Trade-offs Comparative Advantage and the Market System.docx

Essentials of Economics Trade-offs Comparative Advantage and the Market System Production Possibilities Frontiers and Opportunity Costs Scarcity A stems from the incompatibility between limited resources and unlimited wants B can be overcome by discovering new resources C can be eliminated by rationing products D is a bigger problem in market economies than in socialist economies Answer A Tesla Motors manufacturers its cars at a plant in Fremont California At this plant Tesla is able to take advantage of the high level of technical training possessed by its American workers but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage country such as Mexico India or China In deciding to open the Fremont plant Tesla A faced no trade-offs because employing more technically-skilled workers increased efficiency B faced a trade-off between higher cost and lower precision C adopted a negative technological change because it chose high-skilled workers over low-paid workers D eroded some of its competitiveness in the luxury electric car market because of its increased cost of production Answer B The principle of opportunity cost is that A in a market economy taking advantage of profitable opportunities involves some money cost B the economic cost of using a factor of production is the alternative use of that factor that is given up C taking advantage of investment opportunities involves costs D the cost of production varies depending on the opportunity for technological application Answer B The production possibilities frontier shows the combinations of two products that may be produced in a particular time period with available resources A minimum attainable B maximum attainable C only D equitable Answer B The production possibilities frontier model shows that A if consumers decide to buy more of a product its price will increase B a market economy is more efficient in producing goods and services than is a centrally planned economy C economic growth can only be achieved by free market economies D if all resources are fully and efficiently utilized more of one good can be produced only by producing less of another good Answer D The production possibilities frontier model assumes which of the following A Labor capital land and natural resources are unlimited in quantity B The economy produces only two products C Any level of the two products that the economy produces is currently possible D The level of technology is variable Answer B The attainable production points on a production possibility curve are A the horizontal and vertical intercepts B the points along the production possibilities frontier C the points outside the area enclosed by the production possibilities frontier D the points along and inside the production possibility frontier Answer D The points outside the production possibilities frontier are A efficient B attainable C inefficient D unattainable Answer D Figure - Refer to Figure - Point A is A technically efficient B unattainable with current resources C inefficient in that not all resources are being used D the equilibrium output combination Answer C Refer to Figure - Point B is A technically efficient B unattainable with current resources C inefficient in that not all resources are being used D the equilibrium output combination Answer A Refer to Figure - Point C is A technically efficient B unattainable with current resources C inefficient in that not all resources are being used D is the equilibrium output combination Answer B Refer to Figure - is are inefficient in that not all resources are being used A Point A B Point B C Point C D Points A and C Answer A Refer to Figure - is are technically efficient A Point A B Point B C Point C D Points B and C Answer B Refer to Figure - is are unattainable with current resources A Point A B Point B C Point C D Points A and C Answer C In a production possibilities frontier model a point the frontier is productively inefficient A along B inside C outside D at either intercept of Answer B Bella can produce either a combination of silk roses and silk leaves or a combination of silk roses and silk leaves If she now produces silk roses and silk leaves what is the opportunity cost of producing an additional silk roses A silk leaves B silk leaves C silk leaves D silk leaves Answer C Pierre can produce either a combination of bow ties and neckties or a combination of bow ties and neckties If he now produces bow ties and neckties what is the opportunity cost of producing an additional neckties A bow ties B bow ties C bow ties D bow ties Answer B If the production possibilities frontier is then opportunity costs are constant as more of one good is produced A bowed out B bowed in C non-linear D linear Answer D Figure - Figure - above shows the production possibilities frontier for Mendonca an agrarian nation that produces two goods meat and vegetables Refer to Figure - What is the opportunity cost of one pound of vegetables A pound of meat B pounds of meat C pounds of meat D pounds of meat Answer A Refer to Figure - What is the opportunity cost of one pound of meat A pound of vegetables B pounds of vegetables C pounds of vegetables D pounds of vegetables Answer B Refer to Figure - Suppose Mendonca is currently producing pounds of vegetables per period How much meat is it also producing assuming that resources are fully utilized A pounds of meat B pounds of meat C pounds of meat D pounds of meat Answer B Refer to Figure - If Mendonca chooses to produce pounds of vegetables how much meat can it produce to maximize production A pounds of meat B pounds of meat C pounds of meat D pounds of meat Answer A Refer to Figure - If Mendonca chooses to produce pounds of meat how much vegetables can it produce to maximize production A pounds of vegetables B pounds of vegetables C pounds of vegetables D pounds of vegetables Answer A Refer to Figure - The linear production possibilities frontier in the figure indicates that A Mendonca has a comparative advantage in the production of vegetables B Mendonca has a comparative disadvantage in the production of meat C the tradeoff between meat and vegetables is constant D it is progressively more expensive to produce meat Answer C A production possibilities frontier with a bowed outward shape indicates A the possibility of inefficient production B constant opportunity costs as more and more of one good is produced C increasing opportunity costs as more and more of one good is produced D decreasing opportunity costs as more and more of one good is produced Answer C Increasing opportunity cost is represented by a production possibilities frontier A linear B bowed in C bowed out D vertical Answer C The slope of a production possibilities frontier A has no economic relevance or meaning B is always constant C is always varying D measures the opportunity cost of producing one more unit of a good Answer D marginal opportunity cost implies that the more resources already devoted to any activity the payoff from allocating yet more resources to that activity increases by progressively smaller amounts A Increasing B Decreasing C Constant D Negative Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions If opportunity costs are constant the production possibilities frontier would be graphed as A a ray from the origin B a positively sloped straight line C a negatively sloped curve bowed in toward the origin D a negatively sloped straight line Answer D Figure - Refer to Figure - Sergio Vignetto raises cattle and llamas on his land His land is equally suitable for raising either animal Which of the graphs in Figure - represent his production possibilities frontier A Graph A B Graph B C Graph C D either Graph A or Graph C E either Graph B or Graph C Answer A Refer to Figure - Sergio Vignetto raises cattle and llamas on his land A portion of his land is more suitable for raising cattle and the other portion is better suited for raising llamas Which of the graphs in Figure - represent his production possibilities frontier A Graph A B Graph B C Graph C D either Graph A or Graph C E either Graph B or Graph C Answer C Table - Production choices for Tomaso's Trattoria Choice Quantity of Pizzas Produced Quantity of Calzones Produced A B C D E Refer to Table - Assume Tomaso's Trattoria only produces pizzas and calzones A combination of pizzas and calzones would appear A along Tomaso's production possibilities frontier B inside Tomaso's production possibilities frontier C outside Tomaso's production possibilities frontier D at the horizontal intercept of Tomaso's production possibilities frontier Answer A Topic Production Possibilities Frontiers Refer to Table - Assume Tomaso's Trattoria only produces pizzas and calzones A combination of pizzas and calzones would appear A along Tomaso's production possibilities frontier B inside Tomaso's production possibilities frontier C outside Tomaso's production possibilities frontier D at the horizontal intercept of Tomaso's production possibilities frontier Answer C Topic Production Possibilities Frontiers Refer to Table - Assume Tomaso's Trattoria only produces pizzas and calzones A combination of pizzas and calzones would appear A along Tomaso's production possibilities frontier B inside Tomaso's production possibilities frontier C outside Tomaso's production possibilities frontier D at the horizontal intercept of Tomaso's production possibilities frontier Answer B Topic Production Possibilities Frontiers Refer to Table - Assume Tomaso's Trattoria only produces pizzas and calzones Tomaso faces opportunity costs in the production of pizzas and calzones A increasing B decreasing C constant D negative Answer C Table - Production choices for Billie's Bedroom Shop Choice Quantity of Pillows Produced Quantity of Blankets Produced A B C D E Refer to Table - Assume Billie's Bedroom Shop only produces pillows and blankets A combination of pillows and blankets would appear A along Billie's production possibilities frontier B inside Billie's production possibilities frontier C outside Billie's production possibilities frontier D at the vertical intercept of Billie's production possibilities frontier Answer A Topic Production Possibilities Frontiers Refer to Table - Assume Billie's Bedroom Shop only produces pillows and blankets A combination of pillows and blankets would appear A along Billie's production possibilities frontier B inside Billie's production possibilities frontier C outside Billie's production possibilities frontier D at the vertical intercept of Billie's production possibilities frontier Answer C Topic Production Possibilities Frontiers Refer to Table - Assume Billie's Bedroom Shop only produces pillows and blankets A combination of pillows and blankets would appear A along Billie's production possibilities frontier B inside Billie's production possibilities frontier C outside Billie's production possibilities frontier D at the vertical intercept of Billie's production possibilities frontier Answer B Topic Production Possibilities Frontiers Refer to Table - Assume Billie's Bedroom Shop only produces pillows and blankets Billie faces opportunity costs in the production of pillows and blankets A increasing B constant C decreasing D negative Answer B Topic Production Possibilities Frontiers An inward shift of a nation's production possibilities frontier can occur due to A a reduction in unemployment B a natural disaster like a hurricane or bad earthquake C a change in the amounts of one good desired D an increase in the labor force Answer B Topic Economic Growth An outward shift of a nation's production possibilities frontier represents A economic growth B rising prices of the two goods on the production possibilities frontier model C an impossible situation D a situation in which a country produces more of one good and less of another Answer A Topic Economic Growth Economic decline negative growth is represented on a production possibilities frontier model by the production possibility frontier A shifting outward B shifting inward C becoming steeper D becoming flatter Answer B Topic Economic Growth Without an increase in the supplies of factors of production how can a nation achieve economic growth A by producing more high-value goods and less of low-value goods B through technological advancement which enables more output with the same quantity of resources C by lowering the prices of factors of production D by increasing the prices of factors of production Answer B Topic Economic Growth Micro- Explain the effects of the factors of production factor demand and factor supply and labor in factor markets Which of the following would shift a nation's production possibilities frontier outward A discovering a cheap way to convert sunshine into electricity B an increase in demand for the nation's products C a decrease in the unemployment rate D a law requiring workers to retire at age Answer A Topic Economic Growth Figure - Figure - shows various points on three different production possibilities frontiers for a nation Refer to Figure - A movement from X to Y A could be due to a change in consumers' tastes and preferences B could occur because of an influx of immigrant