Question 1

A department store buys a wool coat for $120 and sets its retail price at $300. The coat costs $85 to produce. When the coat doesn't sell, the store marks the price down to $200, then $100, and finally $70. At $70, Amy buys the coat. What was the coat's true value? Why?

Accepted Answer

Since the coat sold for $70, we would ha...

Question 2

Use the production possibilities data below to answer the following question(s) .
Table 2-3
 
-Refer to Table 2-3. The opportunity cost of 1 pound of meat for the rancher is

Accepted Answer

A)   4 hours of labor.
B)   5 hours of labor.
C)   4/5 pounds of potatoes.
D)   5/4 pounds of potatoes.E) All of the above
F) A) and C)

Question 3

A production possibilities curve indicates that when resources are being used efficiently,

Accepted Answer

A)   you can only produce more of one good only if you lower its price.
B)   you can only produce more of one good only if you produce more of another good.
C)   you can only produce more of one good only if you produce less of another good.
D)   it is impossible to expand the total output of goods over time.E) A) and D)
F) A) and C)

Question 4

Use the production possibilities data below to answer the following question(s) .
Table 2-3
 
-Refer to Table 2-3. The farmer and the rancher both could benefit if the farmer were to specialize in

Accepted Answer

A)   meat and the rancher were to specialize in potatoes.
B)   potatoes and the rancher were to specialize in meat.
C)   neither good and the rancher were to specialize in both goods.
D)   none of the above; they cannot both benefit by specialization and trade.E) C) and D)
F) A) and B)

Question 5

Other things constant, which of the following would you expect to increase the output growth rate of a country?

Accepted Answer

A)   an increase in the rate of taxation on personal income
B)   an increase in the rate of investment as a share of total output
C)   passage of regulations restricting international trade
D)   passage of regulations restricting domestic tradeE) A) and B)
F) None of the above

Question 6

High transaction costs will tend to

Accepted Answer

A)   reduce the number of mutually beneficial exchanges that occur.
B)   allow easier specialization according to the law of comparative advantage.
C)   increase the value created by exchanges in an economy.
D)   increase the number of mutually beneficial exchanges that occur.E) B) and D)
F) C) and D)

Question 7

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

Accepted Answer

A)   the law of absolute advantage.
B)   the law of comparative advantage.
C)   the law of production possibilities.
D)   the exchange maximum principle.E) B) and D)
F) A) and B)

Question 8

Three basic decisions must be made by all economies. What are they?

Accepted Answer

A)   How much will be produced; when will it be produced; who will produce it?
B)   What goods will be produced; how will goods be produced; for whom will goods be produced?
C)   What will be consumed; how will goods be consumed; for whom will goods be consumed?
D)   How will the opportunity cost principle be applied; if the law of comparative advantage will be utilized, how will it be utilized; will the production possibilities constraint apply?E) None of the above
F) All of the above

Question 9

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

Accepted Answer

A)   decentralized decision making is inevitable.
B)   central planning and political bargaining will replace market forces.
C)   individual preferences are of no importance.
D)   economic equality will result.E) C) and D)
F) B) and D)

Question 10

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to

Accepted Answer

A)   increase to five.
B)   remain constant at approximately seven.
C)   decline to approximately five.
D)   decline to approximately two.E) B) and C)
F) A) and D)

Question 11

Figure 2-7 
-If an economy operates at point A on the production possibilities curve shown in Figure 2-7,

Accepted Answer

A)   to produce more food, it would have to reduce its production of clothing.
B)   to produce more clothing, it would have to reduce the production of food.
C)   it is operating efficiently.
D)   all of the above would be correct.E) B) and C)
F) A) and D)

Question 12

If an economy uses its resources inefficiently, this situation would be illustrated on a production possibilities diagram as

Accepted Answer

A)   an inward shift of the production possibilities curve.
B)   an outward shift of the production possibilities curve.
C)   operating at a point outside the production possibilities curve.
D)   operating at a point inside the production possibilities curve.E) A) and D)
F) None of the above

Question 13

Even countries that depend primarily on market forces to resolve the basic economic questions will usually rely on the collective decision-making process to

Accepted Answer

A)   determine the prices of goods and resources.
B)   allocate goods that are essential to life.
C)   determine the distribution of income among citizens.
D)   define and enforce private-property rights and designate the acceptable forms of competitive economic behavior.E) None of the above
F) B) and C)

Question 14

If the resources of an economy are being used inefficiently, it would be

Accepted Answer

A)   possible to increase production of all goods simultaneously.
B)   possible to increase production of one good only if production decreased for the other goods.
C)   not possible to increase production of any good.
D)   not possible to increase economic growth.
E)   possible to increase production with no effort.F) A) and B)
G) C) and D)

Question 15

Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for $11,000, which of the following is true?

