Economics Unit 1 Test Review

Unlike a market economy, a command economy uses

• more centralized planning in economic decision making

• consumer sovereignty to make production decisions

• its resources more efficiently

• price signals in economic decision making

• the popular vote in making resource allocation decisions

Which of the following will NOT change the demand for oranges?

• A change in consumer’s incomes

• A change in the price of grapefruits, a substitute for oranges

An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?

• To the left, because gasoline and tires are substitutes

• To the left, because gasoline and tires are complements

• To the right, because gasoline and tires are substitutes

• To the right, because gasoline and tires are complements

• To the right, because an increase in the price of gasoline makes consumers poorer and thus not willing to pay as much for tires.

Wally can make 40 units of good X or 30 units of good Y in a day, and Sam can make 20 units of good X or 10 units of good Y in a day. Assuming constant trade-offs between good X and good Y, which of the following is true?

• Sam has a comparative advantage in making good X.

• Sam has a comparative advantage in making good Y.

• Wally has a comparative advantage in making both goods.

• Sam has an absolute advantage in making good X.

• Sam has an absolute advantage in making good Y.

Scarcity exists because

• human wants exceed the productive capacity of the economy

• supplies of land and other natural resources are unlimited

• physical capital does not depreciate

• population and labor force growth are slowing

• innovation causes unemployment

Which of the following would cause a leftwards shift of the production possibilities curve?

• An increase in unemployment

• An increase in inflation

• An increase in capital equipment

• A decrease in consumer demand

• A decrease in the working-age population

The main benefit of free trade between two countries is that

• income distribution in each country will become more equitable

• employment in each country will increase

• migration from one country to the other will increase

• each country can consume beyond its constraints of resources and productivity

• each country will become more self-sufficient

According to the theory of comparative advantage, a good should be produced where

• its explicit costs are least.

• its opportunity costs are least.

• the cost of real resources used is least.

• production can occur with the greatest increase in employment.

• production can occur with the least increase in employment.

Brazil and Peru produce both coffee and wheat using labor as the only input. Based on the information in the table above, which of the following is true?

• Brazil has an absolute advantage in the production of both coffee and wheat.

• Brazil has a comparative advantage in the production of coffee.

• Peru has a comparative advantage in the production of coffee.

• Peru has an absolute advantage in the production of both coffee and wheat.

• Peru has a comparative advantage in the production of wheat.

Which of the following is always true of an economy operating on its production possibilities frontier?

• Its resources are fully employed.

• It is allocatively efficient.

• It cannot trade with other nations because it is the most efficient producer of tradeable goods.

• It will necessarily operate on the same frontier the following year.

• It must be a command economy.