labor C is the result of advancements in food production technology only with no change in the technology for plastic production D is the result of advancements in plastic production technology only with no change in food production technology Answer B Topic Economic Growth Refer to Figure - A movement from Y to Z A represents an increase in the demand for plastic products B could occur because of general technological advancements C is the result of advancements in food production technology D is the result of advancements in plastic production technology Answer D Topic Economic Growth Refer to Figure - Consider the following events a an increase in the unemployment rate b a decrease in a nation's money supply c a war that kills a significant portion of a nation's population Which of the events listed above could cause a movement from Y to W A a b and c B a and b only C a and c only D a only E c only Answer E Topic Economic Growth Refer to Figure - Consider the following movements a from point V to point W b from point W to point Y c from point Y to point Z Which of the movements listed above represents economic growth A a b and c B b and c only C a only D b only Answer B Topic Economic Growth Refer to Figure - Consider the following events a a decrease in the unemployment rate b general technological advancement c an increase in consumer wealth Which of the events listed above could cause a movement from V to W A a only B a and b only C b and c only D a b and c Answer A Topic Economic Growth Refer to Figure - Consider the following events a a reduction in the patent protection period to no more than years b a war that destroys a substantial portion of a nation's capital stock c the lack of secure and enforceable property rights system Which of the events listed above could cause a movement from W to V A a only B a and b only C a and c only D b and c only E a b and c Answer C Topic Economic Growth Refer to Figure - A movement from could occur because of an influx of immigrant labor A W to V B X to W C W to Z D Y to W Answer C Topic Economic Growth Refer to Figure - A movement from is the result of negative technological change in plastic production A V to X B X to W C W to Z D Z to Y Answer D Topic Economic Growth Refer to Figure - Consider the following events a a decrease in the unemployment rate b an increase in a nation's money supply c an influx of immigrant workers Which of the events listed above could cause a movement from X to Z A a b and c B a and b only C a and c only D a only E c only Answer E Topic Economic Growth Refer to Figure - Consider the following movements a from point V to point W b from point W to point Y c from point Y to point Z Which of the movements listed above represents advancements in technology with respect to only plastic production A a b and c B b and c only C b only D c only Answer D Topic Economic Growth Refer to Figure - Consider the following events a an increase in the unemployment rate b general technological advancement c a decrease in consumer wealth Which of the events listed above could cause a movement from X to V A a only B a and b only C b and c only D a b and c Answer A Topic Economic Growth Refer to Figure - Consider the following events a an increase in the patent protection period to years b an increase of a nation's capital stock c an improved property rights system Which of the events listed above could cause a movement from V to W A a only B a and b only C a and c only D b and c only E a b and c Answer C Topic Economic Growth Refer to Figure - A movement from could occur because of an influx of immigrant labor A X to W B X to Y C W to V D W to X Answer B Topic Economic Growth Refer to Figure - A movement from is the result of advancements in plastic production technology A V to X B W to X C Z to W D Y to Z Answer D Topic Economic Growth Refer to Figure - Consider the following events a an increase in the unemployment rate b a decrease in a nation's money supply c a war that kills a significant portion of a nation's population Which of the events listed above could cause a movement from Z to X A a b and c B a and b only C a and c only D a only E c only Answer E Topic Economic Growth Refer to Figure - Consider the following movements a from point V to point W b from point W to point Y c from point Y to point Z Which of the movements listed above represents advancements in technology with respect to both plastic production and food production A a b and c B b and c only C b only D c only Answer C Topic Economic Growth Refer to Figure - Consider the following events a a decrease in the unemployment rate b general technological advancement c an increase in consumer wealth Which of the events listed above could cause a movement from V to X A a only B a and b only C b and c only D a b and c Answer A Topic Economic Growth Refer to Figure - Consider the following events a a reduction in the patent protection period to no more than years b a war that destroys a substantial portion of a nation's capital stock c the lack of secure and enforceable property rights system Which of the events listed above could cause a movement from W to V A a only B a and b only C a and c only D b and c only E a b and c Answer C Topic Economic Growth Refer to Figure - A movement from could occur because of additional government restrictions toward allowing immigrant labor A X to W B Y to X C V to W D W to X Answer B Topic Economic Growth Refer to Figure - A movement from is the result of additional government restrictions on the pollution that results from plastic production A X to V B X to W C Z to W D Z to Y Answer D Topic Economic Growth Refer to Figure - Consider the following events a a decrease in the unemployment rate b an increase in technology with respect to both food and plastic production c a war that kills a significant portion of a nation's population Which of the events listed above could cause a movement from W to Y A a b and c B a and b only C a and c only D b only E c only Answer D Topic Economic Growth Refer to Figure - Consider the following movements a from point V to point W b from point W to point Y c from point Y to point Z Which of the movements listed above represents advancements in technology with respect to only plastic production A a b and c B b and c only C b only D c only Answer D Topic Economic Growth Refer to Figure - Consider the following events a an increase in the unemployment rate b general technological advancement c an increase in consumer wealth Which of the events listed above could cause a movement from Z to V A a only B a and b only C b and c only D a b and c Answer A Topic Economic Growth Refer to Figure - Consider the following events a an increase in the patent protection period to years b a hurricane that destroys a substantial portion of a nation's capital stock c the implementation of a secure and enforceable property rights system Which of the events listed above could cause a movement from W to Z A a only B a and b only C a and c only D b and c only E a b and c Answer C Topic Economic Growth The Great Depression of the s with a large number of workers and factories unemployed would be represented in a production possibilities frontier graph by A a point inside the frontier B a point outside the frontier C a point on the frontier D an intercept on either the vertical or the horizontal axis Answer A Topic Production Possibilities Frontiers Suppose there is no unemployment in the economy and society decides that it wants more of one good Which of the following statements is true A It can only achieve this with an advance in technology B It can increase output without giving up another good C It can only achieve this with an increase in resource supplies D It will have to give up production and consumption of some other good Answer D If society decides it wants more of one good and all resources are fully utilized then A it is unable to do this unless technology advances B additional resource supplies will have to be found C it has to give up some of another good and incur some opportunity costs D more unemployment will occur Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions According to the production possibility model if more resources are allocated to the production of physical and human capital then which of the following is likely to happen A fewer goods will be produced for consumption today B the production possibilities frontier will be shift inward in the future C future economic growth will decline D the country's total production will fall Answer A Figure - Refer to Figure - If the economy is currently producing at point Y what is the opportunity cost of moving to point W A million tons of steel B zero C million tons of paper D million tons of paper Answer B Refer to Figure - If the economy is currently producing at point W what is the opportunity cost of moving to point X A million tons of steel B million tons of steel C million tons of paper D million tons of paper Answer C Refer to Figure - If the economy is currently producing at point X what is the opportunity cost of moving to point Y A million tons of steel B million tons of paper C million tons of paper D million tons of steel Answer A Refer to Figure - If the economy is currently producing at point Y what is the opportunity cost of moving to point X A million tons of steel B million tons of paper C million tons of paper D million tons of steel Answer C Refer to Figure - If the economy is currently producing at point X what is the opportunity cost of moving to point W A million tons of steel B million tons of steel C million tons of paper D million tons of paper Answer A Refer to Figure - If the economy is currently producing at point W what is the opportunity cost of moving to point Y A million tons of steel B million tons of steel C million tons of paper D million tons of paper Answer A Figure - Refer to Figure - If the economy is currently producing at point A what is the opportunity cost of moving to point B A thousand wrenches B thousand hammers C thousand wrenches D thousand hammers Answer B Refer to Figure - If the economy is currently producing at point C what is the opportunity cost of moving to point B A thousand wrenches B thousand hammers C thousand wrenches D thousand hammers Answer A Refer to Figure - If the economy is currently producing at point D what is the opportunity cost of moving to point B A thousand wrenches B thousand hammers C thousand wrenches D hammers Answer D Refer to Figure - If the economy is currently producing at point E what is the opportunity cost of moving to point B A thousand hammers B thousand hammers C thousand wrenches D wrenches Answer D Refer to Figure - If the economy is currently producing at point E what is the opportunity cost of moving to point D A thousand hammers B thousand hammers C thousand wrenches D wrenches Answer C In a report made to the U S Congress in the National Academy of Sciences cautioned that if fuel economy encourages the production of smaller and lighter cars Some additional traffic fatalities would be expected This statement suggests that A U S auto manufacturers are more concerned about producing fuel efficient cars to compete with their Japanese and South Korean rivals than about consumer safety B there is a tradeoff between safety and fuel economy C society should value safety more highly than fuel economy D society should value fuel economy more highly than consumer safety because of the long term environment benefits generated by less gasoline use Answer B Suppose your expenses for this term are as follows tuition room and board books and other educational supplies Further during the term you can only work part-time and earn instead of your full-time salary of What is the opportunity cost of going to college this term assuming that your room and board expenses would be the same even if you did not go to college A B C D Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Suppose your expenses for this term are as follows tuition room and board books and other educational supplies Further during the term you can only work part-time and earn instead of your full-time salary of What is the opportunity cost of going to college this term assuming that your room and board expenses would be the same even if you did not go to college A B C D Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions The opportunity cost of taking a semester-long economics class is A the cost of tuition and fees only B the value of the time spent in the classroom C zero because there is no admission charged if you are enrolled in the course D equal to the highest value of an alternative use of the time and money spent on the class E the knowledge and enjoyment you receive from attending the class Answer D Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Figure - Mercedes Benz recently decided to introduce its B-class automobile in the U S market an electric car that is has designed and developed in a partnership with Tesla Motors Assume Mercedes Benz chooses to produce both electric-engine vehicles and gasoline-engine vehicles Figure - shows changes to its production possibilities frontier in response to new developments