms merging. a. True b. False 175. Microeconomics and macroeconomics are closely intertwined. a. True b. False 176. When economists are trying to explain the world, they are scientists, and when they are trying to help improve the world, they are policy advisers. a. True b. False 177. Economists acting as scientists make positive statements, while economists acting as policy advisers make normative statements. a. True b. False 178. Normative statements describe how the world is, while positive statements prescribe how the world should be. a. True b. False 179. Positive statements are descriptive, while normative statements are prescriptive. a. True b. False .

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Ch 02: Thinking Like an Economist 180. Positive statements can be evaluated using data alone, but normative statements cannot. a. True b. False 181. Evaluating normative statements involves values as well as facts. a. True b. False 182. "Society would be better off if the welfare system were abolished" is a normative statement, not a positive statement. a. True b. False 183. "Other things equal, an increase in supply causes a decrease in price" is a normative statement, not a positive statement. a. True b. False 184. "Minimum wage laws result in unemployment” is a normative statement, while “The minimum wage should be higher” is a positive statement. a. True b. False 185. “The US should not restrict employers from outsourcing work to foreign countries” is a normative statement. a. True b. False 186. Trade-offs are involved in most policy decisions. a. True b. False 187. Since 1946, the president of the United States has received guidance from the Council of Economic Advisers. a. True b. False 188. The Council of Economic Advisers consists of thirty members and a staff of several dozen economists. a. True b. False 189. The duties of the Council of Economic Advisers are to advise the president of the United States and to determine U.S. monetary policy. a. True b. False 190. The Council of Economic Advisers’ Economic Report of the President discusses recent developments in the economy and presents the council’s analysis of current policy issues. .

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Ch 02: Thinking Like an Economist a. True b. False 191. The President counts among his economic advisors the Congressional Budget Office. a. True b. False 192. Economists at the U.S. Department of the Treasury help design U.S. coins and paper money. a. True b. False 193. Economists at the U.S. Department of Justice help enforce the nation’s antitrust laws. a. True b. False 194. Economists work both inside and outside the administrative branch of the U.S. government. a. True b. False 195. The Congressional Budget Office, which is staffed by economists, provides Congress with independent evaluations of policy proposals. a. True b. False 196. There is only one explanation for why economists give conflicting advice on policy issues, and it is that they have different values about what policy should try to accomplish. a. True b. False 197. Economists may disagree about the validity of alternative positive theories about how the world works. a. True b. False 198. Different values are not a reason for disagreement among economists. a. True b. False 199. In surveys of professional economists, fourteen propositions were endorsed by an overwhelming majority of respondents. a. True b. False 200. Because almost all economists oppose policies that restrict trade among nations, policymakers do not restrict imports of certain goods. a. True b. False .

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Ch 02: Thinking Like an Economist 201. According to John Maynard Keynes, an economist must possess a rare combination of skills including being a mathematician, historian, statesman, and philosopher. a. True b. False 202. In economics, graphs serve two purposes: they offer a way to visually express ideas, and they provide a way of finding and interpreting patterns when analyzing economic data. a. True b. False 203. Examples of graphs of a single variable include pie charts, bar graphs, and time-series graphs. a. True b. False 204. A pie chart is a way to display information regarding two variables. a. True b. False 205. In the ordered pair (10,30), 10 is the y-coordinate and 30 is the z-coordinate. a. True b. False 206. In the ordered pair (10,30), 10 is the horizontal location of the point and 30 is the vertical location of the point. a. True b. False 207. Two variables that have a positive correlation move in the same direction. a. True b. False 208. Two variables that have a negative correlation move in opposite directions. a. True b. False 209. When two variables move in opposite directions, the curve relating them is upward sloping, and we say the variables are positively related. a. True b. False 210. When two variables move in the same direction, the curve relating them is downward sloping, and we say the variables are negatively related. a. True b. False 211. When a variable that is named on an axis of a graph changes, the curve shifts. .

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Ch 02: Thinking Like an Economist a. True b. False 212. When a variable that is not named on either axis of a graph changes, we read the change as a movement along the curve. a. True b. False 213. The concept of slope can be used to answer questions about how much one variable responds to changes in another variable. a. True b. False 214. The slope of a line is equal to the change in the x-variable divided by the change in the y-variable. a. True b. False 215. The slope of an upward-sloping line is positive, and the slope of a downward-sloping line is negative. a. True b. False 216. The slope of a horizontal line is infinite, and the slope of a vertical line is zero. a. True b. False 217. The slope of a line is the ratio of the vertical distance covered to the horizontal distance covered along the line. a. True b. False 218. If a line passes through the points (20,5) and (10,10), then the slope of the line is 1/2. a. True b. False 219. If a line passes through the points (20,5) and (10,10), then the slope of the line is -2. a. True b. False 220. Changes in one variable on a graph might be caused by the other variable on the graph or by a third omitted variable. a. True b. False 221. Deciding that A causes B when in fact B causes A is a mistake called omitted variable bias. a. True b. False 222. The broken window fallacy states that when a window breaks and someone spends money to repair it, they have .

