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Chapter 2/Thinking Like an Economist Chapter 3 Interdependence and the Gains from Trade The slope of the production possibilities frontier is determined by a the opportunity cost of producing one more unit of the good on the horizontal axis b the market prices of the goods that the economy can produce c the distribution of incomes in the economy d whether production is performed using efficient or inefficient methods The production possibilities frontier is a downwardsloping straight line when the a opportunity cost of producing each good depends on the amount produced b technology of production is constant c opportunity cost of producing each good is independent of the amount of the good produced d economy is industrialized In voluntary exchange between two countries, if one country gains then a the other must lose, unless the exchange generates external costs b the other country must lose under any circumstances c the other country must lose an equal amount d there is no reason to expect that the other country must lose International trade tends to occur whenever a labor is cheaper in one country than in another b one of the trading nations is self sufficient and producing surplus goods c one nation can profit from trade at the expense of the other d both nations can benefit from trade If Japan can produce each unit of steel using fewer resources than Canada does, a Canada has an absolute advantage in steel production b Japan has an absolute advantage in steel production. c Japan has a comparative advantage in steel production d Canada has a comparative advantage in steel production Which of the following statements is true? a Exports tend to decrease economic efficiency Chapter 2/Thinking Like an Economist b A nation should specialize in producing a good in which it has an absolute advantage c A nation should specialize in producing a good only when it has both an absolute and a comparative advantage d A nation should specialize in producing a good in which it has a comparative advantage Suppose Russia has an absolute advantage in the production of all goods. In this instance, Russia a will have no incentive to engage in international trade b should specialize in producing the goods for which it has a lower opportunity cost than other countries c also has a comparative advantage in the production of those goods d is producing at a point on its production possibilities frontier What can be said regarding absolute advantage in production for the two countries shown in this figure? Number of workers needed to produce one unit of each of the following goods: Korea Columbia 1 Radio 3 4 1 Calculator 6 2 a Colombia has an absolute advantage in producing both calculators and radios b Korea only has an absolute advantage in producing calculators c Korea has an absolute advantage in producing both radios and calculators d Columbia only has an absolute advantage in producing calculators Which of the following will change a nation’s comparative advantage? a a technological advance in producing manufactured goods b a doubling of all wages c quotas on imports d a change in consumers’ preferences for imported goods 10 If a nation does not have an absolute advantage in producing anything, it a has no comparative advantage either b could have a comparative advantage in something c will try to get along without trade d will export raw materials and import finished products 11 In the marketplace, John voluntarily sells his last two loaves of bread to Mary for $2. We can infer that this will benefit a both John and Mary b Mary, but not John, since these are John’s last two loaves of bread Chapter 2/Thinking Like an Economist c Mary, while imposing a cost on John equal to the benefit Mary receives d neither John nor Mary 12 Trade based on each country’s comparative advantage is a economically efficient because both countries are better off than they were before they traded b economically inefficient because the country with the absolute advantage is made worse off c ineffective in improving efficiency, since one country’s gain will be offset by the other country’s loss d economically efficient only if each country also has the absolute advantage in producing their good 13 If Armenia can produce two rugs or 100 spy novels in an hour, and Turkey can produce one rug or 50 spy novels in an hour a Turkey should produce both rugs and spy novels b Turkey should produce only rugs c Armenia should produce only rugs d there are no gains from trade between these two countries with these two goods 14 Suppose these diagrams depict the production possibilities frontiers of wheat and corn for two countries, the United States and Canada. What is the most wheat the U.S. would be willing to trade for one unit of Canada’s corn? a 1/3 b 1/4 c d 15 Suppose these diagrams depict the production possibilities frontiers of wheat and corn for two countries, the United States and Canada. What is the most corn the Canada would be willing to trade for one unit of U.S. wheat? a 1/3 b 1/4 c d 16 A good produced in Japan and sold to Korea a is a Korean export and Japanese import b is a Korean import and Japanese export c implies that Japan has an absolute advantage in the production