ECON 1 Study Guide - Midterm Guide: Capital Accumulation, Opportunity Cost, Indifference Curve
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The opportunity cost of one more slice of pizza in terms of sodas is the
the total number of pizza slices that we have divided by the total number of sodas that we have. |
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the number of sodas we have to give up to get one extra pizza slice. |
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the number of pizza slices we have to give up to get one extra soda. |
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the total number of sodas that we have divided by the total number of pizza slices that we have. |
1 point
QUESTION 2
A production possibilities frontier shows
how money can be allocated among two kinds of goods. |
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the limits to the future growth of a nation. |
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the various combinations of output a nation can produce at a certain time, given its available resources and technology. |
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that if the price of one good decreases, the price of the other has to increase. |
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QUESTION 3
When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost
remains constant. |
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might increase, decrease, or remain constant depending on how much people value the additional units of the good. |
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increases. |
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decreases. |
1 point
QUESTION 4
When all of the available factors of production are being efficiently employed, the
the economy is producing at a point within its PPF. |
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PPF disappears. |
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the economy is producing at a point beyond its PPF. |
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the economy is producing at a point on its PPF. |
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QUESTION 5
If a nation devotes a larger share of its current production to consumer goods, then
its PPF will shift inward. |
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its economic growth will slow down. |
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its PPF will shift outward. |
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some productive factors will become unemployed. |
1 point
QUESTION 6
A point on the production possibilities frontier reflects an
the attainable point with full employment of all resources. |
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attainable point without full employment of all resources. |
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unattainable point without full employment of all resources. |
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the unattainable point with full employment of all resources. |
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QUESTION 7
When drawing a production possibilities frontier, which of the following is held constant?
the available factors of production and the state of technology |
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the amount of money in the economy |
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the prices of goods and services |
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the quantity of the goods and services that are produced |
1 point
QUESTION 8
As we move along the production possibilities frontier,
more of both goods can be produced. |
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the possibilities of tradeoffs diminish. |
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a tradeoff is not possible because nations need all goods. |
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the production of one good increases as the production of the other good decreases. |
1 point
QUESTION 9
Which of the following is an assumption used when drawing a production possibilities frontier?
i.Human wants and desires are limited to what is available.
ii. Only two goods are considered.
iii. The level of technology is fixed and unchanging.
I and iii |
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ii only |
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I, ii, and iii |
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I only |
1 point
QUESTION 10
To achieve gains from trade, a country
needs to have an absolute advantage in the production of all goods. |
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specializes in producing a good in which it has a lower opportunity cost. |
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must produce at a point beyond its PPF. |
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should produce at the midpoint of its PPF. |
1 point
QUESTION 11
Relative to Al, Joe has ________ if Joe can produce a good at a lower opportunity cost than Al.
a comparative advantage |
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more production efficiency |
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a marginal benefit |
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a comparative benefit |
1 point
QUESTION 12
Does economic growth depend upon which of the following?
i.Improving the quality of labor
ii. Technological advancement
iii. Increasing the amount of capital
iii only |
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ii only |
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I only |
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I, ii, and iii |
1 point
QUESTION 13
In one hour John can produce 20 loaves of bread or 18 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true?
John has a comparative advantage in producing cakes. |
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Phyllis has an absolute advantage in both goods. |
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Phyllis has a comparative advantage in producing cakes. |
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John has an absolute advantage in both goods. |
1 point
QUESTION 14
As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?
It decreases. |
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It might increase, decrease, or remain constant depending on how much people value the additional units of the good. |
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It remains constant. |
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It increases. |
1 point
QUESTION 15
The production possibilities frontier illustrates the
goods and services that people want. |
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maximum combinations of goods and services that can be produced. |
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resources the economy possesses, but not it is the level of technology. |
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limits to people's wants. |
1 point
QUESTION 16
The United States produced approximately ________ worth of goods and services in 2007.
