ECON101 Fall 2014 Chapter 2 Study Guide MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following would an economist classify as capital? A) a post office employee B) a $50 bill C) a guitar used by a musician D) a corporate bond 1) 2) The concept of trade-offs would become irrelevant if A) poverty were eliminated. B) capital were eliminated. C) scarcity were eliminated. D) we were dealing with a very simple, one-person economy. 2) 3) According to the theory of comparative advantage, specialization and free trade will benefit A) all trading parties, even when some are absolutely more efficient producers than others. B) only that trading party that has a comparative advantage in the production of all goods. C) only that trading party that has both an absolute advantage and a comparative advantage in the production of all goods. D) only that trading party that has an absolute advantage in the production of all goods. 3) Refer to the information provided in Table 2.1 below to answer the following questions. Table 2.1 Krystal Writing Poems 8 Writing TV Commercials 2 Mark 12 4 4) Refer to Table 2.1. For Krystal, the opportunity cost of writing one TV commercial is A) 1/4 of a poem. B) 2 poems. C) 4 poems. D) 6 poems. 4) 5) Refer to Table 2.1. For Mark, the opportunity cost of writing one TV commercial is A) 1/3 of a poem. B) 2 poems. C) 3 poems. D) 8 poems. 5) 6) Refer to Table 2.1. To maximize total production, A) Krystal should write poems and write TV commercials, but Mark should only write poems. B) Krystal and Mark should both split their time between writing poems and writing TV commercials. C) Mark should specialize in writing TV commercials, and Krystal should specialize in writing poems. D) Krystal should specialize in writing TV commercials, and Mark should specialize in writing poems. 6) 1 7) Refer to Table 2.1. For Mark, the opportunity cost of writing six TV commercials is ________ poems made. A) 2 B) 18 C) 24 D) an indeterminate number of 7) 8) Refer to Table 2.1. For Krystal, the opportunity cost of writing four TV commercials is ________ poems. A) 2 B) 8 C) 16 D) 32 8) 9) When two people trade, A) they know one of them will get the better of the other. B) both of them expect to be made worse off by the exchange. C) they are trying to help out each other. D) they both expect to be made better off by the exchange. 9) 10) In economics, investment always refers to A) an increase in per capita output. C) the act of buying stocks or bonds. 10) B) the creation of capital. D) increasing the quantity of labor. 11) The process of using resources to produce new capital is A) economic growth. B) investment. C) consumption. D) research and development. 11) 12) An example of forgoing present benefits in order to receive future benefits is A) consumption. B) production. C) growth. 12) D) saving. Refer to the information provided in Figure 2.1 below to answer the questions that follow. Figure 2.1 13) Refer to Figure 2.1. Macroland is currently operating at Point A. The best explanation for this is that A) the economy operates as an efficient market. B) the economy has very few resources. C) the economy has very poor technology. D) the economy's resources are being used inefficiently. 2 13) 14) Refer to Figure 2.1. Macroland's production possibility frontier is bowed out from the origin due to A) decreasing opportunity costs. B) unemployment. C) specialized resources. D) trade. 14) 15) Refer to Figure 2.1. The shape of Macroland's production possibility frontier shows A) increasing opportunity costs. B) decreasing opportunity costs. C) random opportunity costs. D) constant opportunity costs. 15) 16) If resources are combined efficiently in production, then the society A) is producing at the most-desirable point on the production possibility frontier. B) is producing at a point outside the production possibility frontier. C) is producing at a point on the production possibility frontier but not necessarily at the most-desirable point. D) is experiencing economic growth. 16) 17) If an economy begins to use its resources more efficiently, it will move A) from a point along its ppf to a point outside its ppf. B) closer to its ppf. C) from one point to another point along its ppf. D) farther away from its ppf. 17) Refer to the information provided in Figure 2.4 below to answer the questions that follow. Figure 2.4 18) According to Figure 2.4, the point where only motorcycles are produced is A) A. B) B. C) C. 18) D) E. 19) According to Figure 2.4, which point cannot be produced with the current state of technology? A) A B) B C) C D) F 19) 20) According to Figure 2.4, a decrease in unemployment may be represented by the movement from A) A to C. B) B to D. C) B to A. D) C to D. 20) 3 Refer to the information provided in Figure 2.5 below to answer the questions that follow. Figure 2.5 21) Refer to Figure 2.5. The economy is currently at Point A. The opportunity cost of moving from Point A to Point B is the A) 30 LCD televisions that must be forgone to produce 60 additional plasma televisions. B) 30 LCD televisions that must be forgone to produce 20 additional plasma televisions. C) 120 LCD televisions that must be forgone to produce 40 additional plasma televisions. D) 90 LCD televisions that must be forgone to produce 20 additional plasma televisions. 21) 22) Refer to Figure 2.5. The marginal rate of transformation in moving from Point A to Point B is A) -2/3. B) -1.5. C) -3. D) -30. 22) Refer to the information provided in Figure 2.6 below to answer the questions that follow. Figure 2.6 23) Refer to Figure 2.6. Economic growth is represented by a A) movement along ppf1. B) shift from ppf2 to ppf1. 1 2 C) shift from ppf to ppf . D) movement along ppf2 23) 24) An economy in which a central authority draws up a plan that establishes what will be produced and when, sets production goals, and makes rules for distribution is a A) free market economy. B) laissez-faire economy. C) command economy. D) public goods economy. 24) 4 25) Which of the following statements is NOT true for a command economy? A) The amount of a good supplied always equals the amount of the good demanded. B) The state decides how to distribute what is produced. C) Consumers have some choices concerning what they buy. D) The government decides what is produced. 25) 26) An economy in which individual people and firms pursue their own self-interest without any central direction or regulation is a(n) A) private-sector economy. B) command economy. C) invisible-hand economy. D) laissez-faire economy. 26) 27) In a laissez-faire economy, ________ what gets produced, how it is produced, and who gets it. A) consumers but not firms determine B) the behavior of buyers and sellers determines C) firms but not consumers determine D) the central government authority determines 27) 5 Answer Key Testname: STUDY GUIDE 2 F2014 1) C 2) C 3) A 4) C 5) C 6) C 7) B 8) C 9) D 10) B 11) B 12) D 13) D 14) C 15) A 16) C 17) B 18) D 19) D 20) D 21) B 22) B 23) C 24) C 25) A 26) D 27) B 6