of the good d implies that Korea has a comparative advantage in the production of the good 17 A nation should only import those goods for which it has a lower opportunity costs than its trading partner b higher opportunity costs than its trading partner 10 Chapter 2/Thinking Like an Economist c zero transactions costs d lower costs of production than its trading partner Jill can sew a child’s dress in 3 hours and can knit a baby’s blanket in 2 hours. Sarah can sew a child’s dress in 6 hours and can knit a baby’s blanket in 3 hours. Use this information to answer the following questions 18 We can infer that Jill has the comparative advantage in a sewing b knitting c both activities d neither activities 19 We know that Sarah has the comparative advantage in a sewing b knitting c both activities d neither activities 20 Jill should specialize in a sewing b knitting c both activities d neither activities 21 Sarah should specialize in a sewing b knitting c both activities d neither activities 22 Which of the following describes the production possibilities frontier for Jill and Sarah together if each works for 12 hours? The intercept on the dress axis is units and the intercept on the blanket axis is units a 10; 6 b 9;5 c 4;4 d 6;10 23 Given the above information, Jill would trade her dresses for Sarah’s blankets if the price of a dress in terms of blankets was Chapter 2/Thinking Like an Economist 11 a b c d less than 2/3 blankets for 1 dress more than 2 blankets for 1 dress at least 3/2 blankets for 1 dress Jill would never trade with Sarah 24 Given the above information, Sarah would trade her blankets for Jill’s dresses if the price of a blanket in terms of dresses was a more than 1/2 dress for one blanket b less than 1/2 dress for one blanket c more than 2/3 dress for 1 blanket d Sarah would never trade with Jill 25 Which of the following would be a mutually agreeable rate of exchange between Jill and Sarah for dresses and blankets? a less than 1/2 dress for 1 blanket b more than 2/3 dress for 1 blanket c between 1/2 and 2/3 dress for 1 blanket d between 2/3 and 2 dresses for 1 blanket Chapter 4 The Market Forces of Supply and Demand The commercial jetliner industry, consisting of Boeing and Airbus, represents a perfect competition b oligopoly c monopoly d None of the above are correct In a perfectly competitive market, a advertising is widely used to influence demand and price b firms are price takers rather than price makers c firms produce a small number of differentiated products 12 Chapter 2/Thinking Like an Economist d a small number of firms produce an identical product Suppose that a large dairy farmer is able to raise the market price of milk by withholding milk supply from the market. In this instance, a the milk market is perfectly competitive b buyers will decrease their demand for milk c buyers will increase their demand for milk d the milk market is imperfectly competitive A group of buyers and sellers with the potential to trade is known as a(n) a cartel b market c industry d sector The amount of a good or service that buyers would be willing and able to purchase at a specific price is known as a quantity demanded b demand c supply d quantity supplied The demand curve for Beanie Baby dolls shows the quantity of dolls demanded a by suppliers of those dolls b at the equilibrium price for Beanie Baby dolls c at each level of income d at each possible price of Beanie Baby dolls This diagram shows the market for inline roller skates. Which of the following would cause a move from point A to point B? a an increase in the price of bicycles b a decrease in the price of bicycles c a decrease in consumer incomes d a popular new movie that convinces teens that skateboards are really cool Chapter 2/Thinking Like an Economist 13 This diagram shows the market for inline roller skates. Which of the following would cause a move from point A to point C? a an increase in the price of bicycles b a decrease in the price of bicycles c a decrease in the price of inline roller skates d a decrease in consumer incomes Which of the following are the best examples of substitute goods? a personal computers and computer software programs b milk and cookies c IBM and Gateway personal computers d hot dogs and mustard 10 Which of the following sets of goods are most likely to be complementary goods? a shoes and pizza b automobiles and computers c baseballs and baseball gloves d football tickets and baseball tickets 11 The diagram below shows the supply of oranges per week provided by Farmer Jones. When the price increases from $1.00 per pound to $2.00 per pound, the quantity supplied increases to a 50 b 100 c 150 d 500 12 If the same dairy can produce either whole milk or skim milk, an increase in the profitability of whole milk results in a(n) a decrease in the quantity supplied of whole milk b increase in the supply of whole milk c decrease in the supply of skim milk d increase in the supply of skim milk 13 An increase in the number of tomato producers will a increase market supply because the price of tomatoes will rise b increase market supply because market demand will increase as more tomatoes are produced 14 Chapter 2/Thinking Like an Economist c increase market supply because market supply is