and different strategic production decisions Refer to Figure - Assume a technological advancement greatly reduces the cost to produce electric-engine vehicles This is best represented by the A movement from E to F in Graph A B movement from G to H in Graph B C movement from K to L in Graph C D movement from H to J in Graph B Answer A Topic Economic Growth Special Feature An Inside LOOK What's on the Horizon at Mercedes-Benz Refer to Figure - Assume that in response to changing consumer demands Mercedes cuts back on the production of electric vehicles and increased its production of gasoline-powered vehicles This strategy is best represented by the A movement from F to E in Graph A B movement from G to J in Graph B C movement from L to K in Graph C D movement from J to H in Graph B Answer D Special Feature An Inside LOOK What's on the Horizon at Mercedes-Benz Refer to Figure - Assume that in Mercedes reopened one of its factories after an extensive remodelling which now allows for the production of both types of vehicles This is best represented by the A movement from E to F in Graph A B movement from H to J in Graph B C movement from L to K in Graph C D movement from J to G in Graph B Answer C Topic Economic Growth Special Feature An Inside LOOK What's on the Horizon at Mercedes-Benz Sarita can bake either a combination of cakes and pies or a combination of cakes and pies If she now bakes cakes and pies what is the opportunity cost of baking an additional cakes A pies B pies C pies D pies Answer A Figure - Figure - above shows the production possibilities frontier for Vidalia a nation that produces two goods roses and orchids Refer to Figure - What is the opportunity cost of dozen orchids A roses B dozen roses C dozen roses D dozen roses Answer D - Refer to Figure - What is the opportunity cost of dozen roses A dozen orchids B dozen orchids C dozen orchids D dozen orchids Answer C - Refer to Figure - Suppose Vidalia is currently producing dozen orchids per period How many roses is it also producing assuming that resources are fully utilized A dozen roses B dozen roses C dozen roses D dozen roses Answer B - Refer to Figure - Suppose Vidalia is currently producing dozen roses per period How many orchids is it also producing assuming that resources are fully utilized A dozen orchids B dozen orchids C dozen orchids D dozen orchids Answer B - Refer to Figure - What is the opportunity cost of one dozen orchids A dozen roses B dozen roses C dozen roses D dozen roses Answer B - Refer to Figure - What is the opportunity cost of one dozen roses A dozen orchids B dozen orchids C dozen orchids D dozen orchids Answer A - Refer to Figure - Suppose Vidalia is currently producing dozen orchids per period How many roses is it also producing assuming that resources are fully utilized A dozen roses B dozen roses C dozen roses D dozen roses Answer D - Refer to Figure - If Vidalia chooses to produce dozen orchids how many roses can it produce to maximize production A dozen roses B dozen roses C dozen roses D dozen roses Answer C - Refer to Figure - If Vidalia chooses to produce dozen orchids how many roses can it produce to maximize production A dozen roses B dozen roses C dozen roses D dozen roses Answer D - Refer to Figure - If Vidalia chooses to produce dozen roses how many orchids can it produce to maximize production A dozen orchids B dozen orchids C dozen orchids D dozen orchids Answer C - Refer to Figure - If Vidalia chooses to produce dozen roses how many orchids can it produce to maximize production A dozen orchids B dozen orchids C dozen orchids D dozen orchids Answer B - Refer to Figure - The linear production possibilities frontier in the figure indicates that A Vidalia has a comparative advantage in the production of orchids B Vidalia has a comparative disadvantage in the production of roses C the tradeoff between roses and orchids is constant D it is progressively more expensive to produce orchids Answer C - Table - Production Choices for Dina's Diner Choice Quantity of Sliders Produced Quantity of Hot Wings Produced A B C D E Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer A Topic Production Possibilities Frontiers Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer B Topic Production Possibilities Frontiers Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer C Topic Production Possibilities Frontiers Refer to Table - Dina faces opportunity costs in the production of sliders and hot wings A increasing B decreasing C constant D negative Answer C Suppose your expenses for this term are as follows tuition room and board books and other educational supplies Further during the term you can only work part-time and earn instead of your full-time salary of What is the opportunity cost of going to college this term assuming that your room and board expenses would be the same even if you did not go to college A B C D Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions The opportunity cost of going to an outdoor music festival is A the enjoyment you receive from going to the festival B the value of the time spent at the festival C equal to the highest value of an alternative use of the time and money spent on the festival D zero because there is no overhead costs for an outdoor festival E the cost of the festival ticket only Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions exists because unlimited wants exceed the limited resources available to fulfill those wants A Scarcity B Productive efficiency C The command economy D Economic growth Answer A Micro- Identify the basic principles of economics and explain how to think like an economist To compete in the automobile market Tesla must make many strategic decisions such as whether to introduce a new car model how to sell and service its cars and where to advertise At Tesla's Fremont California plant managers must decide on the monthly production quantities of their S and X models In making this decision the managers A face no trade-off because the Fremont plant only produces these two models of the many Tesla models produced worldwide B face a trade-off because producing more of one model means producing less of the others C will choose to only produce the quantity of S and X models where marginal cost equals zero D will always decide on production quantities in which revenues are maximized Answer B The principle of is that the economic cost of using a factor of production is the alternative use of that factor that is given up A marginal cost B opportunity cost C normative economics D entrepreneurship Answer B The production possibilities frontier shows A the various products that can be produced now and in the future B the maximum attainable combinations of two products that may be produced in a particular time period with available resources C what an equitable distribution of products among citizens would be D what people want firms to produce in a particular time period Answer B Topic Production Possibilities Frontiers shows that if all resources are fully and efficiently utilized more of one good can be produced only by producing less of another good A Comparative advantage B Absolute advantage C The mixed market system D The production possibilities frontier model Answer D Topic Production Possibilities Frontiers The production possibilities frontier model assumes all of the following except A labor capital land and natural resources are fixed in quantity B the economy produces only two products C any level of the two products that the economy produces is currently possible D the level of technology is fixed and unchanging Answer C Topic Production Possibilities Frontiers The production points on a production possibility curve are the points along and inside the production possibility frontier A attainable B unattainable C productively efficient D allocatively efficient Answer A Topic Production Possibilities Frontiers The unattainable points in a production possibilities diagram are A the points within the production possibilities frontier B the points along the production possibilities frontier C the points of the horizontal and vertical intercepts D the points outside the production possibilities frontier Answer D Topic Production Possibilities Frontiers In a production possibilities frontier model a point inside the frontier is A allocatively efficient B productively efficient C allocatively inefficient D productively inefficient Answer D Topic Production Possibilities Frontiers Carmelita can perform either a combination of manicures and pedicures or a combination of manicures and pedicures If she now performs manicures and pedicures what is the opportunity cost of performing an additional manicures A pedicures B pedicures C pedicures D pedicures Answer C If the production possibilities frontier is linear then A opportunity costs are decreasing as more of one good is produced B it is easy to efficiently produce output C opportunity costs are increasing as more of one good is produced D opportunity costs are constant as more of one good is produced Answer D A production possibilities frontier with a shape indicates increasing opportunity costs as more and more of one good is produced A linear B bowed inward C bowed outward D perfectly horizontal Answer C Increasing opportunity cost along a bowed out production possibilities frontier occurs because A of inefficient production B of ineffective management by entrepreneurs C some factors of production are not equally suited to producing both goods or services D of the scarcity of factors of production Answer C The slope of a production possibilities frontier measures the of producing one more unit of a good A marginal revenue B total revenue C marginal cost D opportunity cost Answer D Increasing marginal opportunity cost implies that A the more resources already devoted to any activity the payoff from allocating yet more resources to that activity increases by progressively smaller amounts B the more resources already devoted to any activity the benefits from allocating yet more resources to that activity decreases by progressively larger amounts C that rising opportunity costs makes it inefficient to produce beyond a certain quantity D the law of scarcity Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions If opportunity costs are the production possibilities frontier would be graphed as a negatively sloped straight line A decreasing B increasing C negative D constant Answer D Figure - Refer to Figure - Carlos Vanya grows tomatoes and strawberries on his land His land is equally suited for growing either fruit Which of the graphs in Figure - represents his production possibilities frontier A Graph A B Graph B C Graph C D either Graph A or Graph B E either Graph B or Graph C Answer A Refer to Figure - Carlos Vanya grows tomatoes and strawberries on his land A portion of his land is more suitable for growing tomatoes and the other portion is better suited for strawberry cultivation Which of the graphs in Figure - represent his production possibilities frontier A Graph A B Graph B C Graph C D either Graph A or Graph B E either Graph B or Graph C Answer C Table - Production Choices for Dina's Diner Choice Quantity of Sliders Produced Quantity of Hot Wings Produced A B C D E Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer A Topic Production Possibilities Frontiers Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer A Topic Production Possibilities Frontiers Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer B Topic Production Possibilities Frontiers Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer B Topic Production Possibilities Frontiers Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer C Topic Production Possibilities Frontiers Refer to Table - Assume Dina's Diner only produces sliders and hot wings A combination of sliders and hot wings would appear A along Dina's production possibilities frontier B inside Dina's production possibilities frontier C outside Dina's production possibilities frontier D at the vertical intercept of Dina's production possibilities frontier Answer C Topic Production Possibilities Frontiers Refer to Table - Dina faces opportunity costs in the production of sliders and hot wings A increasing B decreasing C constant D negative Answer C An outward shift of a nation's production possibilities frontier can occur due to A a reduction in unemployment B a natural disaster like a hurricane or bad earthquake C a change in the amounts of one good desired D an increase in the labor force Answer D Topic Economic Growth a nation's production possibilities frontier represents economic growth A An outward shift of B An inward shift of C Moving up along D Moving down along Answer A Topic Economic Growth Economic growth is represented on a production possibilities frontier model by the production possibility frontier A shifting outward B shifting inward C becoming steeper D becoming flatter Answer A Topic Economic Growth Without technological advancement how can a nation achieve economic growth A by producing more high-value goods and fewer low-value goods B through an increase in supplies of factors of production C by producing more low-value goods and fewer high-value