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Ch 02: Thinking Like an Economist created new economic activity that would not have otherwise taken place. a. True b. False

223. Like biologists and physicists, economists use the dispassionate development and testing of how the world works known as the 224. As a substitute for laboratory experiments, economists use evidence available through history’s 225. Figure 2-12

Refer to Figure 2-12. What is the name of the model depicted in the figure? 226. Figure 2-12

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-12. What do the ovals represent in the figure? 227. Figure 2-12

Refer to Figure 2-12. What do the rectangles represent in the figure? 228. Figure 2-12 .

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Ch 02: Thinking Like an Economist

Refer to Figure 2-12. What do the outer arrows represent in the figure? 229. Figure 2-12

Refer to Figure 2-12. What do the inner arrows represent in the figure? 230. Figure 2-12 .

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Ch 02: Thinking Like an Economist

Refer to Figure 2-12. What does the arrow going from oval A to rectangle 2 represent in the figure? 231. Figure 2-12

Refer to Figure 2-12. What does the arrow going from oval B to rectangle 2 represent in the figure? 232. Figure 2-12 .

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Ch 02: Thinking Like an Economist

Refer to Figure 2-12. What are two elements not included in this figure that could be included in a more complex model? 233. Suppose a war in the Middle East interrupts the flow of crude oil and oil prices skyrocket around the world. For economists, this historical episode serves as a 234. Just like other scientific models, economic models simplify reality using 235. The three main factors of production, or categories of inputs, used by firms to produce goods and services are 236. In the circular flow diagram, who owns the factors of production and consumes all of the goods and services produced? 237. In the circular flow diagram, when Brian provides labor through the markets for factors of production to ABC Company, the flow of money he receives in exchange is called 238. In the markets for goods and services in the circular flow diagram, households act as 239. In the circular flow diagram, when Daphne purchases a new mobile phone, she participates in the markets for 240. What you must give up to get something else is called the 241. Figure 2-13

.

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Ch 02: Thinking Like an Economist

Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.

Refer to Figure 2-13. The bowed outward shape of the production possibilities curve indicates that opportunity cost of apples in terms of sweaters is 242. Figure 2-13

Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.

Refer to Figure 2-13. Which point(s) on the graph is(are) efficient production possibilities? 243. Figure 2-13

.

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Ch 02: Thinking Like an Economist

Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.

Refer to Figure 2-13. Which point(s) on the graph show unemployment of resources? 244. Figure 2-13

Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.

Refer to Figure 2-13. Which point(s) on the graph is(are) unattainable given current resources and technology? 245. Figure 2-13

.

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Ch 02: Thinking Like an Economist

Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.

Refer to Figure 2-13. What is the opportunity cost of moving from point T to point R? 246. Figure 2-13

Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.

Refer to Figure 2-13. What is the opportunity cost of moving from point R to point Q? 247. Figure 2-14

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-14. Consider the production possibilities frontier for an economy that produces only sofas and cars. As the economy moves from point A to point D, is the opportunity cost of cars increasing, constant, or decreasing? 248. Figure 2-14

Refer to Figure 2-14. Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of one sofa is 249. Figure 2-14

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-14. Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of one car is 250. Table 2-4 Mobile Phones 0 200 500 900 1400 2000

Pizzas 10,000 8,000 6,000 4,000 2,000 0

Refer to Table 2-4. Consider the production possibilities table for an economy that produces only mobile phones and pizzas. What is the opportunity cost of increasing production of mobile phones from 200 to 500? 251. Table 2-4 Mobile Phones 0 200 500 900 1400 2000

Pizzas 10,000 8,000 6,000 4,000 2,000 0

Refer to Table 2-4. Consider the production possibilities table for an economy that produces only mobile phones and pizzas. What is the opportunity cost of increasing production of pizzas from 4,000 to 6,000? 252. Table 2-4 Mobile Phones 0 200 500 .

Pizzas 10,000 8,000 6,000 Page 64

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Ch 02: Thinking Like an Economist 900 1400 2000

4,000 2,000 0

Refer to Table 2-4. Consider the production possibilities table for an economy that produces only mobile phones and pizzas. Describe the shape of the production possibilities frontier. 253. Who would be more likely to study the effects of government spending on the unemployment rate, a macroeconomist or a microeconomist? 254. Who would be more likely to study the effects of foreign competition on the accounting industry, a macroeconomist or a microeconomist? 255. Who would be more likely to study the effects of rent control on housing in New York City, a macroeconomist or a microeconomist? 256. Who would be more likely to study the inflation rate in the United States, a macroeconomist or a microeconomist? 257. When economists are trying to explain the world, they are scientists. When they are trying to improve it, they are 258. What type of statement is a descriptive statement about how the world is? 259. What type of statement is a prescriptive statement about how the world ought to be? 260. Which type of statement - positive or normative - can be evaluated by analyzing data alone? 261. Is the following a positive or normative statement? The federal minimum wage is lower than many state minimum wages. 262. Is the following a positive or normative statement? The Federal Reserve should set an inflation target and employ policies to meet the target. 263. Is the following a positive or normative statement? The United States government should mandate that every citizen purchases health insurance. 264. Is the following a positive or normative statement? The unemployment rate in Nevada is higher than the unemployment rate in New York. 265. Since 1946, the president of the United States has received guidance from a group comprised of three members and a staff of a few dozen economists known as the 266. Economists at which administrative department help formulate spending plans and regulatory policies? 267. Economists at which administrative department help design tax policy? 268. Economists at which administrative department analyze data on workers and those looking for work to help formulate labor-market policies? 269. Economists at which administrative department help enforce the nation’s antitrust laws? .

