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The models that economists construct:
a)         There is no correct answer.
b)         often rely on physical constructs, such as those used by architects.
c)         usually make simplifying assumptions.
d)         rarely use mathematical equations or graphs.
   
Figure: Guns and Butter
Reference: Ref 2-2

(Figure: Guns and Butter) Look at the figure Guns and Butter. The combination of guns and butter at point H:
a)         is attainable but would increase unemployment.
b)         can be attained.
c)         There is no correct answer.
d)         cannot be attained, given the level of technology, resources, and the factors of production currently available.
   
All points inside the production possibility frontier represent:
a)         economic growth.
b)         infeasible production points
c)         efficient production points.
d)         inefficient production points.
   
The effect of an increase in productive inputs such as labor and capital can be shown by:
a)         an inward shift of the production possibility frontier.
b)         a point inside of the production possibility frontier.
c)         an outward shift of the production possibility frontier.
d)         a movement from one point to another along the production possibility frontier.
   
The process observed when an economy's production possibility frontier is shifted outward is:
a)         full employment.
b)         specialization.
c)         economic growth.
d)         comparative advantage.
   
The economy that has the lower opportunity cost for producing a particular good than another economy is said to have:
a)         an increasing opportunity cost.
b)         a production possibility frontier.
c)         a comparative advantage.
d)         a technological advantage.
   
An economy is said to have a comparative advantage in the production of a good if it can produce that good:
a)         with a higher opportunity cost than another economy.
b)         at a lower opportunity cost than another economy.
c)         with more resources than another economy.
d)         outside its production possibility frontier.
   
Which of the following is false about the circular-flow diagram?
a)         Money flows from households to firms as households offer factors of production for sale.
b)         Firms are the primary suppliers of goods and services.
c)         Households are the primary demanders of goods and services.
d)         Money flows from firms to households as households offer factors of production for sale.
   
Which of the following two statements is a positive statement? Which is a normative statement?
X. The federal minimum wage is increasing to $7.50 an hour.
Y. The minimum wage should be high enough that families will not live in poverty.
a)         X is positive; Y is normative.
b)         X is positive; Y is positive.
c)         X is normative; Y is positive.
d)         X is normative; Y is normative
   
The current rate of unemployment is 9%. This statement:
a)         is a personal reflection and has no value in economics.
b)         is positive.
c)         involves a value judgment.
d)         is normative.
   
Economic models are:
a)         created and used to duplicate reality exactly.
b)         useless if they are simple.
c)         often useful in forming economic policy.
d)         made generally of wood, plastic, and/or metal.
   
The fact that a society's production possibility frontier is bowed out or concave to the origin of a graph demonstrates the law of:
a)         concave opportunity cost.
b)         decreasing opportunity cost.
c)         constant opportunity cost.
d)         increasing opportunity cost.
   
All points on the production possibility frontier are:
a)         efficient production points.
b)         infeasible production points.
c)         economic growth.
d)         inefficient production points.
   
The ________ illustrates the trade-offs facing an economy that produces only two goods.
a)         circular-flow diagram
b)         all else equal assumption
c)         production possibility frontier.
d)         income distribution
   
Technological improvements will:
a)         necessarily lead to increased unemployment.
b)         leave the production possibility frontier unchanged.
c)         shift the production possibility frontier outward. . 
d)         shift the production possibility frontier inward.
   
An economy is said to have a comparative advantage in the production of one good if it:
a)         can produce more of all goods than another economy.
b)         has the lower opportunity cost for producing a particular good than another economy. .
c)         can produce less of all goods than another economy.
d)         has the higher opportunity cost for producing a particular good than another economy.
   
Trade takes the form of ________ when people directly exchange goods that they have for goods they want.
a)         the zero-sum game
b)         barter.
c)         benevolence
d)         exploitation
   
The circular-flow diagram illustrates how firms ________ goods and services and ________ factors of production.
a)         buy; buy
b)         sell; buy.
c)         buy; sell
d)         sell; sell
   
Which of the following is an example of a positive statement?
a)         Everyone in the country should be covered by national health insurance.
b)         The poverty rate should be 4%.
c)         A high rate of economic growth is good for the country.
d)         The federal government pays for 46% of U.S. health care costs. .
   
Which of the following offices of the U.S. government is a major employer of economists?
a)         World Bank
b)         Bureau of Labor Statistics.
c)         International Monetary Fund
d)         United Nations
   
The price elasticity of a good tends to increase:
 
if it is relatively inexpensive.
   
The price elasticity of demand can be found by:
 
dividing the percentage change in the quantity demanded by the percentage change in the price.
   
Figure: Supply Curves
 

 
Reference: Ref 6-18
 
(Figure: Supply Curves) Look at the figure Supply Curves. Which graph shows a perfectly elastic supply curve?
 
D
   
Which of the following statements is true?
 
If the price elasticity of supply is greater than 1, then the supply is price-elastic.
   
When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be:
 
price-elastic.
   