goods D by decreasing the size of the labor force Answer B Topic Economic Growth Micro- Explain the effects of the factors of production factor demand and factor supply and labor in factor markets Which of the following would shift a nation's production possibilities frontier inward A discovering a cheap way to convert sunshine into electricity B producing more capital equipment C an increase in the unemployment rate D a law requiring workers to retire at age Answer D Topic Economic Growth The recession of - would most likely be represented in a production possibilities frontier graph by A a point inside the frontier B a point outside the frontier C a point on the frontier D an intercept on either the vertical or the horizontal axis Answer A Topic Economic Growth Suppose there is some unemployment in the economy and society decides that it wants more of one good Which of the following statements is true A It is not possible to achieve this unless technology advances B It can increase output without giving up another good by employing more resources C It will have to increase resource supplies D It will have to give up production and consumption of some other good Answer B If society decides it wants more of one good and then it has to give up some of another good and incur some opportunity costs A technology advances B resources are underutilized C all resources are fully utilized D new resources are discovered Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions According to the production possibility model if more resources are allocated to the production of physical and human capital then all of the following are likely to happen except A fewer goods will be produced for consumption today B the production possibilities frontier will be shift outward in the future C future economic growth is enhanced D the country's total production will fall Answer D Topic Production Possibilities Frontiers Figure - Refer to Figure - If the economy is currently producing at point A what is the opportunity cost of moving to point B A thousand spoons B thousand forks C thousand spoons D thousand forks Answer B Refer to Figure - If the economy is currently producing at point C what is the opportunity cost of moving to point B A thousand spoons B thousand forks C thousand spoons D thousand forks Answer A Refer to Figure - If the economy is currently producing at point D what is the opportunity cost of moving to point B A thousand spoons B thousand forks C thousand spoons D forks Answer D Refer to Figure - If the economy is currently producing at point E what is the opportunity cost of moving to point B A thousand forks B thousand forks C thousand spoons D spoons Answer D Refer to Figure - If the economy is currently producing at point E what is the opportunity cost of moving to point D A thousand forks B thousand forks C thousand spoons D spoons Answer C A student comments to his roommate that the only way he will be able to pass his final exams is to not sleep for the next three days This statement suggests that A students are more concerned about good grades than good health B society should value sleep more highly than good grades C there is a trade-off between studying and sleep D society should value good grades more highly than sleep because students can catch up on their sleep once final exams are over Answer C Suppose your expenses for this term are as follows tuition room and board books and other educational supplies Further during the term you can only work part-time and earn instead of your full-time salary of What is the opportunity cost of going to college this term assuming that your room and board expenses would be the same even if you did not go to college A B C D Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions The opportunity cost of taking an on-line history class is A the knowledge and enjoyment you receive from taking the class B the value of the time spent on line C equal to the highest value of an alternative use of the time and money spent on the class D zero because there is no classroom time involved if you are enrolled in the course E the cost of tuition and fees only Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Horatio can produce either a combination of bird houses and wind chimes or a combination of bird houses and wind chimes If he now produces bird houses and wind chimes what is the opportunity cost of producing an additional wind chimes A bird houses B bird houses C bird houses D bird houses Answer B Table - Production choices for Nadia's Neckware Choice Quantity of Ascots Produced Quantity of Bowties Produced A B C D E Refer to Table - Assume Nadia's Neckware only produces ascots and bowties A combination of ascots and bowties would appear A along Nadia's production possibilities frontier B inside Nadia's production possibilities frontier C outside Nadia's production possibilities frontier D at the horizontal intercept of Nadia's production possibilities frontier Answer A Topic Production Possibilities Frontiers Refer to Table - Assume Nadia's Neckware only produces ascots and bowties A combination of ascots and bowties would appear A along Nadia's production possibilities frontier B inside Nadia's production possibilities frontier C outside Nadia's production possibilities frontier D at the horizontal intercept of Nadia's production possibilities frontier Answer B Topic Production Possibilities Frontiers Refer to Table - Assume Nadia's Neckware only produces ascots and bowties A combination of ascots and bowties would appear A along Nadia's production possibilities frontier B inside Nadia's production possibilities frontier C outside Nadia's production possibilities frontier D at the horizontal intercept of Nadia's production possibilities frontier Answer C Topic Production Possibilities Frontiers Refer to Table - Assume Nadia's Neckties only produces ascots and bowties Nadia faces opportunity costs in the production of ascots and bowties A increasing B decreasing C constant D negative Answer C An inward shift of the production possibilities frontier represents A positive economic growth B negative economic growth C a rise in the unemployment rate D technological improvement Answer B Topic Economic Growth Micro- Explain the effects of the factors of production factor demand and factor supply and labor in factor markets Which of the following would shift a nation's production possibilities frontier outward A discovering a more efficient process to desalinate water B an increase in the minimum wage C a decrease in the unemployment rate D more restrictive immigration policies Answer A Topic Economic Growth Suppose your expenses for this term are as follows tuition room and board books and other educational supplies Further during the term you can only work part-time and earn instead of your full-time salary of What is the opportunity cost of going to college this term assuming that your room and board expenses would be the same even if you did not go to college A B C D Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Figure - Mercedes Benz produces a full line of luxury automobiles including coupes sedans and SUVs at a variety of manufacturing plants across the globe Assume Mercedes Benz produces both coupes and SUVs at its Tuscaloosa Alabama factory Figure - shows changes to its production possibilities frontier in response to new developments and different strategic production decisions at this factory Refer to Figure - Suppose worker productivity increases so that the total number of vehicles produced increases as the company adds more machinery workers and changes the layout of the factory This is best represented by the A movement from E to F in Graph A B movement from G to H in Graph B C movement from K to L in Graph C D movement from J to H in Graph B Answer B Topic Economic Growth Special Feature An Inside LOOK What's on the Horizon at Mercedes-Benz Refer to Figure - In response to changing consumer demands Mercedes-Benz cuts back on the production of SUVs and increases its production of coupes This strategy is best represented by A movement from E to F in Graph A B movement from G to H in Graph B C movement from K to L in Graph C D movement from H to J in Graph B Answer D Special Feature An Inside LOOK What's on the Horizon at Mercedes-Benz Refer to Figure - Suppose Mercedes-Benz has to shut down a portion of its facility as it works on remodeling the facility to merge two of its separate assembly lines in preparation for the production of a new hybrid models The production decision to shut down temporarily will result in a A movement from E to F in Graph A B movement from G to H in Graph B C movement from K to L in Graph C D movement from J to H in Graph B Answer C Topic Economic Growth Special Feature An Inside LOOK What's on the Horizon at Mercedes-Benz A decrease in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point outside the frontier Answer FALSE Topic Economic Growth If a country is producing efficiently and is on the production possibilities frontier the only way to produce more of one good is to produce less of the other Answer TRUE Consider a country that produces only two goods kayaks and coconuts Suppose it is possible for this country to increase its production of kayaks without producing fewer coconuts In this case its current output combination is efficient Answer FALSE Topic Production Possibilities Frontiers Any output combination outside a production possibility frontier is associated with unused or underutilized resources Answer FALSE Topic Production Possibilities Frontiers An increase in the labor force shifts the production possibility frontier inwards over time Answer FALSE Topic Economic Growth If additional units of a good could be produced at a constant opportunity cost the production possibility frontier would be bowed outward concave Answer FALSE On a diagram of a production possibility frontier opportunity cost is represented by the production possibility frontier shifting outward Answer FALSE To increase gas mileage automobile manufacturers make cars small and light Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage These facts suggest that a negative relationship exists between safety and gas mileage Answer TRUE Topic Production Possibilities Frontiers Special Feature Economics in Your Life The Trade-offs When You Buy a Car An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a different point on the frontier Answer FALSE Topic Economic Growth If a country is producing efficiently and is on the production possibilities frontier the country can produce more of one good without producing less of the other good Answer FALSE Topic Economic Growth Consider a country that produces only two goods parrots and iguanas Suppose it is impossible for this country to increase its production of parrots without producing fewer iguanas In this case its current output combination is efficient Answer TRUE Topic Production Possibilities Frontiers Any output combination along a production possibility frontier is associated with fully utilized resources Answer TRUE Topic Production Possibilities Frontiers A decrease in population shifts the production possibility frontier outwards over time Answer FALSE Topic Economic Growth If additional units of a good could be produced at an increasing opportunity cost the production possibility frontier would be linear Answer FALSE On a diagram of a production possibility frontier economic growth is represented by the slope of the production possibility frontier Answer FALSE An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier Answer TRUE Topic Economic Growth If a country is producing efficiently and is on the production possibilities frontier the only way to produce more of one good is with an advance in technology Answer FALSE Topic Economic Growth Consider a country that produces only two goods pineapples and tractors Suppose it is possible for this country to increase its production of pineapples without producing fewer tractors In this case its current output combination is inefficient Answer TRUE Topic Production Possibilities Frontiers Any output combination inside a production possibility frontier is associated with unused or underutilized resources Answer TRUE Topic Production Possibilities Frontiers An increase in population shifts the production possibility frontier inwards over time Answer FALSE Topic Economic Growth If additional units of a good could be produced at a constant opportunity cost the production possibility frontier would be linear Answer TRUE On a diagram of a production possibility frontier opportunity cost is represented by the slope of the production possibility frontier Answer TRUE To increase gas mileage automobile manufacturers make cars small and light Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage These facts suggest that a positive relationship exists between safety and gas mileage Answer FALSE Topic Production Possibilities Frontiers Special Feature Economics in Your Life The Trade-offs When You Buy a Car A decrease in the unemployment rate may be represented as a movement from a point inside the production possibilities frontier to a point on the