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WorksheetsECO202 Exam 1
Total questions: 154
Worksheet time: 2hrs 59mins
A marginal change is a small incremental adjustment to an existing plan of action.
True
False
A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.
True
False
A rational decisionmaker
ignores marginal changes and focuses instead on "the big picture."
ignores the likely effects of government policies when he or she makes choices.
takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.
A tax on gasoline is an incentive that encourages people to drive smaller
more fuel-efficient cars.
True
False
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?
U.S. textile workers belong to a union, whereas Vietnamese textile workers do not belong to a union.
There is little demand for cotton cloth in Vietnam and great demand in the United States.
Labor is more productive making cotton cloth with a mechanical loom than with a handloom.
Vietnam has a low-wage policy to make its textile industry more competitive in world markets.
An increase in the overall level of prices in an economy is referred to as
the income effect.
inflation.
deflation.
the substitution effect.
Because resources are scarce, a society cannot give all individuals the
standard of living to which each aspires.
True
False
Both the production of goods and services and the unemployment rate are used to measure
the business cycle.
productivity.
the interest rate.
inflation.
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
people respond to incentives.
rational people think at the margin.
people face tradeoffs.
improvements in efficiency sometimes come at the expense of equality.
Central planning refers to
markets guiding economic activity. Today many countries that had this system have abandoned it.
markets guiding economic activity. Today many countries that did not have this system have implemented it.
government guiding economic activity. Today many countries that had this system have abandoned it.
government guiding economic activity. Today many countries that did not have this system have implemented it.
Coal is considered to be a nonrenewable energy source. Which of the following statements is correct?
Coal is an unlimited resource.
Coal is a scarce resource.
Coal is a nonscarce resource.
Coal is not a resource.
Communist countries worked under the premise that
people, when left on their own without government intervention, will find the best use of available resources
central planners were in the best position to determine the allocation of scarce resources in the economy.
households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce resources.
allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources.
Which of the following is an important cause of inflation in an economy?
Increases in productivity in the economy
The influence of positive externalities on the economy
Lack of property rights in the economy
Growth in the quantity of money in the economy
Which of the following is the most correct statement about the relationship between inflation and unemployment?
In the short run, falling inflation is associated with falling unemployment.
In the short run, falling inflation is associated with rising unemployment.
In the long run, falling inflation is associated with falling unemployment.
In the long run, falling inflation is associated with rising unemployment.
Which of the following is true?
Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
Government policies usually improve upon both equality and efficiency.
As long as the economic pie continually gets larger, no one will have to go hungry.
Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.
Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
There is no such thing as a free lunch.
People buy more when prices are high than when prices are low.
No matter how much people earn, they tend to spend more than they earn.
Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.
Which of the following statements does not apply to a market economy?
Firms decide whom to hire and what to produce.
The "invisible hand" usually maximizes the income of the society as a whole.
Households decide which firms to work for and what to buy with their incomes.
Government policies are the primary forces that guide the decisions of firms and households.
Which of the following statements exemplifies a principle of individual decision making?
Trade can make everyone better off.
Governments can sometimes improve market outcomes.
The cost of something is what you give up to get it.
Prices rise when the government prints too much money.
Which of these activities will most likely impose an external cost?
An athlete works out at a gym.
A postal worker smokes a cigarette in a crowded break room.
A young father pushes his baby in a stroller.
A construction worker eats a hotdog during her lunch break.
Which of these activities will most likely result in an external benefit?
A college student buys a deck of cards to play solitaire in her dorm room.
An elderly woman plants a flower garden on the vacant lot next to her house.
An executive purchases a book to read on a business trip.
A ten-year-old uses his allowance to buy new Nike shoes.
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,
only Dale is made better off by trade.
only Terrence is made better off by trade.
both Dale and Terrence are made better off by trade.
neither Dale nor Terrence are made better off by trade.
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?
Trade can make everyone better off.
Markets are usually a good way to organize economic activity.
Governments can sometimes improve market outcomes.
Prices rise when the government prints too much money.
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
the United Kingdom has a better education system than Turkey.
the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.
workers in Turkey are more productive than workers in the United Kingdom.
there are more instances of market power in Turkey than in the United Kingdom.
Economics is the study of how society manages its
limited wants and unlimited resources.
unlimited wants and unlimited resources.
limited wants and limited resources.
unlimited wants and limited resources.
Efficiency
and equality both refer to how much a society can produce with its resources.
and equality both refer to how fairly the benefits from using resources are distributed between members of a society.
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.
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.