the sum of all the individual tomato producers’ supply curves d increase market demand but leave market supply unchanged 14 Consider the diagram below in equilibrium at point E. Firms who advertise in this market are attempting to shift the a supply curve to S2 b supply curve to S3 c demand curve to D2 d demand curve to D3 15 Suppose that the demand for apples increased more than the supply of apples increased. The net effect of these two changes would be a(n) a increase in the equilibrium price and a decrease in the equilibrium quantity b increase in the equilibrium price and an increase in the equilibrium quantity c decrease in the equilibrium price and an increase in the equilibrium quantity d decrease in the equilibrium price and a decrease in the equilibrium quantity 16 Given this data, the equilibrium price and quantity of CD players are a $150 and 300 players b $200 and 800 players c $250 and 600 players d $300 and 650 players QUANTITY QUANTITY PRICE DEMANDED SUPPLIED (units per week) (units per week) $100 1,000 100 $150 900 300 $200 800 500 $250 600 600 $300 300 650 17 Given this data, if the price of CD players is $200, a there will be a surplus b there will be a shortage c the market is in equilibrium d the supply will increase 18 Temporary shortages in a market are eliminated by a decreases in the price, which cause quantity supplied to fall and quantity demanded to rise Chapter 2/Thinking Like an Economist 15 b decreases in the price, which cause quantity supplied to rise and quantity demanded to fall c increases in the price, which cause quantity supplied to fall and quantity demanded to rise d increases in the price, which cause quantity supplied to rise and quantity demanded to fall 19 When a market is in equilibrium, a quantity demanded will equal quantity supplied b a shortage will be present c a surplus will be present d sellers will continue to expand production to increase revenues 20 If a drought destroyed half of the U.S. garlic crop at a time when the health benefits of garlic were being well publicized, economists would expect that in the market for garlic a quantity exchanged would rise but the change in price is uncertain without further information b price would rise but the change in quantity exchanged is uncertain without further information c both price and quantity exchanged would rise d price would rise and quantity exchanged would fall 21 The discovery of new gold in South America will the price of gold and the quantity of gold traded a raise; raise b lower; raise c raise; lower d lower; lower 22 Higher wages in the U.S. auto industry would the prices of autos and the quantity exchanged a lower; lower b lower; raise c raise; lower d raise; raise 23 In this diagram of the market for beachfront property in Connecticut, the equilibrium price is a $100,000 per acre b $200,000 per acre c $300,000 per acre d $400,000 per acre 16 Chapter 2/Thinking Like an Economist 24 Consider this diagram of the market for beachfront property in Connecticut. If the local government decides to establish a price of $200,000 per acre there will be a a shortage of land b a surplus of land c an equilibrium quantity of land exchanged d no land exchanged in the market 25 Consider this diagram of the market for beachfront property in Connecticut. At a price of zero, a 500 acres will be demanded b 1000 acres will be demanded c 10,000 acres will be demanded d an infinite number of acres will be demanded 92 Chapter 2/Thinking Like an Economist 11 It has been argued that a “living wage” should be established by government, a wage that would provide workers a reasonable standard of living in their city or region. If a living wage of $10 per hour is established in the market described here, we would expect a employment will increase to 14 million b employment will decrease to 8 million c the wage will actually rise to $20 per hour d there will be a surplus of 14 million workers ANSWER: b employment will decrease to 8 million SECTION: 1 OBJECTIVE: 4 12 When unions are successful in raising the wages of their members, the employers of the unionized workers tend to a seek substitutes for union labor b acquire less capital c lower the prices of the goods they sell d overcome the disadvantages of higher costs by lowering management salaries ANSWER: a seek substitutes for union labor SECTION: 1 OBJECTIVE: 4 13 The UMWA, a union for coal miners, argues that the shift from coal to nonfossil fuels as an energy source had a negative effect on coal miners’ incomes. This happened because the a value of marginal product curve for labor shifted to the right b value of marginal product curve for labor shifted to the left c price elasticity of demand for coal decreased d demand for coal shifted to the right ANSWER: b value of marginal product curve for labor shifted to the left SECTION: 1 OBJECTIVE: 4 Chapter 2/Thinking Like an Economist 93 14 This figure depicts labor demand and supply in a nonunionized labor market. The original equilibrium is at point A. If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20, then there will be an excess a supply of 3,000 workers b demand of 7,000 workers c supply of 4,000 workers d supply of 7,000 workers ANSWER: d supply of 7,000 workers SECTION: 1 OBJECTIVE: 