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Ch 02: Thinking Like an Economist 270. The institution that sets the nation’s monetary policy is called the 271. When economists disagree about whether the government should tax a household’s income or its consumption, they are expressing a difference in 272. When economists disagree about whether a policy is fair, they are expressing a difference in 273. Most economists agree that a large federal budget deficit has what type of effect on the economy? 274. Figure 2-15

Refer to Figure 2-15. What are the coordinates of point C? 275. Figure 2-15

Refer to Figure 2-15. What is the x-coordinate of point R? 276. Figure 2-15 .

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Ch 02: Thinking Like an Economist

Refer to Figure 2-15. How are price and quantity related in this graph? 277. Figure 2-15

Refer to Figure 2-15. What is the slope of the line with points A, B, and C? 278. Figure 2-15

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-15. Is a move from point A to point B considered a shift of the curve or a movement along the curve? 279. Figure 2-15

Refer to Figure 2-15. Is a move from point A to point R considered a shift of the curve or a movement along the curve? 280. Figure 2-15

.

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Ch 02: Thinking Like an Economist

Refer to Figure 2-15. Given that price is measured on the vertical axis, quantity is measured on the horizontal axis, and that the curves are downward-sloping, what type of curves are depicted here? 281. Using the outline below, draw a circular-flow diagram representing the interactions between households and firms in a simple economy. Explain briefly the various parts of the diagram.

282. The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that cattle and horses can step in, and they eat grass necessary for cattle. Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle. Draw a rancher’s production possibilities frontier showing increasing opportunity cost of cattle production in terms of prairie dog production. Using a separate graph for each situation, show what would happen to the initial production possibilities frontier in each of the following situations: The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and a. prairie dogs. As a protest against the government introducing the gray wolf back into the wild in their b. state, ranchers decide to withhold 25 percent of the available grassland for grazing. .

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Ch 02: Thinking Like an Economist c. d. e.

The price of prairie dogs increases to $200 each, so ranchers decide to allot additional land for prairie dogs. The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing. A drought destroys most of the available grass for grazing of cattle, but not for prairie dogs since they also eat plant roots.

283. Draw a production possibilities frontier showing increasing opportunity cost of hammers in terms of horseshoes. a. On the graph, identify the area of feasible outcomes and the area of infeasible outcomes. b. On the graph, label a point that is efficient and a point that is inefficient. On the graph, illustrate the effect of the discovery of a new vein of iron ore, a resource c. needed to make both horseshoes and hammers, on this economy. On a second graph, illustrate the effect of a new computerized assembly line in the d. production of hammers on this economy. 284. Identify each of the following topics as being part of microeconomics or macroeconomics: a. the impact of a change in consumer income on the purchase of luxury automobiles b. the effect of a change in the price of Coke on the purchase of Pepsi c. the impact of a war in the Middle East on the rate of inflation in the United States d. factors influencing the rate of economic growth e. factors influencing the demand for tractors f. the impact of tax policy on national saving g. the effect of pollution taxes on the U.S. copper industry h. the degree of competition in the cable television industry i. the effect of a balanced-budget amendment on economic stability j. the impact of deregulation on the savings and loan industry 285. Which of the following statements are positive and which are normative? a. The minimum wage creates unemployment among young and unskilled workers. b. The minimum wage ought to be abolished. If the price of a product in a market decreases, then, other things equal, quantity demanded will c. increase. d. A little bit of inflation is worse for society than a little bit of unemployment. e. There is a tradeoff between inflation and unemployment in the short run. If consumer income increases, then, other things equal, the demand for automobiles will f. increase. g. The U.S. income distribution is not fair. h. U.S. workers deserve more liberal unemployment benefits. i. If interest rates increase, then investment will decrease. j. If welfare benefits were reduced, then the country would be better off. 286. Use the following graph to answer the following questions. a. How would point J be represented as an ordered pair? b. What type of curve is this? c. Does this curve show a positive or negative correlation between price and quantity? d. Compute the slope of D1 between points J and L. e. What is the slope of D1 between points L and N? Why would you not have to calculate this answer? f. What is it called if we move from D1 to D2? g. How do you know that the slope of D2 is the same as the slope of D1? .

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Ch 02: Thinking Like an Economist

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Ch 02: Thinking Like an Economist Answer Key 1. d 2. d 3. a 4. a 5. c 6. d 7. c 8. b 9. d 10. b 11. d 12. a 13. a 14. d 15. b 16. c 17. d 18. c 19. b 20. c 21. d 22. a 23. b 24. b 25. d .

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Ch 02: Thinking Like an Economist 26. b 27. d 28. c 29. c 30. b 31. c 32. c 33. d 34. d 35. b 36. d 37. c 38. c 39. c 40. c 41. a 42. d 43. b 44. a 45. d 46. b 47. d 48. b 49. b 50. a 51. c .

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Ch 02: Thinking Like an Economist 52. d 53. a 54. b 55. b 56. d 57. d 58. c 59. c 60. c 61. a 62. a 63. a 64. d 65. b 66. c 67. c 68. b 69. d 70. b 71. d 72. c 73. d 74. a 75. b 76. c .