frontier Answer TRUE Topic Economic Growth If a country is producing efficiently and is on the production possibilities frontier producing more of one good would result in a movement along the frontier Answer TRUE Consider a country that produces only two goods bird feeders and binoculars Suppose it is possible for this country to increase its production of bird feeders without producing fewer binoculars In this case its current output combination is inefficient Answer TRUE Topic Production Possibilities Frontiers Any output combination along a production possibility frontier is associated with overused or unattainable resources Answer FALSE Topic Production Possibilities Frontiers A decrease in the labor force shifts the production possibility frontier inwards over time Answer TRUE Topic Economic Growth If additional units of a good are produced at an increasing opportunity cost the production possibility frontier would be bowed outward concave Answer TRUE On a diagram of a production possibility frontier economic decline negative growth is represented by the production possibility frontier shifting inward Answer TRUE Topic Economic Growth What is meant by the term opportunity cost Answer Opportunity cost is the highest-valued alternative that must be given up to engage in an activity What is economic growth Answer Economic growth refers to the ability of the economy to increase the production of goods and services Topic Economic Growth What is a production possibilities frontier What do points along the frontier represent What do points inside and outside the frontier represent Answer A production possibilities frontier is a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology Points along a production possibilities frontier are attainable with the resources available and are efficient Points inside the frontier are attainable but inefficient Points outside the frontier are unattainable - Topic Production Possibilities Frontiers What shape does a production possibilities frontier take if it displays increasing opportunity costs What shape does a production possibilities frontier take if it displays constant opportunity costs Which shape is most common in production situations Answer A production possibilities frontier which displays increasing opportunity costs is bowed out A production possibilities frontier which displays constant opportunity costs is linear A bowed out production possibilities frontier is most common in production situations What causes a production possibilities frontier to shift outward Answer A production possibilities curve shifts outward with economic growth which occurs with an increase in resources or a positive technology change Topic Economic Growth What causes a production possibilities frontier to shift inward Answer A production possibilities curve shifts inward with economic decline or negative growth This occurs with a decrease in resources or a negative technology change Topic Production Possibilities Frontiers How are efficiency and inefficiency represented on a production possibilities frontier Answer Efficiency is represented by points along the production possibilities frontier Inefficiency is represented by points inside the production possibilities frontier - Topic Production Possibilities Frontiers What does the term increasing marginal opportunity cost mean How are increasing marginal opportunity costs represented on a bowed out production possibilities frontier Answer Increasing marginal opportunity costs means that as more and more of a product is made the opportunity cost of making each additional unit rises They are represented by moving down a bowed out production possibilities frontier a Draw a production possibilities frontier for a country that produces two goods beer and pretzels Assume that resources are equally suited to both tasks b Define opportunity costs c Use your production possibilities frontier graph to demonstrate the principle of opportunity costs Answer a The PPF is linear to reflect the fact that resources are equally suited to both tasks b Opportunity cost is defined as the highest valued alternative that must be forgone by taking an action c In the PPF graph in part a suppose the country is currently producing at point X and wishes to move to point Y so that it can produce more beer The only way it can obtain more beer is to give up some amount of pretzels Topic Production Possibilities Frontiers Table - Possible Output Combinations Apples thousands of pounds Pears thousands of pounds A B C D E F G H Refer to Table - The Fruit Farm produces only apples and pears The table above shows the maximum possible output combinations of the two fruits using all resources and currently available technology a Graph The Fruit Farm's production possibilities frontier Put apples on the horizontal axis and pears on the vertical axis Be sure to identify the output combination points on your diagram b Suppose The Fruit Farm is currently producing at point D What is the opportunity cost of producing an additional pounds of pears c Suppose The Fruit Farm is currently producing at point D What happens to the opportunity cost of producing more and more pears Does it increase decrease or remain constant Explain your answer d Suppose The Fruit Farm is currently producing at point G What happens to the opportunity cost of producing more and more apples Does it increase decrease or remain constant Explain your answer e Suppose The Fruit Farm is plagued by the apple maggot infestation which destroys apple trees but not pears Show in a graph what happens to its PPF Answer a b pounds of apples c It increases For example to move to E The Fruit Farm has to give up pounds of apples to produce an additional pounds of pears For each additional pounds of apples foregone the payoff in terms of pears gets progressively smaller d It increases Each time it wants to produce an additional pounds of apples more and more pears must be given up e - Topic Production Possibilities Frontiers Table - Possible Output Combinations Shrimp thousands of pounds Oysters thousands of pounds A B C D E F G H Refer to Table - The Shellfish Shack produces only shrimp and oysters The table above shows the maximum possible output combinations of the two types of shellfish using all resources and currently available technology a Suppose The Shellfish Shack is currently producing at point E What is the opportunity cost of producing an additional pounds of oysters b Suppose The Shellfish Shack is currently producing at point E What happens to the opportunity cost of producing more and more shrimp Does it increase decrease or remain constant Explain your answer c Suppose The Shellfish Shack is currently producing at point B What happens to the opportunity cost of producing more and more oysters Does it increase decrease or remain constant Explain your answer d Suppose The Shellfish Shack is plagued by a disease which destroys oyster beds but not shrimp habitats What would happen to its PPF Answer a pounds of shrimp b It increases For example to move to D The Shellfish Shack has to give up pounds of oysters to produce an additional pounds of shrimp For each additional pounds of shrimp produced more and more oysters must be given up c It increases Each time it gives up pounds of shrimp fewer and fewer oysters can be produced d Its PPF would rotate inward with maximum shrimp production staying the same but maximum oyster production being reduced - Topic Production Possibilities Frontiers a Draw a production possibilities frontier for a country that produces two goods wine and cheese Assume that resources are not equally suited to both tasks b Define opportunity costs c Use your production possibilities frontier graph to demonstrate the principle of opportunity costs Answer a The PPF is concave bowed away from the origin to reflect the fact that resources are not equally suited to both tasks b Opportunity cost is defined as the highest valued alternative that must be forgone by taking an action c In the PPF graph in part a suppose the country is currently producing at point A and wishes to move to point B so that it can produce more wine The only way it can obtain more wine is to give up some amount of cheese Topic Production Possibilities Frontiers Table - Possible Output Combinations Cashews thousands of pounds Almonds thousands of pounds A B C D E F G H Refer to Table - The Nut House produces only cashews and almonds The table above shows the maximum possible output combinations of the two nuts using all resources and currently available technology a Graph The Nut House's production possibilities frontier Put almonds on the horizontal axis and cashews on the vertical axis Be sure to identify the output combination points on your diagram b Suppose The Nut House is currently producing at point C What is the opportunity cost of producing an additional pounds of almonds c Suppose The Nut House is currently producing at point C What happens to the opportunity cost of producing more and more almonds Does it increase decrease or remain constant Explain your answer d Suppose The Nut House is currently producing at point F What happens to the opportunity cost of producing more and more cashews Does it increase decrease or remain constant Explain your answer e Suppose The Nut House is plagued by a variety of white root-rot disease which destroys cashew trees but not almond trees Show in a graph what happens to its PPF Answer a b pounds of cashews c It increases For example to move to D The Nut House has to give up pounds of cashews to produce an additional pounds of almonds For each additional pounds of cashews foregone the payoff in terms of almonds gets progressively smaller d It increases Each time it wants to produce an additional pounds of cashews more and more almonds must be given up e - Topic Production Possibilities Frontiers Comparative Advantage and Trade You have an absolute advantage whenever you A are better educated than someone else B can produce more of something than others with the same resources C prefer to do one particular activity D can produce something at a lower opportunity cost than others Answer B Topic Absolute Advantage Table - Serena Haley Bracelets Necklaces Table - shows the output per week of two jewelers Serena and Haley They can either devote their time to making bracelets or making necklaces Refer to Table - Which of the following statements is true A Haley has an absolute advantage in making both products B Serena has an absolute advantage in making both products C Haley has an absolute advantage in making bracelets and Serena in making necklaces D Haley has an absolute advantage in making necklaces and Serena in making bracelets Answer C Topic Absolute Advantage Refer to Table - What is Haley's opportunity cost of making a bracelet A of a bracelet B bracelets C necklaces D necklaces Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Haley's opportunity cost of making a necklace A of a bracelet B bracelets C necklaces D necklaces Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Serena's opportunity cost of making a bracelet A necklaces B of a bracelet C of a necklace D of a bracelet Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Serena's opportunity cost of making a necklace A necklaces B of a bracelet C of a necklace D of a bracelet Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - Which of the following statements is true A Haley has a comparative advantage in making both products B Serena has a comparative advantage in making both products C Haley has a comparative advantage in making bracelets and Serena in making necklaces D Haley has a comparative advantage in making necklaces and Serena in making bracelets Answer C Topic Comparative Advantage Table - Fred Barney Pogo Sticks Unicycles Table - shows the output per month of two people Fred and Barney They can either devote their time to making pogo sticks or making unicycles Refer to Table - Which of the following statements is true A Fred has an absolute advantage in making both products B Barney has an absolute advantage in making both products C Barney has an absolute advantage in making pogo sticks and Fred in making unicycles D Barney has an absolute advantage in making unicycles and Fred in making pogo sticks Answer B Topic Absolute Advantage Refer to Table - What is Fred's opportunity cost of making a pogo stick A unicycle B unicycles C pogo stick D unicycle Answer A Refer to Table - What is Fred's opportunity cost of making a unicycle A pogo stick B pogo sticks C unicycle D pogo sticks Answer B Refer to Table - What is Barney's opportunity cost of making a pogo stick A unicycle B unicycles C unicycle D pogo sticks Answer A Refer to Table - What is Barney's opportunity cost of making a unicycle A pogo stick B pogo sticks C unicycles D pogo sticks Answer B Refer to Table - Which of the following statements is true A Fred has a comparative advantage in making both products B Barney has a comparative advantage in making both products C Barney has a comparative advantage in making pogo sticks and Fred in making unicycles D Barney has a comparative advantage in making unicycles and Fred in making pogo sticks Answer