4 15 This figure depicts labor demand and supply in a nonunionized labor market. The original equilibrium is at point A. If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20, then the employment level a rises from 6,000 to 10,000 b rises from 3,000 to 10,000 c drops from 10,000 to 3,000 d drops from 6,000 to 3,000 ANSWER: d drops from 6,000 to 3,000 SECTION: 1 OBJECTIVE: 4 16 The idea of paying workers an efficiency wage is that a doing so is more efficient than paying them the market wage b paying workers less gives them the incentive to work harder c workers and management gain at the expense of the stockholders of the company d workers have the incentive to do highquality work ANSWER: d workers have the incentive to do highquality work SECTION: 1 OBJECTIVE: 4 94 Chapter 2/Thinking Like an Economist 17 If men, on average, earn 20 percent more than women in a particular occupation, a this is clear evidence of discrimination b some of this differential could be due to differences in human capital c most but not all of the differential is due to discrimination d comparable worth laws must be in effect ANSWER: b some of this differential could be due to differences in human capital SECTION: 2 OBJECTIVE: 5 18 When members of a group enjoy different opportunities that cannot be attributed to differences in ability, a discrimination is said to occur b comparable worth laws are ineffective c all wages in the market will be the same d the demand for labor will increase ANSWER: a discrimination is said to occur SECTION: 2 OBJECTIVE: 5 19 If an employer begins to pay higher wages to white workers, then in the short run a wages for white workers would fall b wages for nonwhite workers would rise c profits would rise as nonwhite workers leave the firm d profits would fall as nonwhite workers leave the firm ANSWER: d profits would fall as nonwhite workers leave the firm SECTION: 2 OBJECTIVE: 5 20 A labor market is divided into two segments. All workers have the same qualifications and find jobs in either segment equally attractive. Initially, both segments are in competitive equilibrium. If the development of employer prejudice then reduces the employment of minorities in one segment, there will be a a permanent drop in labor supply in the discriminating segment b permanent increase in labor supply in the nondiscriminating segment c temporary drop in labor supply in the discriminating segment d permanent drop in labor demand in the discriminating segment ANSWER: c temporary drop in labor supply in the discriminating segment SECTION: 2 OBJECTIVE: 6 21 A labor market is divided into two segments. All workers have the same qualifications and find jobs in either segment equally attractive. Initially, both segments are in competitive equilibrium. Then the development of employer prejudice then reduces the employment of minorities in one segment. In the long run, there will likely be a change in a wage rates and the composition of the work force in both segments b neither wage rates nor the composition of the work force in either segment c wage rates but not the composition of the work force in both segments d the composition of the work force but not wage rates in both segments ANSWER: d the composition of the work force but not wage rates in both segments SECTION: 2 OBJECTIVE: 6 Chapter 2/Thinking Like an Economist 95 22 Prejudice can generate market forces that lead to a permanent shift of an unfavored minority into lowwage jobs when the prejudice originates with a employees or customers b employers, employees, or customers c employees only d customers only ANSWER: a employees or customers SECTION: 2 OBJECTIVE: 6 23 Market forces encourage discrimination in the case of a statistical discrimination only b employee and customer prejudice only c employer prejudice only d statistical discrimination and employee or customer prejudice ANSWER: d statistical discrimination and employee or customer prejudice SECTION: 2 OBJECTIVE: 6 24 One difficulty with the idea of comparable worth is that a it does not address the idea of compensating wage differentials b it would cause wages to fall in many occupations c a government agency cannot accurately evaluate the many different characteristics of the many different jobs in the labor market d it would not take into account differences in the demand for labor among firms ANSWER: c a government agency cannot accurately evaluate the many different characteristics of the many different jobs in the labor market SECTION: 2 OBJECTIVE: 7 25 Comparable worth policies can have effects similar to a efficiency wages in that employment may rise in the affected markets b minimum wages in that surpluses of labor may occur in the affected markets c government regulation in the case of natural monopolies d economies of scale in that efficiencies are created by increases in output ANSWER: b minimum wages in that surpluses of labor may occur in the affected markets SECTION: 2 OBJECTIVE: 7 96 Chapter 2/Thinking Like an Economist s Chapter 20 Income Inequality and Poverty The percentage of families with incomes below the poverty line a is defined as the lowest 10 percent of households in terms of incomes in the United States b is known as the poverty rate c is known as the unemployment