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Ch 02: Thinking Like an Economist 77. c 78. d 79. d 80. c 81. c 82. a 83. c 84. b 85. b 86. d 87. True 88. True 89. True 90. True 91. False 92. True 93. True 94. False 95. False 96. False 97. True 98. True 99. True 100. True 101. False 102. True .

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Ch 02: Thinking Like an Economist 103. True 104. False 105. False 106. True 107. True 108. True 109. False 110. True 111. True 112. False 113. True 114. False 115. False 116. True 117. True 118. False 119. True 120. False 121. True 122. True 123. True 124. False 125. True 126. False 127. False .

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Ch 02: Thinking Like an Economist 128. True 129. True 130. True 131. False 132. False 133. True 134. True 135. True 136. False 137. True 138. True 139. False 140. False 141. True 142. True 143. True 144. False 145. True 146. True 147. True 148. True 149. True 150. True 151. False 152. True 153. True .

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Ch 02: Thinking Like an Economist 154. True 155. True 156. True 157. False 158. True 159. False 160. True 161. False 162. False 163. True 164. True 165. True 166. False 167. True 168. True 169. True 170. True 171. True 172. False 173. True 174. False 175. True 176. True 177. True 178. False .

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Ch 02: Thinking Like an Economist 179. True 180. True 181. True 182. True 183. False 184. False 185. True 186. True 187. True 188. False 189. False 190. True 191. False 192. False 193. True 194. True 195. True 196. False 197. True 198. False 199. True 200. False 201. True 202. True 203. True 204. False .

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Ch 02: Thinking Like an Economist 205. False 206. True 207. True 208. True 209. False 210. False 211. False 212. False 213. True 214. False 215. True 216. False 217. True 218. False 219. False 220. True 221. False 222. True 223. scientific method. 224. natural experiments. 225. Circular Flow Model 226. Market for Goods and Services Market for Factors of Production 227. Firms Households 228. flow of dollars .

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Ch 02: Thinking Like an Economist 229. flow of inputs and outputs 230. goods and services bought 231. income 232. government international trade 233. natural experiment. 234. assumptions. 235. land, labor, and capital. 236. households 237. income. 238. buyers. 239. goods and services. 240. opportunity cost. 241. increasing. 242. Q, R, U, and V 243. T and W 244. S and X 245. zero 246. 80 bushels of apples 247. constant 248. 2/3 of a car. 249. 3/2 sofas. 250. 2,000 pizzas. 251. 400 mobile phones. 252. bowed outward 253. macroeconomist .

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Ch 02: Thinking Like an Economist 254. microeconomist 255. microeconomist 256. macroeconomist 257. policy advisers. 258. positive statement 259. normative statement 260. positive 261. positive 262. normative 263. normative 264. positive 265. Council of Economic Advisers 266. Office of Management and Budget 267. Department of the Treasury 268. Department of Labor 269. Department of Justice 270. Federal Reserve. 271. scientific judgment. 272. values. 273. adverse 274. (60,3) 275. 20 276. negatively correlated 277. -0.1 278. movement along the curve 279. shift of the curve .

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Ch 02: Thinking Like an Economist 280. demand curves

281.

This diagram should duplicate the essential characteristics of the diagram in the text, with an explanation of the meaning of each flow and each market. It is important that the student understands that the inner loop represents the flow of real goods and services and that the outer loop represents the corresponding flow of payments.

282. (a)

(b)

(c)

(d)

.

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(e)

283. (a-c)

.

(d)

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284. a, b, e, g, h, and j are microeconomic topics. c, d, f, and i are macroeconomic topics. 285. a, c, e, f, and i are positive statements. b, d, g, h, and j are normative statements. 286. a. (20,24) b. a demand curve c. a negative correlation between price and quantity d. -8/20 or -2/5 e. -2/5; because the slope of a straight line is constant f. an increase in demand. g. because the 2 lines are parallel

.

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Ch 03: Interdependence and the Gains from Trade

Indicate the answer choice that best completes the statement or answers the question. 1. When economists point out that you and millions of other people are interdependent, they are referring to the fact that we all a. rely upon the government to provide us with the basic necessities of life. b. rely upon one another for the goods and services we consume. c. have similar tastes and abilities. d. are concerned about one another’s well-being. 2. Ryan produces hair clips and earrings. Celia also produces hair clips and earrings, but Ryan is better at producing both goods. In this case, trade could a. benefit both Celia and Ryan. b. benefit Celia, but not Ryan. c. benefit Ryan, but not Celia. d. benefit neither Celia nor Ryan. 3. The production possibilities frontier illustrates a. the combinations of output that an economy should produce. b. the combinations of output that an economy should consume. c. the combinations of output that an economy can produce. d. the combinations of output that an economy wants to produce. 4. A production possibilities frontier is bowed outward when a. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. b. an economy is self-sufficient instead of interdependent and engaged in trade. c. the rate of trade-off between the two goods being produced is constant. d. the rate of trade-off between the two goods being produced depends on how much of each good is being produced. 5. Leon and Serena like to wear sweaters and enjoy delicious food. The gains from trade between Leon and Serena are most obvious in which of the following cases? a. Leon is very good at knitting sweaters and at cooking tasty food, but Serena’s skills in both of these activities are very poor. b. Leon and Serena both are very good at cooking tasty food, but neither has the necessary skills to knit a sweater. c. Leon’s cooking and knitting skills are very poor, and Serena’s cooking and knitting skills are also very poor. d. Leon's only skill is knitting nice sweaters, and Serena's only skill is cooking delicious food. 6. A professor spends 10 hours per day giving lectures and writing papers. For the professor, a graph that shows their various possible mixes of output (lectures given per day and papers written per day) is called their a. line of tastes. b. trade-off curve. c. production possibilities frontier. d. consumption possibilities frontier. .