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
could be due to slower money supply growth. We would expect unemployment to be higher.
could be due to slower money supply growth. We would expect unemployment to be lower.
could be due to higher money supply growth. We would expect unemployment to be higher.
could be due to higher money supply growth. We would expect unemployment to be lower.
Fundamentally, economics deals with
scarcity.
money.
poverty.
banking.
If the United States decides to trade with Yemen, we know that
Yemen will benefit, but trade with a less developed country could not benefit the United States.
it will not benefit Yemen because workers in the United States are more productive.
Yemen and the United States can both benefit.
it will not benefit either country because their cultural differences are too vast.
In a market economy, economic activity is guided by
the government.
public-interest groups.
central planners.
self-interest and prices.
In a market economy, who makes the decisions that guide most economic activity?
Firms only
Households only
Firms and households
Government
In most societies, resources are allocated by
a single central planner.
a small number of central planners.
those firms that use resources to provide goods and services.
the combined actions of millions of households and firms.
In the short run, an increase in the money supply is likely to lead to
lower unemployment and lower inflation.
lower unemployment and higher inflation.
higher unemployment and lower inflation.
higher unemployment and higher inflation.
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?
3 percent per year
5 percent per year
7 percent per year
9 percent per year
Large or persistent inflation is almost always caused by
excessive government spending.
excessive growth in the quantity of money.
foreign competition.
higher-than-normal levels of productivity.
Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce
efficiency.
equality.
externalities.
productivity.
Making rational decisions at the margin means that people
make those decisions that do not impose a marginal cost.
evaluate how easily a decision can be reversed if problems arise.
compare the marginal costs and marginal benefits of each decision.
always calculate the dollar costs for each decision.
Market power refers to the
power of a single person or small group to influence market prices.
ability of a person or small group to successfully market new products.
power of the government to regulate a market.
importance of a certain market in relation to the overall economy.
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers.
reducing scarcity of the goods and services produced.
reducing the opportunity cost of goods and services produced.
allocating goods and services in the most equitable way.
Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by
a market economy.
a strong reliance on prices and individuals' self-interests.
a system of large privately owned firms.
the actions of government central planners.
Productivity is defined as the
amount of goods and services produced from each unit of labor input.
number of workers required to produce a given amount of goods and services.
amount of labor that can be saved by replacing workers with machines.
actual amount of effort workers put into an hour of working time.
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?
People respond to incentives.
Rational people think at the margin.
Trade can make everyone better off.
Markets are usually a good way to organize economic activity.
The ability of an individual to own and exercise control over scarce resources is called
market failure.
property rights.
externality.
market power.
The business cycle is the
relationship between unemployment and inflation.
irregular fluctuations in economic activity.
positive relationship between the quantity of money in an economy and inflation.
predictable changes in economic activity due to changes in government spending and taxes.
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?
David Ricardo
Thorstein Veblen
John Maynard Keynes
Adam Smith
The primary determinant of a country's standard of living is
the country's ability to prevail over foreign competition.
the country's ability to produce goods and services.
the total supply of money in the economy.
the average age of the country's labor force.
"Society would be better off if the welfare system were abolished" is a normative statement, not a positive statement.
True
False
A circular flow diagram is a model that
helps to explain how consumers and the government interact with one another.
explains how countries trade with each other.
incorporates all aspects of the real economy.
helps to explain how the economy is organized.
A circular-flow diagram is a visual model of the economy.
True
False
A macroeconomist, rather than a microeconomist, would study the effects on a market from two firms merging.
True
False
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.
True
False
According to the circular-flow diagram, if Jalyssa is a worker who delivers flowers for Happy Day Flower Company, she participates
in the markets for factors of production exchanging labor for income.
in the markets for factors of production exchanging flowers for revenue.
in the markets for goods and services exchanging flowers for wages, rent, and profit.
in the markets for goods and services exchanging labor for income.
An economy's production of two goods is efficient if
all members of society consume equal portions of the goods.
the goods are produced using only some of society's available resources.
it is impossible to produce more of one good without producing less of the other.
the opportunity cost of producing more of one good is zero.
Another term for factors of production is
inputs.
output.
goods.
services.
Economists at the Department of the Treasury
design U.S. currency and coins.
provide Congress with the annual budget.
enforce the U.S. antitrust laws.
provide advice on tax policy to the President.
Which arrow represents the flow of goods and services?
A
B
C
D
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.
True
False
Points B and C represent infeasible outcomes for this economy.
True
False
The opportunity cost of moving from point B to point D is 15 doghouses.
True
False
When this economy produces 30 doghouses and 25 dishwashers there is full employment.
True
False
Point B represents an inefficient outcome for this economy.