Accepted Answer

A)   Noah gains $1,000 of value, and Emily gains $3,000 of value.
B)   Noah gains $11,000 of value, and Emily loses $11,000 of value.
C)   Noah gains $10,000 of value, and Emily loses $14,000 of value.
D)   Noah and Emily both gain $11,000 of value.E) A) and B)
F) A) and C)

Question 16

According to the law of comparative advantage,

Accepted Answer

A)   individuals and nations gain when they specialize in producing those goods they consume.
B)   individuals and nations gain when they specialize in producing goods they can produce at a high opportunity cost and can exchange for other desired goods they can produce cheaply.
C)   individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply.
D)   all of the above are true.E) A) and D)
F) A) and B)

Question 17

Middlemen are individuals who

Accepted Answer

A)   add to the buyer's expense without performing a useful function.
B)   add to the seller's cost without performing a useful function.
C)   provide services that reduce the cost of transactions and help achieve additional gains from trade.
D)   act as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services.E) A) and B)
F) B) and C)

Question 18

In an informed and voluntary exchange,

Accepted Answer

A)   both parties receive something they value more than what they gave up.
B)   both parties place an equal value on what they received and what they gave up.
C)   neither party can gain more than the other.
D)   one trader can gain only at the expense of the other.E) A) and B)
F) None of the above

Question 19

When private ownership of a resource is clearly defined and enforced, the private owner

Accepted Answer

A)   has little incentive to consider the wishes of others when deciding how to employ the resource.
B)   has little incentive to use the resource wisely.
C)   has a strong incentive to consume the resource during the period rather than conserving it for the future.
D)   has a strong incentive to use the resource wisely.E) C) and D)
F) All of the above

Question 20

Abigail wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Abigail is currently spending all of her time efficiently, Abigail can spend more time studying this week only if

Accepted Answer

A)   she also spends more time doing other things.
B)   she spends less time doing other things.
C)   Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour.
D)   none of the above.E) A) and C)
F) B) and C)

Exam 2: Some Tools of the Economist

According to the law of comparative advantage,

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A department store buys a wool coat for $120 and sets its retail price at $300. The coat costs $85 to produce. When the coat doesn't sell, the store marks the price down to $200, then $100, and finally $70. At $70, Amy buys the coat. What was the coat's true value? Why?

Correct AnswerverifiedSince the coat sold for $70, we would ha...View AnswerShow Answer

Use the production possibilities data below to answer the following question(s) . Table 2-3 -Refer to Table 2-3. The farmer and the rancher both could benefit if the farmer were to specialize in

Correct AnswerverifiedShow Answer

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

Correct AnswerverifiedShow Answer

When private ownership of a resource is clearly defined and enforced, the private owner

Correct AnswerverifiedShow Answer

In an informed and voluntary exchange,

Correct AnswerverifiedShow Answer

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

Correct AnswerverifiedShow Answer

Three basic decisions must be made by all economies. What are they?

Correct AnswerverifiedShow Answer

If an economy uses its resources inefficiently, this situation would be illustrated on a production possibilities diagram as

Correct AnswerverifiedShow Answer

Middlemen are individuals who

Correct AnswerverifiedShow Answer

Abigail wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Abigail is currently spending all of her time efficiently, Abigail can spend more time studying this week only if

Correct AnswerverifiedShow Answer

Even countries that depend primarily on market forces to resolve the basic economic questions will usually rely on the collective decision-making process to

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Figure 2-7 -If an economy operates at point A on the production possibilities curve shown in Figure 2-7,

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Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for $11,000, which of the following is true?

Correct AnswerverifiedShow Answer

A production possibilities curve indicates that when resources are being used efficiently,

Correct AnswerverifiedShow Answer

High transaction costs will tend to

Correct AnswerverifiedShow Answer

Other things constant, which of the following would you expect to increase the output growth rate of a country?

Correct AnswerverifiedShow Answer

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to

Correct AnswerverifiedShow Answer

Use the production possibilities data below to answer the following question(s) . Table 2-3 -Refer to Table 2-3. The opportunity cost of 1 pound of meat for the rancher is

Correct AnswerverifiedShow Answer

If the resources of an economy are being used inefficiently, it would be

Correct AnswerverifiedShow Answer

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Since the coat sold for $70, we would ha...
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