Unit 1 - Basic Economic Concepts

In a market economy, most choices about production and consumption are made by which of the following?

• politicians

• many individuals and firms

• the government

• managers

• economists

Which of the following pairs indicates a category of resources and an example of that resource?

• Category: money ------ Example: investment

• Category: capital ------ Example: money

• Category: capital ------ Example: minerals

• Category: land ------ Example: factory

• Category: land ------ Example: timber

You can either go to a movie or study for an exam. Which of the following is an opportunity cost of studying for the exam?

• a higher grade on the exam

• the price of a movie ticket

• the cost of paper, pens, books, and other study materials

• the enjoyment from seeing the movie

• the sense of achievement from learning

Which of the following is a normative statement?

• The unemployment rate is expected to rise.

• Individuals purchase more of a good when the price rises.

• The government should increase the minimum wage.

• An increase in the tax rate on wage earnings reduces the incentive to work.

• Public education generates greater benefits than costs.

Atlantis can produce which of the following combinations of output?

• Potatoes: 1000 ------ Fish: 675

• Potatoes: 600 ------ Fish: 600

• Potatoes: 400 ------ Fish: 600

• Potatoes: 300 ------ Fish: 800

• Potatoes: 200 ------ Fish: 675

If Atlantis is efficient in production, what is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?

• 200 pounds of fish

• 300 pounds of fish

• 500 pounds of fish

• 675 pounds of fish

• 800 pounds of fish

As Atlantis produces more potatoes, what is true about the opportunity cost of producing potatoes?

• It stays the same.

• It continually increases.

• It continually decreases.

• It increases and then decreases.

• It decreases and then increases.

Which of the following combinations of output is efficient?

• Potatoes: 1000 ----- Fish: 0

• Potatoes: 600 ----- Fish: 600

• Potatoes: 400 ----- Fish: 500

• Potatoes: 500 ----- Fish: 400

• Potatoes: 0 ----- Fish: 0

In the ancient country of Roma, only two goods - spaghetti and meatballs - are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, in a given month, the Tivoli can produce 30 pounds of spaghetti and no meatballs, 50 pounds of meatballs and no spaghetti, or any combination in between. In the same month the Frivoli can produce 40 pounds of spaghetti and no meatballs, 30 pounds of meatballs and no spaghetti, or any combination in between.

Which tribe has a comparative advantage in meatball and spaghetti production?

• Meatballs: Tivoli ----- Spaghetti: Tivoli

• Meatballs: Frivoli ----- Spaghetti: Frivoli

• Meatballs: Tivoli ----- Spaghetti: Frivoli

• Meatballs: Frivoli ----- Spaghetti: Tivoli

• Meatballs: neither ----- Spaghetti: both

In the ancient country of Roma, only two goods - spaghetti and meatballs - are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, in a given month, the Tivoli can produce 30 pounds of spaghetti and no meatballs, 50 pounds of meatballs and no spaghetti, or any combination in between. In the same month the Frivoli can produce 40 pounds of spaghetti and no meatballs, 30 pounds of meatballs and no spaghetti, or any combination in between.

In A.D. 100, the Frivoli discovered a new technique for making meatballs and doubled the quantity of meatballs they could produce each month. After the discovery of this new technique in Frivoli only, which tribe had an absolute advantage in meatball production and which had a comparative advantage in meatball production?

• Absolute advantage: Trivoli ----- Comparative advantage: Tivoli

• Absolute advantage: Frivoli ----- Comparative advantage: Frivoli

• Absolute advantage: Trivoli ----- Comparative advantage: Frivoli

• Absolute advantage: Frivoli ----- Comparative advantage: Tivoli

• Absolute advantage: Frivoli ----- Comparative advantage: both