True
False
If boxes A and B represent households and firms, then boxes C and D of this circular-flow diagram represent
government and foreigners.
consumers and producers.
the markets for goods and services and the markets for financial assets.
the markets for goods and services and the markets for factors of production.
Efficient production is represented by which point(s)?
A, B
A, B, D
A, B, C
C
If this economy devotes all of its resources to the production of dryers, then it will produce
0 dryers and 100 washers.
60 dryers and 50 washers.
80 dryers and 0 washers.
80 dryers and 50 washers.
This economy cannot currently produce 70 washers and 70 dryers because
it is not using all of its resources.
it is not using the most efficient production process.
it does not have the resources and technology to produce that level of output.
consumers don't want that many washers and dryers.
A shift of the economy's production possibilities frontier from Graph (a) to Graph (b) could be caused by
unemployment.
an improvement in donut production technology.
an improvement in coffee production technology.
an improvement in both donut and coffee production technology.
Production at point K is
possible and efficient.
possible but inefficient.
impossible but efficient.
impossible and inefficient.
The movement from point M to point K could be caused by
an advance in production technology.
an improvement in efficiency.
economic growth.
unemployment.
Which of the following events would explain the shift of the production possibilities frontier from A to B?
The economy's citizens developed an enhanced taste for books.
The economy experienced a technological advance in the production of books.
More capital became available in the economy.
More labor became available in the economy.
Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of each car is
the slope of the production possibilities frontier, or 2/3 of a sofa.
the reciprocal of the slope of the production possibilities frontier, or 3/2 sofas.
the reciprocal of the slope of the production possibilities frontier, or 2/3 of a sofa.
the slope of the production possibilities frontier, or 3/2 sofas.
Consider the production possibilities frontier for an economy that produces only sofas and cars. When society moves from point A to point B,
the opportunity cost is the same as when society moves from point B to point C.
it is giving up cars to get sofas.
the opportunity cost is increasing.
it moves from an inefficient point to an efficient point.
In the circular flow diagram,
profit flows from households to firms.
labor flows from households to firms.
services flow from households to firms.
goods flow from households to firms.
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?
David Ricardo
Thorstein Veblen
John Maynard Keynes
Adam Smith
In the circular-flow diagram, which of the following is not a factor of production?
Labor
Land
Capital
Money
In the simple-circular flow diagram, the flow of money from the firms to the markets for factors of production is called
spending.
revenue.
income.
wages, rent, and profit.
Macroeconomics is the study of economy-wide phenomena.
True
False
Microeconomics is the study of
how money affects the economy.
how individual households and firms make decisions.
how government affects the economy.
how the economy as a whole works.
Positive statements are
prescriptive.
claims about how the world should be.
claims about how the world is.
made by economists speaking as policy advisers.
Positive statements are descriptive, while normative statements are prescriptive.
True
False
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?
Collect and analyze data
Go to a laboratory and generate data to test the theory
Publish the theory without testing it
Consult with other economists to see if they agree with the theory
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?
6,000.
5,500.
5,000.
4,500.
What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600?
400 socks
300 socks
200 socks
100 socks
A decrease in demand shifts the demand curve to the left.
True
False
A decrease in income will shift the demand curve for an inferior good to the right.
True
False
A decrease in supply shifts the supply curve to the left.
True
False
A decrease in the price of a good will
increase supply.
decrease supply.
increase quantity supplied.
decrease quantity supplied.
A demand schedule is a table that shows the relationship between
quantity demanded and quantity supplied.
income and quantity demanded.
price and quantity demanded.
price and income.
A group of buyers and sellers of a particular good or service is called
a coalition.
an economy.
a market.
a competition.
A improvement in production technology will shift the
supply curve to the right.
supply curve to the left.
demand curve to the right.
demand curve to the left.
A likely example of substitute goods for most people would be
peanut butter and jelly.
tennis balls and tennis rackets.
televisions and subscriptions to cable television services.
pencils and pens.
A monopoly is a market with one
seller, and that seller is a price taker.
seller, and that seller sets the price.
buyer, and that buyer is a price taker.
buyer, and that buyer sets the price.
If a decrease in income increases the demand for a good, then the good is
a substitute good.
a complementary good.
a normal good.
an inferior good.
If a good or service has only one seller, then the seller is called a monopoly
True
False
If a seller in a competitive market chooses to charge more than the going price, then
the sellers' profits must increase.
the owners of the raw materials used in production would raise the prices for the raw materials.
other sellers would also raise their prices.
buyers will make purchases from other sellers.