$14 billion |
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$14 trillion |
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$140 billion |
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$140 trillion |
1 point
QUESTION 17
The fact of increasing opportunity cost when moving on the PPF means that
to increase the production of one product requires smaller and smaller sacrifices of the other good. |
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to decrease the production of one product requires smaller and smaller sacrifices of the other good. |
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to increase the production of one product requires larger and larger sacrifices of the other good. |
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when the government forces a movement from one point on the PPF to another point, no production is lost. |
1 point
QUESTION 18
Other things equal, if India devotes more resources to educate its population than China,
China will grow faster than India. |
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India will be able to eliminate scarcity faster than China. |
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India will be able to eliminate opportunity cost faster than China. |
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India will grow faster than China. |
1 point
QUESTION 19
For Ireland to grow more potatoes, wool production must decrease. This situation is an example of
zero opportunity cost. |
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producing at a point that lies beyond the PPF. |
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opportunity benefit. |
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a tradeoff. |
1 point
QUESTION 20
Moving from one point to another on a production possibilities frontier implies
increasing the production of both goods. |
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increasing the production of one good and decreasing the production of another. |
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holding the production levels of both goods constant. |
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decreasing the production of both goods. |
1 point
QUESTION 21
The United States is one of the richest nations in the world,
but it can still benefit from specialization and trade. |
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so does not need to trade with poor nations to achieve any gains from trade. |
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so might not have a comparative advantage in producing any goods. |
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so it must have a comparative advantage in the production of all goods. |
1 point
QUESTION 22
"Comparative advantage" is defined as a situation in which one person can produce
more of all goods than another person. |
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a good for a lower opportunity cost than another person. |
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a good for a lower dollar cost than another person. |
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more of a good than another person. |
1 point
QUESTION 23
The idea of increasing opportunity cost is reflected in the
the linear shape of the production possibilities frontier. |
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bowed in the shape of the production possibilities frontier. |
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bowed out the shape of the production possibilities frontier. |
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the positive slope of the production possibilities frontier. |
1 point
QUESTION 24
Suppose that after specializing according to comparative advantage, a country is trading with another nation that also specializes according to its comparative advantage. Which of the following statements are true for the first country?
i)It enjoys gains from trade.
ii)It must have an absolute advantage in the production of the good it produces.
iii)It is producing at a point beyond its PPF.
I only. |
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I and ii. |
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I and iii. |
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ii and iii. |
1 point
QUESTION 25
If society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will
shift rightward. |
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not shift because the society moves from one point on the frontier to a point inside the frontier. |
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not shift because the society moves from a point inside the frontier to a point on the frontier. |
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shift leftward. |
1 point
How much less of one output can be produced if more of another output is produced. What combination of outputs is best. How much output can be produced from a given level of inputs. |
debt owed by one government to another government. government debt owed to citizens. government debt owed to foreigners. |
never be run since they crowd out investment in the short run. be run on a temporary basis whenever the economy is below potential output. be run on a permanent basis since they can always be financed over and over again. |
passive deficits would not exist. structural deficits would increase. structural deficits would not exist. |
surplus in that year must be $10 billion. deficit in that year decreased by $10 billion. surplus in that year increased by $10 billion. |
Reducing the age at which one is eligible to receive payments. Reducing Social Security retirement benefits. Introducing means testing. |
affected by social but not political forces. affected by political but not social forces. affected by both political and social forces. |
affect the price mechanism, but not the legal system. affect the price mechanism through scarcity. do not affect the price mechanism. |
False |
Government ownership of the means of production. Distribution according to need. Tradition determines the what, how, and for whom decisions. |
if its opportunity cost of producing corn is the same as the opportunity cost in other countries. if its opportunity cost of producing corn is lower than the opportunity cost in other countries. regardless of the opportunity cost in other countries. |
tuition paid for the year. value of the next-best activity forgone by attending college. total money outlays associated with attending college. |
the economy is beneath potential income. inflation is not fully anticipated. inflation is fully anticipated. |
The Group of Eight. EU. WTO. |
do not need to be enforced in market economies. must be established before a socialist economy can function properly. ensure an equitable distribution of income in market economies. |
False |
does not change, but debt increases. increases. does not change and neither does the debt. |
the benefit of the activity you would have chosen if you had not taken the course. the benefit you get from taking this course. the cost of the activity you would have chosen if you had not taken the course. |
avoidance of double taxation. ease of formation. greater ability to obtain funds. |
the art of economics. normative economics. it is just as easy in all of the above |
1. Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers?