rate d rises as the general income level rises ANSWER: b is known as the poverty rate SECTION: 1 OBJECTIVE: 1 The income level below which families are said to be poor is known as the a income maintenance threshold b poverty line c bottom quintile of the income distribution d minimum wage ANSWER: b poverty line SECTION: 1 OBJECTIVE: 1 If the U.S. government determines that the cost of feeding an urban family of six is $6,000 per year, then the official poverty line for a family of that type is a $6,000 b $12,000 c $18,000 d $36,000 ANSWER: c $18,000 SECTION: 1 OBJECTIVE: 1 What two main factors have raised U.S. income inequality recently? a technical change and increased labor union membership b increased labor union membership and higher tax rates c technical change and expanded international trade d lower tax rates and expanded international trade ANSWER: c technical change and expanded international trade SECTION: 1 OBJECTIVE: 1 Chapter 2/Thinking Like an Economist 97 About what percent of all U.S. income goes to the top fifth of the income distribution? a 10% b 25% c 47% d 63% ANSWER: c 47% SECTION: 1 OBJECTIVE: 1 About what percent of all U.S. income goes to the bottom fifth of the income distribution? a 10% b 8% c 6% d 4% ANSWER: d 4% SECTION: 1 OBJECTIVE: 1 In richer countries, the distribution of income tends to be within poorer countries a much less equal than b slightly less equal than c distributed about the same as d more equal than ANSWER: d more equal than SECTION: 1 OBJECTIVE: 1 Over the past 20 years, wages for college graduates and wages for workers with less education a rose; rose b rose; fell c fell; rose d fell; fell ANSWER: b rose; fell SECTION: 1 OBJECTIVE: 1 Which of the following groups has the highest poverty rate? a black b Asian/Pacific Islander c children (under age 16) d femaleheaded household ANSWER: d femaleheaded household SECTION: 2 OBJECTIVE: 3 10 Medicaid and food stamps are a available only to the elderly b forms of inkind assistance c forms of cash assistance d transfer payments ANSWER: b forms of inkind assistance SECTION: 1 OBJECTIVE: 2 98 Chapter 2/Thinking Like an Economist 11 Susan won big at the blackjack tables on her birthday. The money she won is considered to be a permanent income b lifecycle income c transitory income d an inkind transfer ANSWER: c transitory income SECTION: 1 OBJECTIVE: 2 12 Suppose Fred’s marginal utility of an extra dollar of income is 56 and Sally’s is 34. If a dollar is taken from a Sally and given to Fred, the economy’s total utility will rise by 22 units b Fred and given to Sally, the economy’s total utility will rise by 22 units c Sally and given to Fred, the economy’s total utility will rise by 34 units d Sally and given to Fred, the economy’s total utility will rise by 56 units ANSWER: a Sally and given to Fred, the economy’s total utility will rise by 22 units SECTION: 2 OBJECTIVE: 3 13 According to a utilitarian, total social utility will be maximized when marginal dollars are distributed to the people with the a greatest need b highest marginal utility of income c highest total utility from their income d most productive labor resources ANSWER: b highest marginal utility of income SECTION: 2 OBJECTIVE: 3 14 In a world where people would have no prior information about where they are in an income distribution, given the choice, Rawls argues that they would prefer a an income distribution that is relatively equal b that everyone has the same work opportunities and market determined wage rates c that private property be transformed to government property to safeguard their incomes d less economic assistance to the poor because it distorts the price system ANSWER: a an income distribution that is relatively equal SECTION: 2 OBJECTIVE: 3 15 The philosopher John Rawls argued that a people would choose income equality if they had to determine an economic distribution system before knowing their place in it b people would choose income inequality to allow the maximum use of their individual talents c government has a role to ensure income equality to prevent social unrest d people would choose income equality because it is morally right ANSWER: a people would choose income equality if they had to determine an economic distribution system before knowing their place in it SECTION: 1 OBJECTIVE: 1 Chapter 2/Thinking Like an Economist 99 16 According to a libertarian, if income were to be distributed equally a productivity would increase b it would take a little time for the distribution to become unequal again c the marginal product of the poor would rise and the marginal product of the rich would rise d productivity in the economy would decrease ANSWER: d productivity in the economy would decrease SECTION: 2 OBJECTIVE: 3 17 The case for income inequality is supported by which of the following arguments? a personal misfortune being a random event b economic efficiency c Rawls’ maximin policy d Utilitarianism ANSWER: b economic efficiency SECTION: 2 OBJECTIVE: 3 18 Critics of utilitarianism say that it requires an impossible a belief in utility functions b interpersonal comparison of utility c ranking of people’s preferences across different goods d analysis of marginal utility ANSWER: b interpersonal comparison