102 Econ Section 4 Homework #1 Due: February 13
Multiple Choice Questions 1.To say that an individual possesses an absolute advantage in the production of software means that that individual A) has a lower opportunity cost of producing software. B) can produce more and/or higher quality software in a given amount of time. C) was the first to create the software. D) charges the lowest price for software. E) has the most venture capital.
Answer: B 2.If Scout has an absolute advantage over Dill, A) Scout has more money than Dill. B) the problem of scarcity applies to Dill but not to Scout. C) the problem of scarcity applies to Scout, but not to Dill. D) Scout can accomplish more in a given period of time than can Dill. E) Both A and D are correct.
Answer: D 3.If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be the case that A) Leslie has a comparative advantage. B) Eva has an absolute advantage. C) Leslie has an absolute advantage. D) Eva has a comparative advantage. E) Leslie has both comparative and absolute advantage.
Answer: C 4.Having a comparative advantage in a particular task means that A) you are better at it than other people. B) you give up more to accomplish that task than do others.
C) you give up less to accomplish that task than do others D) you have specialized in that task, while others have not. E) you prefer that task over other tasks.
Answer: C 5.Larry has a comparative advantage in writing a term paper if he A) can write a paper faster than the other students in class. B) has an absolute advantage in writing a term paper. C) always earns an A on his papers. D) has a low opportunity cost for writing a term paper. E) All of the above must be true for Larry to have a comparative advantage.
Answer: D 6.Which of the following statements is always true? A) Comparative advantage implies absolute advantage. B) Absolute advantage implies comparative advantage. C) Comparative advantage does not require absolute advantage. D) Absolute advantage requires comparative advantage. E) Comparative advantage requires absolute advantage.
Answer: C 7.If Jane can produce 3 pairs of shoes hourly, while Bob can produce 2, then one can infer that the __________ advantage belongs to __________. A) absolute; Bob D) comparative; both of them B) comparative; Jane E) insufficient information to say C) comparative; Bob
Answer: E Use the following to answer questions 8-15:
Jenny Craig
Shoes Per Hour 3 4
Pants Per Hour 2 3
8.According to the data, Jenny has an absolute advantage in A) the production of shoes. B) neither shoe nor pants production. C) the production of pants.
D) both shoe and pants production. E) pants and possibly shoe production.
Answer: B 9.Craig possesses an absolute advantage in A) the production of shoes. B) neither shoe nor pants production. C) the production of pants.
D) both shoe and pants production. E) pants and possibly shoe production.
Answer: D 10.Jenny's opportunity cost of producing an extra pair of pants is A) 2/3 pair of shoes. D) 2 pairs of shoes. B) 1 pair of shoes. E) 2.5 pairs of shoes. C) 1.5 pairs of shoes.
Answer: C 11.Jenny's opportunity cost of producing an extra pair of shoes is A) .33 pairs of pants. D) 1 pair of pants. B) .50 pairs of pants. E) 1.5 pairs of pants. C) .67 pairs of pants.
Answer: C 12.Craig's opportunity cost of producing an extra pair of pants is A) .75 pair of shoes. D) 1.30 pairs of shoes.
B) 1 pair of shoes. C) 1.25 pairs of shoes.
E) 1.33 pairs of shoes.
Answer: E 13.Craig's opportunity cost of producing an extra pair of shoes is A) .75 pairs of pants. D) 1.25 pairs of pants. B) .90 pairs of pants. E) 1.33 pairs of pants. C) 1 pair of pants.
Answer: A 14.The comparative advantage for shoes belongs to __________ and the comparative advantage for pants belongs to __________. A) Craig; Jenny D) Jenny; Jenny B) Craig; Craig E) insufficient information to say C) Jenny; Craig
Answer: C 15.Based on their comparative advantages, Craig should specialize in producing __________ while Jenny should specialize in producing __________. A) shoes; pants D) pants; shoes B) both; neither E) insufficient information to say C) neither; both
Answer: D Use the following to answer questions 16-21:
Amy Matt
Oil change / day 20 5
Rotate tires / day 10 15
16.According to the data, Amy has an absolute advantage in A) rotating tires. B) neither rotating tires nor changing oil. C) changing oil.
D) both rotating tires and changing oil.. E) not enough information is given.
Answer: C 17.According to the data, Matt has an absolute advantage in A) rotating tires. B) neither rotating tires nor changing oil. C) changing oil.
D) both rotating tires and changing oil. E) not enough information is given.
Answer: A 18.Amy's opportunity cost of one more oil change is rotating _____ tires. A) 10 B) 2 C) D) 1/10 E) 2/3
Answer: C 19.Matt's opportunity cost of one more tire rotation is ______ oil change(s). A) 15 B) 5 C) 3 D) 1/3 E) 1/5
Answer: D 20.The comparative advantage for oil changes belongs to __________ and the comparative advantage for rotating tires belongs to __________. A) Amy, Amy B) Matt, Matt C) Amy, Matt D) Matt, Amy E) Amy, Both
Answer: C 21.Based on their comparative advantages, Matt should specialize in _______ while Amy should specialize in _______ A) oil changes; rotating tires. D) both; neither. B) rotating tires; oil changes. E) rotating tires; rotating tires. C) neither; both.
Answer: B 22.Application of the Principle of Comparative Advantage leads to A) greater specialization of labor and other factors of production. B) lesser specialization of labor and other factors of production. C) societies without any specialization of labor. D) lower total output. E) misallocation of resources.
Answer: A 23.Failure to apply the principle of comparative advantage will result in A) greater total output. D) more trade between individuals. B) a greater variety of goods and services. E) smaller total output. C) greater total income.