$0.60 | ||
$0.40 | ||
$0.75 | ||
$0.67 |
2. In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by:
a tax of $5 in Market X and a subsidy of $10 in Market Y. | ||
subsidizing both markets. | ||
taxing Market Y and subsidizing Market X. | ||
taxing both markets. |
3.Economic theory suggests that a natural monopoly should be:
eliminated whenever it arises. | ||
regulated to take advantage of economies of scale. | ||
left alone to operate with excess capacity. | ||
taken over by the government. |
4.When the size of the production is the most efficient:
total cost is at the minimum. | ||
average cost is at the minimum. | ||
marginal cost is at the minimum. | ||
fixed cost is at the minimum. |
5.A firm should exit the industry if which of the following conditions apply?
TR > TC | ||
P < AC | ||
Lifetime expected profit is positive. | ||
Prices are low now but expected to rise. |
6.Figure: Costs
Reference: Ref 11-6
(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:
$75. | ||
$300. | ||
$225. | ||
$0, because P = MC at P = $20. |
7.When external benefits are present, the market price is ________, however when external costs are present, the market price is ________.
too low; too high | ||
equal to the efficient price; too low | ||
too high; too low | ||
equal to the efficient price; too high |
8.Which of the following statements is TRUE?
I. The EPA's tradeable allowances program for sulfur dioxide establishes property rights to pollute and helps reduce transaction costs by distributing allowances, maintaining databases, and monitoring emissions.
II. One criticism of tradeable allowances is that they prohibit non-businesses and environmental groups from purchasing the allowances.
III. The tradeable allowances for sulfur dioxide have performed poorly because electricity output has increased, causing a rise in sulfur dioxide levels.
I only | ||
II and III only | ||
I, II, and III | ||
III only |
9.Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:
various options. | ||
more quantity. | ||
more discount. | ||
higher quality. |
10.Figure: Government Price Controls
Reference: Ref 8-3
(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:
a shortage of 15 units. | ||
a surplus of 15 units. | ||
a supply of 20 units. | ||
no effect on the market. |
11.In which of these instances does price function as a signal in the market?
Suppliers invest more in exploration when the price of oil increases. | ||
Consumers complain of price gouging as the price of oil skyrockets. | ||
Government imposes price controls on the skyrocketing price of oil. | ||
All of the answers are correct. |
12.Ethanol and sugar are both made from sugar cane, and ethanol can be used as substitute fuel for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.
demand for; decrease; decrease | ||
supply of; increase; increase | ||
supply of; decrease; increase | ||
demand for; increase; increase |
13.Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?
Cotton growers in California don't pay payroll taxes. | ||
The water used to grow California cotton is highly subsidized by the government. | ||
Cotton growers in California are mostly operated as nonprofit enterprises. | ||
The water used to grow California cotton is high in mineral contents, making for a bigger cotton yield. |
14.Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:
the equilibrium price will fall to $7.50. | ||
competition among buyers will increase the current price. | ||
the current price will fall below $7.50 as sellers compete for market share. | ||
There is not enough information provided to answer the question. |
15.Which of the following would increase the demand for beef?
lower pork prices | ||
higher consumer income | ||
higher prices of feed grains used to feed beef cattle | ||
an increase in the price of beef |
16.A change in quantity supplied is reflected by a movement along the same supply curve while a change in supply refers to a shift in the entire supply curve.
True
False
17.Table: Production in the United States and Germany
Labor units required to produce: |
One Clock | One Sofa |
United States | 2 | 5 | |
Germany | 3 | 9 |
Reference: Ref 2-8
(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is _________, and the opportunity cost of producing one sofa in Germany is _______.
two clocks; three clocks | ||
10 clocks; 27 clocks | ||
0.4 clocks; 0.33 clocks | ||
2.5 clocks; three clocks |
18.Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.
This trade makes Ella worse off by $200. | ||
This trade makes Mark better off by $200. | ||
Mark must value Ella's guitar for at least $1,000, and Ella must value Mark's drum set for at least $800. | ||
This trade creates value by moving the guitar and drum set to people who value them more. |