D Topic Comparative Advantage Comparative advantage means the ability to produce a good or service A at a lower selling price than any other producer B at a lower opportunity cost than any other producer C of a higher quality than any other producer D at a higher profit level than any other producer Answer B Topic Comparative Advantage Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except A engage in mutually beneficial trade with other nations B increase the variety of products that it can consume with no increase in resources C consume a combination of goods that lies outside its own production possibilities frontier D produce a combination of goods that lies outside its own production possibilities frontier Answer D Topic Comparative Advantage For each bottle of wine that Italy produces it gives up the opportunity to make pounds of cheese France can produce bottle of wine for every pounds of cheese it produces Which of the following is true about the comparative advantage between the two countries A Italy has the comparative advantage in cheese B Italy has the comparative advantage in wine C France has the comparative advantage in wine and cheese D France has the comparative advantage in wine Answer B Topic Comparative Advantage Figure - Figure - shows the production possibilities frontiers for Pakistan and Indonesia Each country produces two goods cotton and cashews Refer to Figure - What is the opportunity cost of producing bolt of cotton in Pakistan A of a pound of cashews B of a pound of cashews C pounds of cashews D pounds of cashews Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing bolt of cotton in Indonesia A of a pound of cashews B of a pound of cashews C pounds of cashews D pounds of cashews Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing pound of cashews in Pakistan A of a bolt of cotton B of a bolt of cotton C bolts of cotton D bolts of cotton Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing pound of cashews in Indonesia A of a bolt of cotton B of a bolt of cotton C bolts of cotton D bolts of cotton Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - Which country has a comparative advantage in the production of cotton A Indonesia B They have equal productive abilities C Pakistan D neither country Answer A Topic Comparative Advantage Refer to Figure - Which country has a comparative advantage in the production of cashews A Indonesia B They have equal productive abilities C Pakistan D neither country Answer C Topic Comparative Advantage Refer to Figure - If the two countries have the same amount of resources and the same technological knowledge which country has an absolute advantage in the production of cotton A Indonesia B They have the same advantage C Pakistan D cannot be determined Answer A Topic Absolute Advantage Figure - Figure - shows the production possibilities frontiers for Tahiti and Bora Bora Each country produces two goods milk and honey Refer to Figure - What is the opportunity cost of producing one gallon of milk in Tahiti A gallon of honey B gallon of honey C gallons of honey D gallons of honey Answer C Refer to Figure - What is the opportunity cost of producing one gallon of milk in Bora Bora A gallon of honey B gallon of honey C gallons of honey D gallons of honey Answer D Refer to Figure - What is the opportunity cost of producing one gallon of honey in Tahiti A gallon of milk B gallon of milk C gallons of milk D gallons of milk Answer A Refer to Figure - What is the opportunity cost of producing one gallon of honey in Bora Bora A gallon of milk B gallon of milk C gallons of milk D gallons of milk Answer A Refer to Figure - Which country has a comparative advantage in the production of milk A Bora Bora B They have equal productive abilities C Tahiti D neither country Answer C Topic Comparative Advantage Refer to Figure - Which country has a comparative advantage in the production of honey A Bora Bora B They have equal productive abilities C Tahiti D neither country Answer A Topic Comparative Advantage Refer to Figure - If the two countries have the same amount of resources and the same technological knowledge which country has an absolute advantage in the production of milk A Bora Bora B They have the same advantage C Tahiti D cannot be determined Answer C Topic Absolute Advantage Which of the following statements is true A Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product B Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product C Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others D Individuals who have never been the best at doing anything must have an absolute advantage in at least ones task Answer B Topic Comparative Advantage Table - One Digital Camera Wheat per pound China hours hours South Korea hours hours Table - shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea Refer to Table - Does either China or South Korea have an absolute advantage and if so in what product A South Korea has an absolute advantage in wheat B China has an absolute advantage in wheat C South Korea has an absolute advantage in both products D China has an absolute advantage in digital cameras Answer C - Topic Absolute Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is China's opportunity cost of producing one digital camera A pounds of wheat B pounds of wheat C pounds of wheat D pounds of wheat Answer C - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is South Korea's opportunity cost of producing one digital camera A pounds of wheat B pounds of wheat C pounds of wheat D pounds of wheat Answer B - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is China's opportunity cost of producing one pound of wheat A units of a digital camera B digital cameras C digital cameras D digital cameras Answer A - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is South Korea's opportunity cost of producing one pound of wheat A digital cameras B digital cameras C digital cameras D units of a digital camera Answer D - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - China has a comparative advantage in the production of A wheat B digital cameras C both products D neither product Answer A - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - South Korea has a comparative advantage in the production of A wheat B digital cameras C both products D neither product Answer B - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export wheat A There is no basis for trade between the two countries B China C South Korea D They should both be exporting wheat Answer B - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export digital cameras A There is no basis for trade between the two countries B China C South Korea D They should both be importing digital cameras Answer C - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade Table - One Canoe One Sailboat Guatemala hours hours Honduras hours hours Table - shows the number of labor hours required to produce a canoe and a sailboat in Guatemala and Honduras Refer to Table - Does either Guatemala or Honduras have an absolute advantage and if so in what product A Guatemala only has an absolute advantage in producing canoes B Honduras only has an absolute advantage in producing canoes C Guatemala has an absolute advantage in producing both products D Honduras only has an absolute advantage in producing sailboats Answer C - Topic Absolute Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Honduras's opportunity cost of producing one sailboat A of a canoe B canoes C canoes D canoes Answer D - Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Guatemala's opportunity cost of producing one sailboat A of a canoe B of a canoe C canoes D canoes Answer D - Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Honduras's opportunity cost of producing one canoe A of a sailboat B sailboats C sailboats D sailboats Answer A - Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Guatemala's opportunity cost of producing one canoe A of a sailboat B of a sailboat C sailboats D sailboats Answer A - Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - Honduras has a comparative advantage in the production of A canoes B sailboats C both products D neither product Answer B - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - Guatemala has a comparative advantage in the production of A canoes B sailboats C both products D neither product Answer A - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export sailboats A There is no basis for trade between the two countries B Guatemala C Honduras D They should both be importing sailboats Answer C - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export canoes A There is no basis for trade between the two countries B Guatemala C Honduras D They should both be exporting canoes Answer B - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade If the best surgeon in town is also the best at cleaning swimming pools then according to economic reasoning this person should A should pursue the activity he enjoys more B specialize in cleaning swimming pools because it is more labor-intensive C split his time evenly between being a surgeon and cleaning swimming pools D specialize in being a surgeon because its opportunity cost is lower Answer D Topic Specialization Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Rayburn Reed is a highly talented photographer He has chosen to specialize in photography because of all of the following except A he obviously has a comparative advantage in photography B his opportunity cost of pursuing another career is very low C for him this is the most lucrative way to purchase the products that he wants to consume D his photographs are highly esteemed by art lovers who are willing to pay very high prices Answer B Topic Specialization Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Table - Tammi Horace Dogs Groomed Cats Bathed Table - shows the output per day of two pet groomers Tammi and Horace They can either devote their time to grooming dogs or bathing cats Refer to Table - Which of the following statements is true A Horace has an absolute advantage in both tasks B Tammi has an absolute advantage in both tasks C Horace has an absolute advantage in dog grooming and Tammi in cat bathing D Horace has an absolute advantage in cat bathing and Tammi in dog grooming Answer B Topic Absolute Advantage Refer to Table - What is Horace's opportunity cost of grooming a dog A half a bathed cat B two bathed cats C two-thirds of a bathed cat D one and a half bathed cats Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Horace's opportunity cost of bathing a cat A half a groomed dog B two groomed dogs C two-thirds of a groomed dog D one and a half groomed dogs Answer D Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Tammi's opportunity cost of grooming a dog A half a bathed cat B two bathed cats C two-thirds of a bathed cat D one and a half bathed cats Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is tammi's opportunity cost of bathing a cat A half a groomed dog B two groomed dogs C two-thirds of a groomed dog D one and a half groomed dogs Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - Which of the following statements is true A Horace has a comparative advantage in both tasks B Tammi has a comparative advantage in both tasks C Horace has a comparative advantage in grooming dogs and Tammi in bathing cats D Horace has a comparative advantage in bathing cats and Tammi in grooming dogs Answer D Topic Comparative Advantage For each surfboard that Australia produces it gives up the opportunity to make boomerangs New Zealand can produce surfboard for every boomerangs it produces Which of the following is true about the comparative advantage between the two countries A Australia has the comparative advantage in surfboards B Australia has the comparative advantage in boomerangs C New Zealand has the comparative advantage in surfboards and boomerangs D New Zealand has the comparative advantage in boomerangs Answer B Topic Comparative Advantage Table - One Motorcycle One Guitar Ireland hours hours Scotland hours hours Table - shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland Refer to Table - Does either Ireland or Scotland have an absolute advantage and if so in what product A Scotland only has an absolute advantage in guitars B Ireland only has an absolute advantage in guitars C Scotland has an absolute advantage in both products D Ireland only has an absolute advantage in motorcycles Answer C Topic Absolute Advantage Refer to Table - What is Ireland's opportunity cost of producing one motorcycle A guitar B guitars C guitars D guitars Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Scotland's opportunity cost of producing one motorcycle A guitar B guitars C guitars D guitars Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Ireland's opportunity cost of producing one guitar A motorcycle B motorcycles C motorcycles D motorcycles Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Scotland's opportunity cost of producing one guitar A motorcycle B motorcycles C motorcycles D motorcycles Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - Ireland has a comparative advantage in the production of A both products B guitars C motorcycles