If a surplus exists in a market, then we know that the actual price is
above the equilibrium price, and quantity supplied is greater than quantity demanded.
above the equilibrium price, and quantity demanded is greater than quantity supplied.
below the equilibrium price, and quantity demanded is greater than quantity supplied.
below the equilibrium price, and quantity supplied is greater than quantity demanded.
If muffins and bagels are substitutes, a higher price for bagels would result in
an increase in the demand for bagels.
a decrease in the demand for bagels.
an increase in the demand for muffins.
a decrease in the demand for muffins.
If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would happen to the equilibrium price and quantity of lattés?
Both the equilibrium price and quantity would increase.
Both the equilibrium price and quantity would decrease.
The equilibrium price would increase, and the equilibrium quantity would decrease.
The equilibrium price would decrease, and the equilibrium quantity would increase.
If something happens to alter the quantity supplied at any given price, then
we move along the supply curve.
the supply curve shifts.
the supply curve becomes steeper.
the supply curve becomes flatter.
If the demand for a good falls when income falls, then the good is called
a normal good.
a regular good.
an ordinary good.
an inferior good.
The shift from Da to Db in the market for potato chips could be caused by
a decrease in the price of potato chips.
a decrease in income, assuming that potato chips are a normal good.
an announcement by the FDA that potato chips cause cancer.
an increase in the price of a pretzels.
The shift from Da to Db is called
an increase in demand.
a decrease in demand.
a decrease in quantity demanded.
an increase in quantity demanded.
The movement from point A to point B on the graph is called
a decrease in supply.
an increase in supply.
an increase in the quantity supplied.
a decrease in the quantity supplied.
If these are the only two sellers in the market, then the market quantity supplied at a price of $4 is
6 units.
7 units.
8 units.
14 units.
The shift from S to S' could be caused by an
increase in the price of the good.
improvement in production technology.
increase in income.
increase in input prices.
At a price of $35, there would be a
shortage of 400 units.
surplus of 200 units.
surplus of 400 units.
surplus of 600 units.
At what price would there be an excess supply of 200 units of the good?
$15
$20
$30
$35
At the equilibrium price, the quantity of the good that buyers are willing and able to buy
is greater than the quantity that sellers are willing and able to sell.
exactly equals the quantity that sellers are willing and able to sell.
is less than the quantity that sellers are willing and able to sell.
could be greater or less than the quantity that sellers are willing and able to sell.
It is apparent from the figure that the
good is inferior.
demand for the good decreases as income increases.
demand for the good conforms to the law of demand.
good is a normal good.
A surplus is the same as an excess demand.
True
False
Advances in production technology typically reduce firms’ costs, which increases the quantity supplied at each price.
True
False
An example of a perfectly competitive market would be the
cable TV market.
soybean market.
breakfast cereal market.
shampoo market.
An increase in the price of ink will shift the supply curve for pens to the left.
True
False
Ashley bakes bread that she sells at the local farmer's market. If she purchases a new convection oven that reduces the costs of baking bread, the
supply of Ashley's bread will increase.
supply of Ashley's bread will decrease.
demand for Ashley's bread will increase.
demand for Ashley's bread will decrease.
If the number of buyers in a market decreases, then
demand will increase.
demand will decrease.
supply will increase.
supply will decrease.
If the supply of a product increases, then we would expect equilibrium price
to increase and equilibrium quantity to decrease.
to decrease and equilibrium quantity to increase.
and equilibrium quantity to both increase.
and equilibrium quantity to both decrease.
Individual demand curves are summed vertically to obtain the market demand curve.
True
False, horizontally
Most markets in the economy are highly competitive.
True
False
Pizza is a normal good if the demand
for pizza rises when income rises.
for pizza rises when the price of pizza falls.
curve for pizza slopes upward.
curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are substitutes.
Price will rise to eliminate a shortage.
True
False
Price will rise to eliminate a surplus.
True
False
Sellers respond to a shortage by cutting their prices.
True
False
Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a
shortage to exist and the market price of roses to increase.
shortage to exist and the market price of roses to decrease.
surplus to exist and the market price of roses to increase.
surplus to exist and the market price of roses to decrease
Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are
complementary goods.
normal goods.
inferior goods.
substitute goods.
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
If the law of demand applies to this good, then Q1 could be
0
100
200
400
If these are the only four buyers in the market, then the market quantity demanded at a price of $1 is
4 units.
7.75 units.
14 units.
31 units.
If these are the only four buyers in the market, then when the price increases from $1.00 to $1.50, the market quantity demanded
decreases by 1.75 units.
increases by 2 units.
decreases by 7 units.
decreases by 24 units.