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Ch 03: Interdependence and the Gains from Trade 7. Suppose there are only two people in the world. Each person’s production possibilities frontier also represents their consumption possibilities when a. neither person faces trade-off. b. the frontiers are straight lines. c. the frontiers are bowed out. d. they choose not to trade with one another. 8. The most obvious benefit of specialization and trade is that they allow us to a. work more hours per week than we otherwise would be able to work. b. consume more goods than we otherwise would be able to consume. c. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society. d. consume more goods by forcing people in other countries to consume fewer goods. 9. As a student, Jordyn spends 40 hours per week writing term papers and completing homework assignments. On one axis of Jordyn's production possibilities frontier (PPF) is measured the number of term papers written per week. On the other axis is measured the number of homework assignments completed per week. The PPF is a straight line if a. Jordyn faces no trade-off between writing term papers and completing homework assignments. b. Jordyn can switch between writing term papers and completing homework assignments at a constant rate. c. the rate at which Jordyn can switch between homework assignments and term papers depends on the number of homework assignments completed and on the number of term papers written. d. professors require that Jordyn spends equal time on term papers and homework assignments. 10. For a self-sufficient producer, the production possibilities frontier a. is the same as the consumption possibilities frontier. b. is greater than the consumption possibilities frontier. c. is less than the consumption possibilities frontier. d. is always a straight line. 11. Table 3-1 Assume that John and Jane can switch between producing bread and wine at a constant rate. Labor Hours Needed to Make 1 Bottle of Wine Loaf of Bread Jane 2 1.5 John 3 1

Refer to Table 3-1. Assume that John and Jane each work 24 hours. What happens to total production if instead of each person spending 12 hours producing each good, Jane spends 21 hours producing wine and 3 hours producing bread and John spends 3 hours producing wine and 21 hours producing bread? a. The total production of bread and wine each rise. b. The total production of bread rises and the total production of wine falls. c. The total production of bread falls and the total production of wine rises. .

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Ch 03: Interdependence and the Gains from Trade d. The total production of bread and wine each fall. 12. Table 3-2

England France

Hours Needed to Make 1 Unit of Cheese Wine 1 4 5 2

Number of Units Produced in 40 Hours Cheese Wine 40 10 8 20

Refer to Table 3-2. Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is a. 8 units of cheese and 10 units of wine. b. 24 units of cheese and 15 units of wine. c. 40 units of cheese and 20 units of wine. d. 48 units of cheese and 30 units of wine. 13. Table 3-2

England France

Hours Needed to Make 1 Unit of Cheese Wine 1 4 5 2

Number of Units Produced in 40 Hours Cheese Wine 40 10 8 20

Refer to Table 3-2. Which of the following combinations of cheese and wine could France produce in 40 hours? a. 2 units of cheese and 20 units of wine b. 4 units of cheese and 15 units of wine c. 6 units of cheese and 5 units of wine d. 8 units of cheese and 20 units of wine 14. Table 3-3 Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 Cooler Radio Aruba 2 5 Iceland 1 4

Refer to Table 3-3. Which of the following represents Aruba's production possibilities frontier when 100 labor hours are available? .

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Ch 03: Interdependence and the Gains from Trade a.

b.

c.

d.

15. Table 3-3 .

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Ch 03: Interdependence and the Gains from Trade Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 Cooler Radio Aruba 2 5 Iceland 1 4

Refer to Table 3-3. Assume that Aruba and Iceland each has 80 labor hours available. If each country divides its time equally between the production of coolers and radios, then total production is a. 28 coolers and 50 radios. b. 30 coolers and 9 radios. c. 60 coolers and 18 radios. d. 120 coolers and 36 radios. 16. Table 3-4 Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Machine Minutes Needed to Make 1 Toothbrush Hairbrush Zimbabwe 3 10 Portugal 5 6

Refer to Table 3-4. Which of the following represents Zimbabwe's and Portugal's production possibilities frontiers when each country has 60 minutes of machine time available? a.

b.

.

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Ch 03: Interdependence and the Gains from Trade

c.

d.

17. Table 3-4 Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Machine Minutes Needed to Make 1 Toothbrush Hairbrush Zimbabwe 3 10 Portugal 5 6

.

