Midterm

Suppose a nation produces coffee and doughnuts. In terms of the nation's production possibilities frontier, assume coffee on the x-axis, doughnuts on the y-axis. If part of the labor force becomes unemployed and sits at home instead of producing coffee and doughnuts, this will best be illustrated by

Question 1

• the production possibilities frontier shifting in along both axes

• the production possibilities frontier shifting out along both axes

• production to be at a point outside the ppf

• production to be at a point inside the ppf

Suppose a nation produces hammers and nails. In terms of the nation's production possibilities frontier, assume hammers on the x-axis, nails on the y-axis. If the production along the nation's production possibilities frontier exhibits increasing costs,

• it will have to give up an increasing amount of hammers as it produces more nails along its production possibilities frontier

• .

  it will have to give up a decreasing amount of hammers as it produces more nails along its production possibilities frontier

• the production possibilities frontier will be a straight line

• all of the above

Suppose a nation produces cars and sailboats. In terms of the nation's production possibilities frontier, assume cars on the x-axis, sailboats on the y-axis. If a tidal wave destroys a portion of the nation's ability to produce sailboats, but does not affect the production of cars, this will best be illustrated by

• the production possibilities frontier shifting in only along the y-axis

• the production possibilities frontier shifting in along both axes

• production to be at a point inside the production possibilities frontier

• the production possibilities frontier shifting in only along the x-axis

Assume the U.S. is considering to spend an additional $10 billion on national defense. Also assume the U.S. is considering to spend additional money hiring new teachers as $10 billion could purchase 2,500 teachers for the next 50 years at a salary of $80,000 per year.

If the U.S. decides to spend an additional $10 billion on national defense, what is the opportunity cost of that decision?

• $10 billion

• $80,000

• the value of new weapons, assuming the $10 billion in national defense spending was spent on new weapons

• the value of 2,500 teachers for the next 50 years at a salary of $80,000 per year

Consider the production possibilities frontier for an economy that produces only cookies and ice cream, and assume production currently occurs at a point somewhere on the economy's production possibilities frontier. If a discovery of the remarkable health benefits of ice cream changes consumers preferences, we would expect

• production to be at a point inside the production possibilities frontier

• production to move to a different point on the production possibilities frontier

• the production possibilities frontier to shift outward

• the production possibilities frontier to shift inward

A production possibilities frontier that is a straight line indicates

• constant costs of production

• increasing costs of production

• diminishing costs of production

• decreasing costs of production

Suppose in an hour's time, Spain can produce either 1 surfboard or 3 snowboards; Portugal can produce either 4 surfboards or 2 snowboards.  Which of the following is true?

• Spain's opportunity cost of producing snowboards is 1/3 surfboard per snowboard

• 
  Spain's opportunity cost of producing surfboards is 3 snowboards per surfboard

• 
  Portugal's opportunity cost of producing snowboards is 2 surfboards per snowboard

• all of the above

Suppose in an hour's time, Spain can produce either 1 surfboard or 3 snowboards; Portugal can produce either 4 surfboards or 2 snowboards.  Which of the following is true?

• Spain has the comparative advantage in both snowboards and surfboards

• Portugal has the comparative advantage in both snowboards and surfboards

• Portugal has the comparative advantage in snowboards, Spain has the comparative advantage in surfboards

• Spain has the comparative advantage in snowboards, Portugal has the comparative advantage in surfboards

Suppose in an hour's time, Spain can produce either 1 surfboard or 3 snowboards; Portugal can produce either 4 surfboards or 2 snowboards.  Which of the following is true for both countries to gain from trade?

• Portugal should import snowboards

• Spain should export surfboards

• Spain should import snowboards

• all of the above

Which goods will a nation typically import?

• those goods in which the nation has an absolute advantage

• those goods in which the nation has a comparative advantage

• those goods in which other nations have an absolute advantage

• those goods in which other nations have a comparative advantage