If the law of supply applies to this good, then Q1 could be
0
50
100
150
If these are the only four sellers in the market, then the market quantity supplied at a price of $4 is
4 units.
7.5 units.
10 units.
28 units.
If these are the only four sellers in the market, then when the price increases from $6 to $8, the market quantity supplied
increases by 0.5 units.
increases by 12 units.
decreases by 4 units.
increases by 2 units.
The equilibrium price and quantity are
$0.00 and 1200 cases
$3.00 and 300 cases
$6.00 and 600 cases
$9.00 and 600 cases
A production possibilities frontier is bowed outward when
he more resources the economy uses to produce one good, the fewer resources it has available to produce the other good.
an economy is self-sufficient instead of interdependent and engaged in trade.
the rate of trade-off between the two goods being produced is constant.
the rate of trade-off between the two goods being produced depends on how much of each good is being produced.
A professor spends 10 hours per day giving lectures and writing papers. For the professor, a graph that shows his various possible mixes of output (lectures given per day and papers written per day) is called his
line of tastes.
trade-off curve.
production possibilities frontier.
consumption possibilities frontier.
Absolute advantage is found by comparing different producers'
opportunity costs.
payments to land, labor, and capital.
input requirements per unit of output.
locational and logistical circumstances.
Adam Smith developed the theory of comparative advantage as we know it today.
True
False
As long as two people have different opportunity costs, each can gain from trade with the other, since trade allows each person to obtain a good at a price lower than his or her opportunity cost.
True
False
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?
(200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars)
(200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)
(300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)
(300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars)
Differences in opportunity cost allow for gains from trade.
True
False
The rate of trade-off between producing chairs and producing couches is constant in
Graph (a) only.
Graph (b) only.
both Graph (a) and graph (b).
neither Graph (a) nor Graph (b).
The rate of trade-off between producing chairs and producing couches depends on how many chairs and couches are being produced in
Graph (a) only.
Graph (b) only.
both Graph (a) and Graph (b).
neither Graph (a) nor Graph (b).
Both Alice and Betty
face a constant trade-off between producing pitchers of lemonade and pizzas.
can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production.
would benefit from specializing in lemonade production.
would benefit from specializing in pizza production.
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?
Alice produces more pizzas and Betty produces more lemonade.
Alice produces more lemonade and Betty produces more pizzas.
Both Alice and Betty produce only pizzas.
There are no circumstances under which both Alice and Betty can benefit from specialization and trade.
For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.
True
False
If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn.
Iowa has an absolute advantage in the production of corn.
Iowa should import corn from Oklahoma.
Oklahoma should produce just enough corn to satisfy its own residents’ demands.
If Shawn can produce more donuts in one day than Sue can produce in one day, then
Shawn has a comparative advantage in the production of donuts.
Sue has a comparative advantage in the production of donuts.
Shawn has an absolute advantage in the production of donuts.
Sue has an absolute advantage in the production of donuts.
If a country has the comparative advantage in producing a product, then that country must also have the absolute advantage in producing that product.
True
False
Opportunity cost refers to how many inputs a producer requires to produce a good.
True
False
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
benefit both Celia and Ryan.
benefit Celia, but not Ryan.
benefit Ryan, but not Celia.
benefit neither Celia nor Ryan.
Some countries win in international trade, while other countries lose.
True
False
Specialization and trade can make everyone better off if a person can obtain goods at prices that are less than that person's opportunity cost.
True
False
Suppose there are only two people in the world. Each person’s production possibilities frontier also represents his or her consumption possibilities when
neither person faces trade-off.
the frontiers are straight lines.
the frontiers are bowed out.
they choose not to trade with one another.
The most obvious benefit of specialization and trade is that they allow us to
work more hours per week than we otherwise would be able to work.
consume more goods than we otherwise would be able to consume.
spend more money on goods that are beneficial to society, and less money on goods that are harmful to society.
consume more goods by forcing people in other countries to consume fewer goods.
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,
has a low opportunity cost of producing that good, relative to the opportunity costs of other producers.
has a comparative advantage in the production of that good.
has an absolute advantage in the production of that good.
should be the only producer of that good.
Total output in an economy increases when each person specializes because
there is less competition for the same resources.
each person spends more time producing that product in which he or she has a comparative advantage.
a wider variety of products will be produced within each country due to specialization.
government necessarily plays a larger role in the economy due to specialization.
Trade between countries
allows each country to consume at a point outside its production possibilities frontier.
limits a country’s ability to produce goods and services on its own.
must benefit both countries equally; otherwise, trade is not mutually beneficial.
can best be understood by examining the countries’ absolute advantages.