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Ch 03: Interdependence and the Gains from Trade Refer to Table 3-4. Assume that Zimbabwe and Portugal each has 180 machine minutes available. If each country divides its time equally between the production of toothbrushes and hairbrushes, then total production is a. 24 toothbrushes and 12 hairbrushes. b. 48 toothbrushes and 24 hairbrushes. c. 96 toothbrushes and 48 hairbrushes. d. 720 toothbrushes and 1440 hairbrushes. 18. Table 3-4 Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Machine Minutes Needed to Make 1 Toothbrush Hairbrush Zimbabwe 3 10 Portugal 5 6

Refer to Table 3-4. Which of the following combinations of toothbrushes and hairbrushes could Zimbabwe not produce in 120 minutes? a. 5 toothbrushes and 11 hairbrushes b. 10 toothbrushes and 9 hairbrushes c. 20 toothbrushes and 6 hairbrushes d. 30 toothbrushes and 3 hairbrushes 19. Table 3-5 Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. Labor Hours Needed Number of Units to Make 1 Unit of Produced in 24 Hours Cheese Bread Cheese Bread England 2 3 12 8 Spain 3 6 8 4

Refer to Table 3-5. Which of the following combinations of cheese and bread could Spain produce in 24 hours? a. 4 units of cheese and 3 units of bread b. 6 units of cheese and 1 units of bread c. 7 units of cheese and 1.5 units of bread d. 3 units of cheese and 3 units of bread 20. Table 3-6 Assume that Max and Min can switch between producing mittens and producing hats at a constant rate. .

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Max Min

Labor Hours Needed to Make 1 unit of Mitten Hat 2 6 2 4

Quantity Produced in 36 Hours Mitten Hat 18 6 18 9

Refer to Table 3-6. Which of the following points would not be on Max’s production possibilities frontier, based on a 36hour production period? a. (18 mittens, 0 hats) b. (12 mittens, 2 hats) c. (6 mittens, 4 hats) d. (2 mittens, 6 hats) 21. Table 3-7 Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim can switch between setting up and testing computers at a constant rate. The following table applies. Minutes Needed to Number of Computers Set Up or Tested in a 40-Hour Week Set Up 1 Test 1 Computers Set Computers Computer Computer Up Tested Barb 48 ? 50 40 Jim 30 40 80 60

Refer to Table 3-7. The number of minutes needed by Barb to test a computer is a. 36. b. 48. c. 60. d. 64. 22. Table 3-7 Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim can switch between setting up and testing computers at a constant rate. The following table applies. Minutes Needed to Number of Computers Set Up or Tested in a 40-Hour Week Set Up 1 Test 1 Computers Set Computers Computer Computer Up Tested Barb 48 ? 50 40 Jim 30 40 80 60

.

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Refer to Table 3-7. Which of the following points would not be on Barb's production possibilities frontier, based on a 40hour week? a. (0 computers set up, 40 computers tested) b. (8 computers set up, 32 computers tested) c. (25 computers set up, 20 computers tested) d. (30 computers set up, 16 computers tested) 23. Table 3-8 Production Possibilities Blankets Coats 8 600 12 ? 16 200

Refer to Table 3-8. If the production possibilities frontier is bowed outward, then which of the following could represent the number of coats produced when 12 blankets are produced? a. 200 b. 300 c. 400 d. 500 24. Table 3-8 Production Possibilities Blankets Coats 8 600 12 ? 16 200

Refer to Table 3-8. If the production possibilities frontier is a straight line, then which of the following could represent the number of coats produced when 12 blankets are produced? a. 200 b. 300 c. 400 d. 500 25. Table 3-9 Summary of the Gains from Trade Alice .

Betty Page 9

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Ch 03: Interdependence and the Gains from Trade Pitchers of Lemonade Pizzas Pitchers of Lemonades Pizzas Without Trade Production and Consumption

200

100

180

180

With Trade Production Trade Consumption

400 Gives 193 a

0 Gets 110 b

0 Gets 193 c

300 Gives 110 d

Gains from Trade

e

f

g

h

Refer to Table 3-9. The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade? a. Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of lemonade and 10 pizzas. b. Alice gains 200 pitchers of lemonade and 100 pizzas, while Betty gains 180 pitchers of lemonade and 180 pizzas. c. Alice gains 207 pitchers of lemonade and 110 pizzas, while Betty gains 193 pitchers of lemonade and 190 pizzas. d. Alice gains 400 pitchers of lemonade and 0 pizzas, while Betty gains 0 pitchers of lemonade and 300 pizzas. 26. Figure 3-1 Graph (a)

.

Graph (b)

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Ch 03: Interdependence and the Gains from Trade

Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches is constant in a. Graph (a) only. b. Graph (b) only. c. both Graph (a) and graph (b). d. neither Graph (a) nor Graph (b). 27. Figure 3-1 Graph (a)

.

Graph (b)

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Ch 03: Interdependence and the Gains from Trade

Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches depends on how many chairs and couches are being produced in a. Graph (a) only. b. Graph (b) only. c. both Graph (a) and Graph (b). d. neither Graph (a) nor Graph (b). 28. Figure 3-2

.

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Ch 03: Interdependence and the Gains from Trade

Refer to Figure 3-2. The fact that the line slopes downward reflects the fact that a. for Brazil, it is more costly to produce peanuts than it is to produce cashews. b. Brazil will produce more peanuts and fewer cashews as time goes by. c. Brazil faces a trade-off between producing peanuts and producing cashews. d. Brazil should specialize in producing cashews. 29. Figure 3-2

.