of utility SECTION: 2 OBJECTIVE: 3 19 The poor in the United States are disproportionately people who a have less than a high school education b have incomes that are essentially nonwage incomes c are poor white women d live in cities ANSWER: a have less than a high school education SECTION: 3 OBJECTIVE: 4 20 Price ceilings and minimum wages may increase poverty in the long run because they tend to a decrease the incentive to work among the poor b increase the level of saving among the rich c increase productivity of labor among the rich and poor d promote investment activity by the rich ANSWER: a decrease the incentive to work among the poor SECTION: 1 OBJECTIVE: 1 21 Suppose a negative income tax program is established at 25 percent, and a poverty threshold minimum of $15,000 is guaranteed for a family of four. If no income is earned by this family, its total income would equal a $6,000 b $15,000 c $18,750 d $60,000 ANSWER: b $15,000 SECTION: 3 OBJECTIVE: 4 100 Chapter 2/Thinking Like an Economist 22 The incentive to work is an ingredient of the negative income tax because a if families do work, they will be eliminated from the program b if families don’t work, they will be eliminated from the program c the more income earned in the workplace, the higher the family’s aftertax income d the amount earned in the workplace is not subject to income taxes ANSWER: c the more income earned in the workplace, the higher the family’s aftertax income SECTION: 3 OBJECTIVE: 4 23 A negative income tax system was designed to a provide inkind benefits to the poor b provide minimal income to the poor c reduce taxes on the rich when their incomes surpass the maximum income tax bracket d increase income payments to the poor specifically for housing payments ANSWER: b provide minimal income to the poor SECTION: 3 OBJECTIVE: 4 24 The main problem with a negative income tax system is that it a guarantees every household a minimum level of income b causes excessive government meddling in people’s lives c is too complex to administer fairly d ignores the culture of poverty that produces less income ANSWER: d ignores he culture of poverty that produces less income SECTION: 3 OBJECTIVE: 4 25 Social security and unemployment insurance benefits are examples of a transfer payments b negative income payments c property income d compensating differentials ANSWER: a transfer payments SECTION: 1 OBJECTIVE: 1 Chapter 2/Thinking Like an Economist 101 Chapter 2 Thinking Like an Economist A simplifying assumption a affects the important conclusions of an economic model b increases the level of detail in an economic model c limits the validity of an economic model’s conclusion d eliminates unnecessary details from an economic model The ultimate purpose of an economic model is to a explain reality as completely as possible b establish assumptions that closely resemble reality c help us to understand economic behavior d guide government policy decisions An economic model a uses equations to understand normative economic phenomena b often omits crucial elements c simplifies reality in order to focus on crucial elements d cannot be proven wrong Which of the following activities would occur in a market for factors of production? a Reesa buys a new computer to help balance her personal checkbook b Randy pays a speeding ticket c Ian mows his grass d General Motors hires additional workers to run a thirdshift at a factory Which of the following activities would occur in a market for goods and services? a Harry mows his grass b General Motors hires additional workers to run a third shift at a factory c Jane bakes pies for Thanksgiving dinner d Dolly buys a ticket to a ball game The three sources of income for the household are a taxes, subsidies from the government, and rent b wages, rent, and profit c wages, rent, and subsidies from the government d wages, rebates, and rent Households play what role(s) in the circular flow diagram? a purchasers of factors of production and sellers of services b purchasers of factors of production and sellers of goods c purchasers of goods and services only d purchasers of goods and services and sellers of factors of production 102 Chapter 2/Thinking Like an Economist Which of the following is not an assumption that underlies an economy’s production possibilities frontier? a fixed income b fixed resources c unchanged technology d fully employed resources Which of the following would not result in an outward shift of a nation’s production possibilities frontier? a a reduction in the unemployment rate b a rise in labor productivity c advances in technology d an expanding resource base The production possibilities frontier demonstrates the basic economic principle that: a economies are always efficient b assuming full employment, supply will always determine demand c assuming full employment, an economy is efficient only when the production of capital goods in a particular year is greater than the production of consumption goods in that year d assuming full employment, to produce more of any one thing, the economy must produce less of at least one other good 10 Suppose an economy has the production possibilities frontier shown in the diagram and is operating at position A. Which of the statements below is false? a This economy could produce more of both capital and consumption goods b This economy is experiencing full employment c This economy could produce more capital goods without decreasing the quantity of consumption goods produced d This economy could produce more consumption goods without decreasing the quantity of capital goods produced Chapter 2/Thinking Like an Economist 103 11 If the economy shown in the diagram moves from position A to position B, we would know that a the rate of unemployment increased b consumption goods production increased, but capital goods production decreased c its unemployment decreased, but at the expense of either capital or consumption good production d it has achieved full employment of its resources. 