D neither product Answer B Topic Comparative Advantage Refer to Table - Scotland has a comparative advantage in the production of A both products B guitars C motorcycles D neither product Answer C Topic Comparative Advantage Refer to Table - If the two countries specialize and trade who should export guitars A There is no basis for trade between the two countries B Ireland C Scotland D They should both be exporting guitars Answer B Topic Specialization Refer to Table - If the two countries specialize and trade who should export motorcycles A There is no basis for trade between the two countries B Ireland C Scotland D They should both be importing motorcycles Answer C Topic Specialization As women's wages have risen relative to men's wages the opportunity cost to women of doing housework has than has the opportunity cost to men A increased less B increased more C decreased more D decreased less Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Making the Connection Comparative Advantage Opportunity Cost and Housework If you can produce more of something than others with the same resources you have A a comparative advantage B an absolute advantage C an efficient production system D a free-market economy Answer B Topic Absolute Advantage Table - George Jack Lawns Mowed Gardens Cultivated Table - shows the output per day of two gardeners George and Jack They can either devote their time to mowing lawns or cultivating gardens Refer to Table - Which of the following statements is true A Jack has an absolute advantage in both tasks B George has an absolute advantage in both tasks C Jack has an absolute advantage in lawn mowing and George in garden cultivating D Jack has an absolute advantage in garden cultivating and George in lawn mowing Answer B Topic Absolute Advantage Refer to Table - What is Jack's opportunity cost of mowing a lawn A half a garden cultivated B two lawns mowed C two-thirds of a garden cultivated D one and a half lawns mowed Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Jack's opportunity cost of cultivating a garden A half a garden cultivated B two lawns mowed C two-thirds of a garden cultivated D one and a half lawns mowed Answer D Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is George's opportunity cost of mowing a lawn A half a garden cultivated B two lawns mowed C two-thirds of a garden cultivated D one and a half lawns mowed Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is George's opportunity cost of cultivating a garden A half a garden cultivated B two lawns mowed C two-thirds of a garden cultivated D one and a half lawns mowed Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - Which of the following statements is true A Jack has a comparative advantage in both tasks B George has a comparative advantage in both tasks C Jack has a comparative advantage in lawn mowing and George in garden cultivating D Jack has a comparative advantage in garden cultivating and George in lawn mowing Answer D Topic Comparative Advantage Comparative advantage means A the ability to produce more of a product with the same amount of resources than any other producer B the ability to produce a good or service at a lower opportunity cost than any other producer C the ability to produce a good or service at a higher opportunity cost than any other producer D compared to others you are better at producing a product Answer B Topic Comparative Advantage Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following A never have to engage in trade with other nations B increase the variety of products that it can produce with a decrease in resources C consume a combination of goods that lies outside its own production possibilities frontier D produce a combination of goods that lies outside its own production possibilities frontier Answer C Topic Specialization For each watch that Switzerland produces it gives up the opportunity to make pounds of chocolate Germany can produce watch for every pounds of chocolate it produces Which of the following is true about the comparative advantage between the two countries A Switzerland has the comparative advantage in chocolate B Switzerland has the comparative advantage in watches C Germany has the comparative advantage in watches and chocolate D Germany has the comparative advantage in watches Answer B Topic Comparative Advantage Figure - Figure - shows the production possibilities frontiers for Costa Rica and Guatemala Each country produces two goods pineapples and coconuts Refer to Figure - What is the opportunity cost of producing ton of coconuts in Costa Rica A of a ton of pineapples B of a ton of pineapples C tons of pineapples D tons of pineapples Answer B - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing ton of coconuts in Guatemala A of a ton of pineapples B tons of pineapples C tons of pineapples D tons of pineapples Answer A - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing ton of pineapples in Costa Rica A of a ton of coconuts B of a ton of coconuts C tons of coconuts D tons of coconuts Answer C - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing ton of pineapples in Guatemala A of a ton of coconuts B tons of coconuts C tons of coconuts D tons of coconuts Answer C - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - Which country has a comparative advantage in the production of coconuts A Guatemala B They have equal productive abilities C Costa Rica D neither country Answer A Topic Comparative Advantage Refer to Figure - Which country has a comparative advantage in the production of pineapples A Guatemala B They have equal productive abilities C Costa Rica D neither country Answer C Topic Comparative Advantage Refer to Figure - If the two countries have the same amount of resources and the same technological knowledge which country has an absolute advantage in the production of both pineapples and coconuts A Guatemala B neither country C Costa Rica D cannot be determined Answer B Topic Absolute Advantage Individuals who have never been the best at doing anything A cannot have a comparative advantage in producing any product B can still have a comparative advantage in producing some product C perform all tasks at a higher opportunity cost than others D must have an absolute advantage in at least ones task Answer B Topic Comparative Advantage Table - One Cell Phone Lumber per board foot Estonia hours hours Finland hours hours Table - shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland Refer to Table - Does either Estonia or Finland have an absolute advantage and if so in what product A Finland has an absolute advantage in lumber B Estonia has an absolute advantage in lumber C Finland has an absolute advantage in both products D Estonia has an absolute advantage in cell phones Answer C - Topic Absolute Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Estonia's opportunity cost of producing one cell phone A board feet of lumber B board feet of lumber C board feet of lumber D board feet of lumber Answer B - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Finland's opportunity cost of producing one cell phone A board feet of lumber B board feet of lumber C board feet of lumber D board feet of lumber Answer B - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Estonia's opportunity cost of producing one board foot of lumber A cell phones B cell phones C cell phones D cell phones Answer A - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Finland's opportunity cost of producing one board foot of lumber A cell phones B cell phones C cell phones D cell phones Answer A - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - Estonia has a comparative advantage in the production of A both products B lumber C cell phones D neither product Answer B - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - Finland has a comparative advantage in the production of A both products B lumber C cell phones D neither product Answer C - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export lumber A There is no basis for trade between the two countries B Estonia C Finland D They should both be exporting lumber Answer B - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export cell phones A There is no basis for trade between the two countries B Estonia C Finland D They should both be importing cell phones Answer C - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade If the best lawyer in town is also the best at operating a word processor then according to economic reasoning this person should A split her time evenly between being a lawyer and a word processor B specialize in being a lawyer because its opportunity cost is lower C should pursue the activity she enjoys more D specialize in being a work processor because it is more capital-intensive Answer B Topic Specialization Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Izzy Amador is a highly talented tattoo artist She has chosen to specialize in tattoo art because of all of the following except A her tattoos are highly esteemed by tattoo lovers who are willing to pay very high prices B for her this is the most lucrative way to purchase the products that she wants to consume C her opportunity cost of pursuing another career is very low D she obviously has a comparative advantage in tattoo art Answer C Topic Specialization Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions As job opportunities for women and the wages those jobs pay have increased the opportunity cost of doing housework has so many families have chosen to hire specialists in households chores such as cleaning services and lawn care services because the cost of these specialists is than the cost of the wife or husband performing those chores A increased higher B increased lower C decreased higher D decreased lower Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Making the Connection Comparative Advantage Opportunity Cost and Housework Table - James Lucy Wagons Tricycles Table - shows the output per week of two people James and Lucy They can either devote their time to making bracelets or making necklaces Refer to Table - Which of the following statements is true A Lucy has an absolute advantage in making both products B James has an absolute advantage in making both products C Lucy has an absolute advantage in making wagons and James in making tricycles D James has an absolute advantage in making tricycles and Lucy in making wagons Answer C Topic Absolute Advantage Refer to Table - What is Lucy's opportunity cost of making a wagon A of a wagon B wagons C tricycles D tricycles Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Lucy's opportunity cost of making a tricycle A of a wagon B wagons C tricycles D tricycles Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is James's opportunity cost of making a wagon A tricycles B of a wagon C of a tricycle D of a wagon Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is James's opportunity cost of making a tricycle A tricycles B of a wagon C of a tricycle D of a wagon Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - Which of the following statements is true A Lucy has a comparative advantage in making both products B James has a comparative advantage in making both products C Lucy has a comparative advantage in making wagons and James in making tricycles D Lucy has a comparative advantage in making tricycles and James in making wagons Answer C Topic Comparative Advantage Table - Minnie Mickey Hats Umbrellas Table - shows the output per week of two people Minnie and Mickey They can either devote their time to making hats or making umbrellas Refer to Table - Which of the following statements is true A Mickey has an absolute advantage in making both products B Minnie has an absolute advantage in making both products C Minnie has an absolute advantage in making hats and Mickey in making umbrellas D Minnie has an absolute advantage in making umbrellas and Mickey in making hats Answer D Topic Absolute Advantage Refer to Table - What is Minnie's opportunity cost of making a hat A of an umbrella B of an umbrella C umbrellas D umbrellas Answer B Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Mickey's opportunity cost of making a hat A of an umbrella B of an umbrella C umbrellas D umbrellas Answer A Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Minnie's opportunity cost of making an umbrella A of a hat B of a hat C hats D hats Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - What is Mickey's opportunity cost of making an umbrella A of a hat B hats C hats D hats Answer C Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Table - Which of the following statements is true A Minnie has a comparative advantage in making both products B Mickey has a comparative advantage in making both products C Minnie has a comparative advantage in making hats and Mickey in making umbrellas D Mickey has a comparative advantage in making hats and Minnie in making umbrellas Answer D Topic Comparative Advantage Table - Wilma Betty Statues Benches Table - shows the output per month of two people Wilma and Betty They can either devote their time to making marble statues or making marble benches Refer to Table - Which of the following statements is