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Refer to Figure 3-2. If the production possibilities frontier shown is for 24 hours of production, then how long does it take Brazil to make one pound of peanuts? a. 1/10 hour b. 1/3 hour c. 3 hours d. 10 hours 30. Figure 3-2

.

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Refer to Figure 3-2. If the production possibilities frontier shown is for 24 hours of production, then how long does it take Brazil to make one pound of cashews? a. 1/10 hour b. 1/3 hour c. 3 hours d. 10 hours 31. Figure 3-2

.

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Refer to Figure 3-2. If the production possibilities frontier shown is for two months of production, then which of the following combinations of peanuts and cashews could Brazil produce in two months? a. 7 pounds of peanuts and 135 pounds of cashews b. 5 pounds of peanuts and 150 pounds of cashews c. 2 pounds of peanuts and 240 pounds of cashews d. 3 pounds of peanuts and 150 pounds of cashews 32. Figure 3-3

.

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Refer to Figure 3-3. Dina must work 0.25 hour to produce each taco. Dina's production possibilities frontier is based on how many hours of work? a. 40 hours b. 100 hours c. 400 hours d. 1600 hours 33. Figure 3-3

.

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Refer to Figure 3-3. If the production possibilities frontier shown for Arturo is for 100 hours of production, then how long does it take Arturo to make one burrito? a. 1/4 hour b. 1/3 hour c. 3 hours d. 4 hours 34. Figure 3-3

.

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Ch 03: Interdependence and the Gains from Trade

Refer to Figure 3-3. If Arturo and Dina both spend all of their time producing tacos, then total production is a. 400 tacos and 0 burritos. b. 400 tacos and 250 burritos. c. 800 tacos and 0 burritos. d. 800 tacos and 500 burritos. 35. Figure 3-3

.

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Refer to Figure 3-3. If Arturo and Dina each divides his/her time equally between the production of tacos and burritos, then total production is a. 200 tacos and 150 burritos. b. 400 tacos and 250 burritos. c. 400 tacos and 300 burritos. d. 800 tacos and 500 burritos. 36. Figure 3-3

.

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Ch 03: Interdependence and the Gains from Trade

Refer to Figure 3-3. Arturo’s opportunity cost of one burrito is a. 3/4 taco and Dina’s opportunity cost of one burrito is 1/2 taco. b. 3/4 taco and Dina’s opportunity cost of one burrito is 2 tacos. c. 4/3 tacos and Dina’s opportunity cost of one burrito is 1/2 taco. d. 4/3 tacos and Dina’s opportunity cost of one burrito is 2 tacos. 37. Figure 3-4

.

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Ch 03: Interdependence and the Gains from Trade

Refer to Figure 3-4. Both Alice and Betty a. face a constant trade-off between producing pitchers of lemonade and pizzas. b. can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production. c. would benefit from specializing in lemonade production. d. would benefit from specializing in pizza production. 38. Figure 3-4

.

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Refer to Figure 3-4. Specializing only in lemonade, Alice can produce a. 200 pitchers per day. b. 300 pitchers per day. c. 400 pitchers per day. d. 450 pitchers per day. 39. Figure 3-4

.

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Refer to Figure 3-4. If point A represents Alice’s production and point B represents Betty’s production, a. Alice produces 200 pitchers of lemonade and 100 pizzas, while Betty produces 180 pitchers of lemonade and 180 pizzas. b. Alice produces 180 pitchers of lemonade and 180 pizzas, while Betty produces 200 pitchers of lemonade and 100 pizzas. c. Alice produces 100 pitchers of lemonade and 200 pizzas, while Betty produces 180 pitchers of lemonade and 180 pizzas. d. Only Alice can benefit from specialization and trade. 40. Figure 3-4

.

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Refer to Figure 3-4. If point A represents Alice’s current production and point B represents Betty’s current production, under what circumstances can both Alice and Betty benefit from specialization and trade? a. Alice produces more pizzas and Betty produces more lemonade. b. Alice produces more lemonade and Betty produces more pizzas. c. Both Alice and Betty produce only pizzas. d. There are no circumstances under which both Alice and Betty can benefit from specialization and trade. 41. Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier? a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars) b. (200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars) c. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars) d. (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars) 42. What must be given up to obtain an item is called a. out-of-pocket cost. b. comparative worth. c. opportunity cost. d. absolute value. 43. A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer’s opportunity cost of a bushel of corn multiplied by their opportunity cost of a bushel of cotton .

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Ch 03: Interdependence and the Gains from Trade a. is equal to 0. b. is between 0 and 1. c. is equal to 1. d. is greater than 1. 44. If Korea is capable of producing either shoes or soccer balls or some combination of the two, then a. Korea should specialize in the product in which it has an absolute advantage. b. it would be impossible for Korea to have an absolute advantage over another country in both products. c. it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. d. Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. 45. Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is a. 1/6 table for Ken and 1/3 table for Traci. b. 1/6 table for Ken and 3 tables for Traci. c. 6 tables for Ken and 1/3 table for Traci. d. 6 tables for Ken and 3 tables for Traci. 46. Absolute advantage is found by comparing different producers' a. opportunity costs. b. payments to land, labor, and capital. c. input requirements per unit of output. d. locational and logistical circumstances. 47. The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good, a. has a low opportunity cost of producing that good, relative to the opportunity costs of other producers. b. has a comparative advantage in the production of that good. c. has an absolute advantage in the production of that good. d. should be the only producer of that good. 48. If Shawn can produce more donuts in one day than Sue can produce in one day, then a. Shawn has a comparative advantage in the production of donuts. b. Sue has a comparative advantage in the production of donuts. c. Shawn has an absolute advantage in the production of donuts. d. Sue has an absolute advantage in the production of donuts. 49. Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible? a. Jim has an absolute advantage in the production of baseball bats and in the production of hockey sticks. b. Jim has an absolute advantage in the production of baseball bats and a comparative advantage in the production of hockey sticks. c. Jim has an absolute advantage in the production of hockey sticks and a comparative advantage in the production of baseball bats. .

