ECON 1000 Chapter 2 Study Guide

A.C. and Zack produce surfboards and hair gel. A.C.’s opportunity cost of producing a surfboard is lower than Zack’s opportunity cost of producing a surfboard. The suggests that they can increase their total output of these two goods if A.C. focuses his production on surfboards while Zack focuses his production on hair gel.

• Law of Absolute Advantage.

• Law of Comparative Advantage.

• Cost-Benefit Principle.

• Distributional decision.

In regards to a Production Possibilities Frontier, which of the following statements is true?

• “All Attainable combinations of output are characterized by Productive Efficiency.”

• “A combination of goods is characterized by Productive Inefficiency if it cannot possibly be produced with the currently available resources and technology.”

• “A combination of goods is Unattainable if it cannot possibly be produced with the currently available resources and technology.”

• None of the above answers are correct.

Which of the following is one of the “Three Basic Economic Questions” that every society must address?

• “Which productive resources should be used for the production of which goods?”

• “How can we reduce our carbon footprint?”

• “How can we guarantee that all people have access to healthcare?”

• More than one (perhaps all) of the above is one of the “Three Basic Economic Questions” that every society must address.

For two individuals who engage in the same two productive activities, it is generally impossible for one of the two individuals to

• have a Comparative Advantage in both activities.

• have an Absolute Advantage in both activities.

• gain from trading with the other individual.

• More than one (perhaps all) of the above answers is correct.

Mike and Xavier spend each work day assembling bicycles and fixing computers. Mike can assemble 20 bicycles in a single day, while Xavier can assemble 15 bicycles in a single day. Based upon this information alone, we know that

• Mike possesses an Absolute Advantage in assembling bicycles.

• Xavier possesses an Absolute Advantage in fixing computers.

• Mike possesses a Comparative Advantage in assembling bicycles.

• More than one (perhaps all) of the above answers is correct.

Consider a society consisting of only three people: Andy, Bill, and Carrie. Andy and Bill spend all day producing clothing and food. At the end of each day they bring their output to Carrie, who then divides it between the three individuals.The “basic economic question” that Carrie is answering for this society is the

• Choice of Incentives.

• Resource Use Decision.

• Production Decision.

• Distributional Decision.

For Questions 7 through 9, consider a society facing the Production Possibilities Curveillustrated below:

Which of the following combinations of output is “feasible but characterized byproductive inefficiency”?

• “A” (150 Tanks and 375 bushels of Corn).

• “B” (300 Tanks and 500 bushels of Corn).

• “D” (210 Tanks and 1,000 bushels of Corn).

• More than one (perhaps all) of the above answers is correct.

For Questions 7 through 9, consider a society facing the Production Possibilities Curveillustrated below:

Starting at Point “C” (i.e., 210 Tanks and 800 bushels of Corn), if this society wanted to produce 90 more Tanks, then

• they could not increase their output of Corn, but they also would not have to decrease their output of Corn at all.

• they could also increase their output of Corn by 90 bushels.

• they would have to decrease their output of Corn by at least 300 units.

• they would no longer be able to produce any Corn whatsoever.

For Questions 7 through 9, consider a society facing the Production Possibilities Curveillustrated below:

If this society wanted to produce 650 bushels of Corn, then their maximum output of Tanks would be

• Exactly 210 Tanks.

• More than 210 but fewer than 300 Tanks.

• Exactly 300 Tanks.

• More than 300 Tanks.

On July 31, 2012, the Chicago Cubs traded Ryan Dempster to the Texas Rangersin exchange for Christian Villanueva and Kyle Hendricks. Since this voluntary trade took place, we can infer that

• MLB Commissioner Bud Selig thought the trade was NOT in the best interest of either team, but that it would be “good for the league.

• the Chicago Cubs thought the trade was in the best interest of their own organization.

• the Texas Rangers thought the trade was NOT in the best interest of their own organization.

• None of the above answers are correct.