true A Wilma has an absolute advantage in making both products B Betty has an absolute advantage in making both products C Betty has an absolute advantage in making statues and Wilma in making benches D Betty has an absolute advantage in making benches and Wilma in making statues Answer B Topic Absolute Advantage Refer to Table - What is Wilma's opportunity cost of making a statue stick A bench B benches C statue D bench Answer A Refer to Table - What is Wilma's opportunity cost of making a bench A statue B statues C bench D statues Answer B Refer to Table - What is Betty's opportunity cost of making a statue A bench B benches C bench D statues Answer A Refer to Table - What is Betty's opportunity cost of making a bench A statue B statues C benches D statues Answer B Refer to Table - Which of the following statements is true A Wilma has a comparative advantage in making both products B Betty has a comparative advantage in making both products C Betty has a comparative advantage in making statues and Wilma in making benches D Betty has a comparative advantage in making benches and Fred in making statues Answer D Topic Comparative Advantage For each pound of salami that Hungary produces it gives up the opportunity to make bottles of beer Slovakia can produce pound of salami for every bottles of beer it produces Which of the following is true about the comparative advantage between the two countries A Hungary has the comparative advantage in salami B Hungary has the comparative advantage in beer C Slovakia has the comparative advantage in salami and beer D Slovakia has the comparative advantage in beer Answer B Topic Comparative Advantage Figure - Figure - shows the production possibilities frontiers for Greenland and Iceland Each country produces two goods snow cones and popsicles Refer to Figure - What is the opportunity cost of producing popsicle in Greenland A of a snow cone B of a snow cone C snow cones D snow cones Answer C - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing popsicle in Iceland A snow cones B of a snow cone C of a snow cone D snow cones Answer A - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing snow cone in Greenland A of a popsicle B of a popsicle C popsicles D popsicles Answer B - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - What is the opportunity cost of producing snow cone in Iceland A of a popsicle B of a popsicle C popsicles D popsicles Answer A - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Refer to Figure - Which country has a comparative advantage in the production of popsicles A Greenland B They have equal productive abilities C Iceland D neither country Answer A - Topic Comparative Advantage Refer to Figure - Which country has a comparative advantage in the production of snow cones A Greenland B They have equal productive abilities C Iceland D neither country Answer C - Topic Comparative Advantage Refer to Figure - If the two countries have the same amount of resources and the same technological knowledge which country has an absolute advantage in the production of popsicles A Greenland B They have the same advantage C Iceland D cannot be determined Answer A - Topic Absolute Advantage Table - One Wristwatch Rice per pound Japan hours hours Thailand hours hours Table - shows the number of labor hours required to produce a wristwatch and a pound of rice in Japan and Thailand Refer to Table - Does either Japan or Thailand have an absolute advantage and if so in what product A Thailand has an absolute advantage in rice B Japan has an absolute advantage in rice C Thailand has an absolute advantage in both products D Japan has an absolute advantage in wristwatches Answer C - Topic Absolute Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Japan's opportunity cost of producing one wristwatch A pounds of rice B pounds of rice C pounds of rice D pounds of rice Answer C - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Thailand's opportunity cost of producing one wristwatch A pounds of rice B pounds of rice C pounds of rice D pounds of rice Answer B - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Japan's opportunity cost of producing one pound of rice A units of a wristwatch B wristwatches C wristwatches D wristwatches Answer A - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - What is Thailand's opportunity cost of producing one pound of rice A wristwatches B wristwatches C wristwatches D units of a wristwatch Answer D - Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - Japan has a comparative advantage in the production of A rice B wristwatches C both products D neither product Answer A - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - Thailand has a comparative advantage in the production of A rice B wristwatches C both products D neither product Answer B - Topic Comparative Advantage Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export rice A There is no basis for trade between the two countries B Japan C Thailand D They should both be exporting rice Answer B - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade Refer to Table - If the two countries specialize and trade who should export wristwatches A There is no basis for trade between the two countries B Japan C Thailand D They should both be importing wristwatches Answer C - Topic Specialization Special Feature Solved Problem Comparative Advantage and the Gains from Trade If Sanjaya can shuck more oysters in one hour than Tatiana then Sanjaya has a comparative advantage in shucking oysters Answer FALSE Topic Absolute Advantage The basis for trade is comparative advantage not absolute advantage Answer TRUE Topic Comparative Advantage If a country produces only two goods it is possible to have a comparative advantage in the production of both those goods Answer FALSE Topic Comparative Advantage In a two-good two country world if one country has an absolute advantage in the production of both goods it cannot benefit by trading with the other country Answer FALSE Topic Absolute Advantage For a person to have a comparative advantage in producing a product she must be able to produce that product at a lower opportunity cost than her competitors Answer TRUE Topic Comparative Advantage It is possible to have a comparative advantage in producing a good or service without having an absolute advantage Answer TRUE Topic Comparative Advantage Special Feature Don't Let This Happen to You Don't Confuse Absolute Advantage and Comparative Advantage If Tanisha can audit more tax returns in one hour than Libby then Tanisha has an absolute advantage in auditing tax returns Answer TRUE Topic Comparative Advantage If a country produces only two goods then it is not possible to have an absolute advantage in the production of both those goods Answer FALSE Topic Comparative Advantage In a two-good two country world if one country has an absolute advantage in the production of both goods it must also have a comparative advantage in the production of both goods Answer FALSE Topic Absolute Advantage If the opportunity cost of producing more of one good remains the same as more of that good is produced then the production method is inefficient Answer FALSE It is possible to have an absolute advantage in producing a good or service without having a comparative advantage Answer TRUE Topic Comparative Advantage Special Feature Don't Let This Happen to You Don't Confuse Absolute Advantage and Comparative Advantage If Blake can pick more cherries in one hour than Cody then Blake has a comparative advantage in cherry picking Answer FALSE Topic Comparative Advantage The basis for trade is absolute advantage not comparative advantage Answer FALSE Topic Comparative Advantage If a country produces only two goods then it is not possible to have a comparative advantage in the production of both those goods Answer TRUE Topic Comparative Advantage In a two-good two country world if one country has an absolute advantage in the production of both goods it can still benefit by trading with the other country Answer TRUE Topic Absolute Advantage If the opportunity cost of producing more of one good increases as more of that good is produced then the production method is inefficient Answer FALSE It is not possible to have a comparative advantage in producing a good or service without having an absolute advantage Answer FALSE Topic Comparative Advantage Special Feature Don't Let This Happen to You Don't Confuse Absolute Advantage and Comparative Advantage If Abigail can make more candles in one day than Pierre then Abigail has an absolute advantage in making candles Answer TRUE Topic Absolute Advantage If a country produces only two goods it is possible to have an absolute advantage in the production of both those goods Answer TRUE Topic Comparative Advantage In a two-good two country world if one country has a comparative advantage in the production of one good it can benefit by trading with other countries Answer TRUE Topic Absolute Advantage For a person to have a comparative advantage in producing a product he must be able to produce that product at a higher opportunity cost than his competitors Answer FALSE Topic Comparative Advantage It is not possible to have an absolute advantage in producing a good or service without having a comparative advantage Answer FALSE Topic Comparative Advantage Special Feature Don't Let This Happen to You Don't Confuse Absolute Advantage and Comparative Advantage What is comparative advantage What is absolute advantage Answer Comparative advantage is the ability of an individual firm or country to produce a good or service at a lower opportunity cost than competitors Absolute advantage is the ability of an individual firm or country to produce more of a good or service than competitors using the same amount of resources - Topic Comparative Advantage Is it possible for a firm to have an absolute advantage in producing something without having a comparative advantage Why or why not Answer Yes a firm can have an absolute advantage without having a comparative advantage A firm may be able to produce more of a good or service than its competitors but that does not necessarily mean it can produce the good or service at a lower opportunity cost than its competitors - Topic Absolute Advantage Is it possible for a firm to have a comparative advantage in producing something without having an absolute advantage Why or why not Answer Yes a firm can have a comparative advantage without having an absolute advantage if it can produce a good or service at a lower opportunity cost than competitors even if it is not able to produce more of the good or service than its competitors Topic Comparative Advantage Should countries specialize in producing goods and services based on having a comparative advantage or an absolute advantage Why Answer Countries should specialize in producing products based on comparative advantage because this allows countries to produce those products and services at a lower opportunity cost than competitors Topic Specialization Suppose in Belize the opportunity cost of producing a sailboat is hang gliders In Honduras the opportunity cost of producing a sailboat is hang gliders a What is the opportunity cost of producing a hang glider for Belize b What is the opportunity cost of producing a hang glider for Honduras c Which country has a comparative advantage in the production of hang gliders d Which country has a comparative advantage in the production of sailboats Answer a For Belize the opportunity cost of producing a hang glider is of a sailboat b For Honduras the opportunity cost of producing a hang glider is of a sailboat c Honduras has a comparative advantage in the production of hang gliders d Belize has a comparative advantage in the production of sailboats Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Suppose in the Germany the opportunity cost of producing a gallon of beer is gallons of wine In Italy the opportunity cost of producing a gallon of beer is gallons of wine a What is the opportunity cost of producing a gallon of wine for Germany b What is the opportunity cost of producing a gallon of wine for Italy c Which country has a comparative advantage in the production of beer d Which country has a comparative advantage in the production of wine Answer a For Germany the opportunity cost of producing a gallon of wine is of a gallon of beer b For Italy the opportunity cost of producing a gallon of wine is of a gallon of beer c Germany has a comparative advantage in the production of wine d Italy has a comparative advantage in the production of beer Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Table - Digital Camera Wheat bushels China hours hours South Korea hours hours Refer to Table - This table shows the number of labor hours required to produce a digital camera and a bushel of wheat in China and South Korea h Show the consumption points after trade on each country's production possibilities frontier Label these points B for China and J for South Korea i Has trade made the two countries better off Explain your answer Answer a - Topic Specialization Micro- Apply the concepts of opportunity cost marginal analysis and present value to make decisions Special