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Ch 03: Interdependence and the Gains from Trade d. Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks. 50. If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then a. Iowa has a comparative advantage in the production of corn. b. Iowa has an absolute advantage in the production of corn. c. Iowa should import corn from Oklahoma. d. Oklahoma should produce just enough corn to satisfy its own residents’ demands. 51. Which of the following statements about comparative advantage is not true? a. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. b. The principle of comparative advantage applies to countries as well as to individuals. c. Economists use the principle of comparative advantage to emphasize the potential benefits of free trade. d. A country may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good. 52. The principle of comparative advantage does not provide answers to certain questions. One of those questions is a. Do specialization and trade benefit more than one party to a trade? b. Is it absolute advantage or comparative advantage that really matters? c. How are the gains from trade shared among the parties to a trade? d. Is it possible for specialization and trade to increase total output of traded goods? 53. Which of the following is not correct? a. The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good. b. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X. c. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good. d. The gains from specialization and trade are based not on comparative advantage but on absolute advantage. 54. Total output in an economy increases when each person specializes because a. there is less competition for the same resources. b. each person spends more time producing that product in which they have a comparative advantage. c. a wider variety of products will be produced within each country due to specialization. d. government necessarily plays a larger role in the economy due to specialization. 55. Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also, suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be a. 100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in Teeveeland. b. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland. c. 200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in Teeveeland. .

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Ch 03: Interdependence and the Gains from Trade d. 300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in Teeveeland. 56. Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by a. 280 bushels of corn and 450 bushels of oats. b. 340 bushels of corn and 500 bushels of oats. c. 360 bushels of corn and 520 bushels of oats. d. 360 bushels of corn and 640 bushels of oats. 57. Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by a. 15 blankets and 35 meals. b. 25 blankets and 40 meals. c. 35 blankets and 45 meals. d. 50 blankets and 80 meals. 58. The gains from trade are a. evident in economic models, but seldom observed in the real world. b. evident in the real world, but impossible to capture in economic models. c. a result of more efficient resource allocation than would be observed in the absence of trade. d. based on the principle of absolute advantage. 59. Trade can make everybody better off because it a. increases cooperation among nations. b. allows people to specialize according to comparative advantage. c. requires some workers in an economy to be retrained. d. reduces competition among domestic companies. 60. Table 3-10 Assume that Brad and Theresa can switch between producing wheat and producing beef at a constant rate. Minutes Needed to Make 1 Bushel of Wheat Pound of Beef Brad 10 12 Theresa 6 10

Refer to Table 3-10. What is Brad’s opportunity cost of producing one pound of beef? .

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Ch 03: Interdependence and the Gains from Trade a. 5/6 bushel of wheat b. 6/5 bushels of wheat c. 3/5 bushels of wheat d. 5/3 bushels of wheat 61. Table 3-11 Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. Output Produced in One Day Coolers Radios Jamaica 12 6 Norway 24 3

Refer to Table 3-11. Jamaica's opportunity cost of one cooler is a. 0.5 radios, and Norway's opportunity cost of one cooler is 0.125 radios. b. 0.5 radios, and Norway's opportunity cost of one cooler is 8 radios. c. 2 radios, and Norway's opportunity cost of one cooler is 0.125 radios. d. 2 radios, and Norway's opportunity cost of one cooler is 8 radios. 62. Table 3-11 Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. Output Produced in One Day Coolers Radios Jamaica 12 6 Norway 24 3

Refer to Table 3-11. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by a. 12. b. 24. c. 36. d. 48. 63. Table 3-11 Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. Output Produced in One Day Coolers Radios Jamaica 12 6 .

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Ch 03: Interdependence and the Gains from Trade Norway

24

3

Refer to Table 3-11. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of radios increased by a. 3. b. 6. c. 9. d. 12. 64. Table 3-11 Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. Output Produced in One Day Coolers Radios Jamaica 12 6 Norway 24 3

Refer to Table 3-11. At which of the following prices would both Jamaica and Norway gain from trade with each other? a. 1 radio for 1 cooler b. 1 radio for 4 coolers c. 1 radio for 10 coolers d. 1 radio for 15 coolers 65. Table 3-11 Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. Output Produced in One Day Coolers Radios Jamaica 12 6 Norway 24 3

Refer to Table 3-11. Jamaica and Norway would not be able to gain from trade if Norway's opportunity cost of one radio changed to a. 0 coolers. b. 1 cooler. c. 2 coolers. d. Jamaica and Norway can always gain from trade regardless of their opportunity costs. 66. Figure 3-5 .

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