12 Opportunity costs most often increase as you move down a production possibilities frontier because a resources are not completely adaptable to alternative uses b factors of production are limited and human wants are unlimited c efficiencies are generated by largescale production d economic efficiency is only possible in the short run 13 All points on a production possibilities frontier show the a maximum satisfaction that households receive from their purchases of goods b minimum quantities of resources that must be used to produce a given quantity of output c maximum output that society can produce with given resources and technology d minimum output that society can produce with given resources and technology 14 The branch of economics that is concerned with the overall performance of the economy is called a resource economics b contemporary economics c macroeconomics d microeconomics 15 Which of the following questions would not be of particular interest to a microeconomist? a Why do national economies grow? b What percentage of consumer income is spent on entertainment? c Why do workers prefer the 4day workweek? d What happens to worker productivity when a business shifts to a 4day workweek? 16 The television network newscaster reports that the national inflation rate in the past year equaled 4 percent. This report is most likely prepared from work done by a(n) a microeconomist b normative economist 104 Chapter 2/Thinking Like an Economist c macroeconomist. d social scientist rather than an economist 17 The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains should have been higher. The Secretary’s statement is a economic statement, and the labor head’s statement is a economic statement a normative; normative b normative; positive c positive; normative d positive; positive 18 “An increase in interest rates will lower economic growth.” This statement is a a positive economic statement b a normative economic statement c untrue in every case d controversial, and so not a valid economic issue 19 The distinction between positive and normative economics a is that positive economics applies only to microeconomic problems b is that normative economics applies only to microeconomic problems c explains why economics is not a social science but a natural science d helps us to understand why economists sometimes disagree with one another 20 Which of the following is most closely associated with positive economics? a Determining the impact of government spending on the actual level of total employment b Determining the best level of immigration into a country c Determining whether too many luxury goods are being produced d Determining whether or not the government should reduce poverty 21 In the diagram, the slope of the curve is a increasing at a constant rate b increasing at a decreasing rate c decreasing at a constant rate d decreasing at an increasing rate Chapter 2/Thinking Like an Economist 105 22 In the diagram, the slope of the curve between points A and B is a –5 b –1 c –1/5 d None of the above are correct 23 In the diagram, the slope of the curve is a constant b increasing c decreasing d increasing at some points and decreasing at others 24 In the diagram, the slope of the curve between points C and D is a b 10 c –10 d 50 25 If two variables tend to increase and decrease together, they are a positively correlated b negatively correlated c uncorrelated d quasicorrelated 26 The number of rainy days in the year and annual sales of suntan lotion are probably a positively correlated b negatively correlated c uncorrelated d quasicorrelated 27 A student’s course grade and amount of time spent studying for the course are generally a positively correlated b negatively correlated c uncorrelated d quasicorrelated 106 Chapter 2/Thinking Like an Economist ... sewing b knitting c both activities d neither activities 19 We know that Sarah has the comparative advantage in a sewing b knitting c both activities d neither activities 20 Jill should specialize in... Jill should specialize in a sewing b knitting c both activities d neither activities 21 Sarah should specialize in a sewing b knitting c both activities d neither activities 22 Which of the following describes the production possibilities frontier for Jill and Sarah together if ... means that there is a loss to some individuals without a corresponding gain to others b is not really a loss to society because what one individual loses another individual gains c can be eliminated by sales taxes