Multiple Choice Questions (please green scantron) 25 questions, 3 points per question

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1 Homework Assignment #1 (Due 9/19, in class) Multiple Choice Questions (please green scantron) 25 questions, 3 points per question 1) Economics is best defined as the study of how people, businesses, governments, and societies A) choose abundance over scarcity. B) make choices to cope with scarcity. C) use their infinite resources. D) attain wealth. 2) Opportunity cost means A) the accounting cost minus the marginal cost. B) the highest-valued alternative forgone. C) the accounting cost minus the marginal benefit. D) the monetary costs of an activity. 3) During the summer you have made the decision to attend summer school, which precludes you from working at your usual summer job in which you normally earn $6,000 for the summer. Your tuition cost is $3,000, books and supplies cost $300, and room and board cost $1,000. The opportunity cost of attending summer school is A) $10,300. B) $6,000. C) $4,300. D) $3,300. 4) Marginal benefit is the benefit A) that your activity provides to someone else. B) of an activity that exceeds its cost. C) that arises from the secondary effects of an activity. D) that arises from an increase in an activity. 5) Marginal cost is the cost A) that your activity imposes on someone else. B) that arises from an increase in an activity. C) of an activity that exceeds its benefit. D) that arises from the secondary effects of an activity. Quantity Price ) Using the data in the above table, A) the variables quantity and price are positively related. B) the variables quantity and price are negatively related. C) the variables quantity and price are neither positively nor negatively related. 1

2 D) an increase in price is likely to cause an increase in quantity. 7) If we use the numbers in the above table to draw a graph, with the price on the vertical axis and the quantity on the horizontal axis, the curve relating price and quantity has a slope of A) 0.8 B) 8.0 C) 1.25 D) 8.0 8) Suppose that a typical German factory can produce 20 cameras or 1 computer in an hour, and that a typical American factory can produce 10 cameras or one computer in an hour. The opportunity cost of 20 cameras in terms of computers in the US is A) 10 computers B) 2 computers C) 1 computer D) 1/20 of a computer 9) In the figure above, Joe is operating at point A. Joe s opportunity cost of producing a shirt is A) 5/3 pair of pants. B) 3/5 pair of pants. C) 5 pairs of pants. D) 2 pairs of pants. 10) In the figure above, Jill is producing at point A. Jill s opportunity cost producing a pair of pants is A) 2 shirts. B) 3 shirts. C) 3/5 shirt. D) 5/3 shirt. 11) In the figure above, both Joe and Jill initially produce at point A. If Joe and Jill realize that they each possess a comparative advantage, which outcome can we expect? A) Joe will specialize in shirts, and Jill will specialize in pants. B) Joe will specialize in pants, and Jill will specialize in shirts. C) Joe and Jill each will be able to consume more than 2 shirts and 2 pairs of pants. D) Both answers B and C are true. 2

3 12) Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. Which of the following statements is true? A) Washington has an absolute advantage in the production of both pecans and pears. B) Washington has a comparative advantage in the production of both pecans and pears. C) Washington has a comparative advantage in producing pecans and Missouri has a comparative advantage in producing pears. D) Both answers A and C are correct. 13) Suppose a scientific breakthrough made free solar power available in unlimited quantities in the United States. The effect of this invention would be to move the A) United States beyond its production possibilities frontier. B) United States inside its production possibilities frontier. C) U.S. production possibilities frontier outward. D) U.S. production possibilities frontier inward. 14) Economic growth can be pictured in a production possibilities frontier diagram by A) making the production possibilities frontier more bowed out. B) making the production possibilities frontier less bowed out. C) shifting the production possibilities frontier outward. D) shifting the production possibilities frontier inward. 3

4 15) As an economy s capital stock increases, the economy A) generally experiences increased unemployment of other resources, such as labor. B) generally decides to engage in international trade. C) experiences economic growth. D) gains an absolute advantage in the production of capital goods. 16) A larger than normal increase of capital stock in the economy: A) occurs when people reduce their consumption level. B) occurs when people increase their consumption level. C) occurs when economy is in recession. D) occurs when economy is NOT in recession. 17) In the figure above, an economy would grow fastest if it located at point A) A. B) B. C) C. D) D. 18) In the above figure, in order for this country to move from production possibilities frontier PPF 1 to PPF 2, it might A) increase the skills and productivity of its work force. B) put all unemployed resources to work producing desired output. C) engage in exchange with other nations. D) increase the average level of prices for all goods produced and consumed. 4

5 19) In the above figure, once on PPF 2, a country would grow slowest by operating at point A) A. B) B. C) C. D) D. 20) When an economist refers to choices made at the margin the economist is referring to A) an individual s margin account with a stockbroker that allows part of a stock purchase to be made with borrowed money. B) decisions based on the marginal benefits and marginal costs of small changes in a particular activity. C) an individual s all-or-nothing choice concerning a specific good or activity. D) All of the above. 21) #2 in page 49 of the textbook, solutions are: A) a. is 5 and b is 3 B) a. is 3 and b is 5. C) a. is 3 and b is 3. D) a. is 5 and b is 5. 22) In the above figure, the curve labeled a is the curve and the curve labeled b is the curve. A) marginal cost; marginal benefit B) marginal cost; trade line C) marginal benefit; trade line D) production possibilities frontier; trade line 23) In the above figure, curve b shows A) the bottles of soda that people are willing to forgo to get another bicycle. B) the bottles of soda that people must forgo to get another bicycle. C) the benefits of producing more bicycles is greater than the benefits of producing more soda. D) the benefits of producing more soda is greater than the benefits of producing more bicycles. 24) In the above figure, when 2000 bicycles are made each month, we can see that A) the marginal benefit from another bicycle is greater than the marginal cost of another bicycle. B) more bicycles should be produced to reach the efficient level of output. C) the economy is very efficient at the production of bicycles because the marginal benefit exceeds the marginal cost. D) Both answers A and B are correct. 5

6 25) In the above figure, if 4000 bicycles are made per month, A) marginal benefit is greater than marginal cost. B) fewer bicycles should be produced to reach the efficient level of output. C) the marginal cost of production is 2 bottles of soda per bicycle. D) Both answers A and B are correct. Essay Questions: (25 points) 1) (10 points) Consider the Figure 2.1 at page 32 in the textbook. If the price of one pizza can buy 3 CDs, then which point on the graph that the optimal production point should be closest to? What if the price of one pizza can buy 5 CDs? 2) (15 points) Question #14 on page 50 in the textbook. 6