If a good is a luxury item, then demand will tend to:
 
be more price-elastic.
   
We predict the long-run price elasticity of demand of gasoline would be ________ the short-run price elasticity of demand of gasoline.
 
larger than
   
Decreases in input costs will tend to:
 
increase the price elasticity of supply.
   
In the short run, the price elasticity of supply for foods is lower than it will be in the long run because:
 
in the short run, food producers do not have as much time to respond to changes in demand.
   
(Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a perfectly elastic demand curve?
 

 
 
D
   
Reference: Ref 9-5
 

 
(Table: Marginal Benefit of Sweatshirts)
Look at the table Marginal Benefit of Sweatshirts. The marginal benefit of producing the second sweatshirt is:
 
$15.
   
Learning effects often result in ________ marginal costs.
 
decreasing.
   
Reference: Ref 9-3
 

 
(Table: Marginal Cost of Sweatshirts)
Look at the table Marginal Cost of Sweatshirts. The marginal cost of the fifth sweatshirt is:
 
$17.
   
Profit computed using explicit costs as the only measure of costs is:
 
accounting profit.
   
According to the optimal output rule, if the marginal benefit is:
 
equal to the marginal cost, an activity should be increased. .
   
The amount by which an additional unit of an activity increases total cost is:
 
marginal cost.
   
The ________ is the amount by which an additional unit of an activity increases its total benefit.
 
marginal benefit
   
The amount by which an additional unit of an activity increases total cost is:
 
marginal cost.
   
The amount by which an additional unit of an activity increases total benefit is:
 
marginal benefit.
   
After earning your BA, you have to decide whether to accept the offer of a job that will pay you $45,000 per year or spend an additional two years
earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. The annual
opportunity cost of earning your MBA is:
 
$77,500.
   
Reference: Ref 10-3
 

 
(Table: The Utility of Macaroni and Cheese)
Look at the table The Utility of Macaroni and Cheese. Carmen loves macaroni and cheese for Thanksgiving.
The marginal utility she derives from the second serving she eats is:
 
15.
 
   
The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $10. The maximum number of boxes of popcorn that you can purchase is:
 
10.
   
Adam has a monthly income of $20 that can be spent on books (B) and pencils (P).
The price of a book is $5 and the price of a pencil is $0.50.
Which of the following bundles of books and pencils is affordable but does not use all of Adam's income?
 
1 book and 10 pencils
   
Reference: Ref 10-1
 

 
(Table: Utility of Pecan Rolls)
Look at the table The Utility of Pecan Rolls. Total utility is maximized at the ________ roll.
 
Fourth
 
   
Adam has a monthly income of $20 that can be spent on books (B) and pencils (P).
The price of a book is $5 and the price of a pencil is $0.50.
Which of the following bundles of books and pencils lies on Adam's budget line (Adam would spend all of his money)?
 
2 books and 20 pencils
 
   
The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $10 to spend.
You decide to purchase 8 bags of peanuts. The maximum number of boxes of popcorn that you can purchase is:
 
16.
   
Scenario: Tom's Budget Constraint
 
Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming
when the price of a music download is $1 and the price of a movie is $5.
 
(Scenario: Tom's Budget Constraint)
Look at the scenario Tom's Budget Constraint.
Which of the following combinations of music downloads and movies lies outside Tom's budget line? (Tom cannot afford this combination.)
 
50 music downloads and 10 movies
   
How much ________ Susan obtains from eating green beans is a measure of the utility of green beans.
 
satisfaction
   
The optimum consumption bundle is the one that ________ his or her ________, given his budget constraint.
Question 29 options:
 
maximizes; total utility
   
Adam has a monthly income of $20 that can be spent on books (B) and pencils (P).
The price of a book is $5 and the price of a pencil is $0.50.
Which of the following bundles of books and pencils is unaffordable?
 
2 books and 30 pencils
   
A firm's marginal cost is:
 
the change in total cost divided by the change in the quantity of output.
   
In economics, the short run is defined as:
 
period in which some inputs are considered to be fixed in quantity.
   
Average variable cost is:
 
total variable cost divided by quantity.
   
Average variable cost is the ratio of:
 
variable cost to the quantity of output.
   
Reference: Ref 11-1
 

 
(Table: Labor and Output) Look at the table Labor and Output. The marginal product of the fifth worker is:
 
4.
   
When an additional unit of a variable input adds less to total product than the previous unit, the firm must be experiencing:
 
diminishing marginal returns and diminishing total returns.
   
Figure: The Marginal Product of Labor
       
Reference: Ref 11-2


 

 
(Figure: The Marginal Product of Labor) Look at the figure The Marginal Product of Labor. The marginal product for the third workers is:
 
15 bushels.
   
Average variable cost is the ratio of:
 
variable cost to the quantity of output.
   
The marginal product of labor is the change in:
 
the quantity of output divided by the change in the quantity of labor.
   
Reference: Ref 11-1
 

 
(Table: Labor and Output) Look at the table Labor and Output. The marginal product of the fourth worker is:
 
6