Answer: E 24.In general, individuals and nations should specialize in producing those goods for which they_________ other individuals or nations. A) can produce more quickly than D) have the highest opportunity cost compared to B) can produce less quickly than E) have an average opportunity cost compared to C) have the lowest opportunity cost compared to
Answer: C 25.When each individual concentrates on performing the tasks and producing the goods for which he or she has the lowest opportunity cost, they are producing in accordance with the principle of:
A) cost-benefit. B) not all costs and benefits matter equally. C) comparative advantage.
D) scarcity E) low-hanging-fruit.
Answer: C 26.For individuals, comparative advantage springs from A) a combination of inborn talent, practice, and economic factors. B) a combination of inborn talent, education exclusively. C) a combination of and training and experience D) non-economic factors exclusively. E) a combination of inborn talent, education, training, and experience.
Answer: E 27.The United States generally has a comparative advantage in the development of technology because of A) larger amounts of natural resources. B) higher than world average IQ's of the population. C) a high concentration of the best research universities. D) tax incentives. E) the existence of patent law, which no other country provides.
Answer: C 28.Once a country has acquired a comparative advantage A) it cannot lose it, because comparative advantage comes from natural resources and climate. B) it will keep it as long as it continues to specialize. C) It will keep it only if it also has an absolute advantage. D) it might lose it if trade restrictions are established. E) It might lose it if other countries become better at producing the same product.
Answer: E 29.The production possibilities curve shows A) the relationship between inputs and output. B) the minimum production of one good for every possible production level of the other good. C) how increasing the inputs used for one good increases the production of the other good. D) the maximum production of one good for every possible production level of the other good. E) how increasing the production of one good allows production of the other good to also rise.
Answer: D 30.The production possibilities curve is A) the boundary that divides all production combinations into efficient and inefficient ones. B) a graph illustrating the production combinations society would like to choose. C) the boundary that divides all production combinations into attainable ones and unattainable ones. D) a convex curve illustrating production tradeoffs. E) the boundary that divides all production combinations into good ones and bad ones.
Answer: C Use the following to answer questions 31-33: This graph describes the production possibilities on the island of Genovia:
Cars 1,000
50,000 Tons of Agricultural Products
31.The opportunity cost of producing one car in Genovia is A) 5,000 tons less of agricultural products. B) 500 tons less of agricultural products C) 5 tons less of agricultural products D) 50,000 tons less of agricultural products E) 50 tons less of agricultural products.
Answer: E 32.The opportunity cost of producing one ton of agricultural products in Genovia is A) 1,000 fewer cars. D) one-fiftieth fewer car. B) 1 fewer car E) 5 fewer cars. C) one-fifth fewer car
Answer: D 33.Assuming efficient production, If 500 cars are produced in Genovia A) 50,000 tons of agricultural products are being produced. B) 25,000 tons of agricultural products are being produced. C) 45,000 tons of agricultural products are being produced D) 40,000 tons of agricultural products are being produced E) None of the above is correct, because it is inefficient to produce any cars in Genovia.
Answer: B 34.The slope of the production possibilities curve must be A) constant. B) positive. C) decreasing. D) increasing. E) negative.
Answer: E 35.The slope of any production possibilities curve is __________ because __________. A) negative; production of one of the two goods is always insufficient B) negative; to produce more of one good means less production of the other C) constant; the tradeoff in production never changes D) positive; to produce more of one good means more production of the other E) positive; to produce more of one good means less production of the other
Answer: B Use the following to answer questions 36-42:
Becky's Clog's production per hour
4
W
3
2
X
Y
U
1
Z
t
V
0
5
10
15
20
Becky's Sandals production per hour
36.Becky's maximum production of clogs per hour is represented by point A) u. B) t. C) v. D) y. E) w.
Answer: E 37.Becky's maximum production of sandals per hour is represented by point A) u. B) t. C) v. D) z. E) w.
Answer: C 38.Point u is a(n) __________ point in relation to the production possibilities curve. A) attainable B) efficient C) unattainable D) inefficient E) inefficient and attainable
Answer: C 39.Of the labeled points, ______________ are attainable A) only t and u B) only x, y, and z C) only w, x, y, z, and t
D) only w, x, y, z, v, and t E) only w, x, y, z, v, and u
Answer: D 40.Of the labeled points, ______________ are efficient. A) only t and u B) only x, y, and z C) only w, x, y, z, and t
D) only w, x, y, z, v, and t E) only w, x, y, z, and v
Answer: E 41.Point t is __________ while point u is __________. A) unattainable; inefficient B) inefficient; unattainable C) inefficient; efficient
D) efficient; inefficient E) efficient; unattainable
Answer: B 42.Point y ___________________________ Point v A) is more efficient than over B) is less efficient than C) is equally efficient as
D) illustrates a comparative advantage E) illustrates an absolute advantage over
Answer: C Use the following to answer questions 43-48: You are the Minister of Trade for a small island country in the South Pacific with the following annual production possibilities curve:
Coconuts 500
1500 Fish
You are negotiating a deal with a neighboring island that has the following annual PPC:
Coconuts 500
2500 Fish
43.As soon as you see the other island's PPC you realize A) there will be no trade because the other island has the same comparative advantage as yours. B) there will be no trade because there is no difference in your ability to harvest coconuts. C) there will be no trade because the other island has an absolute advantage. D) gains from trade will be possible because the opportunity cost of fishing is too high on the other island. E) your island will have to specialize in coconuts if it wants to gain from trade.
Answer: E
44.When the other island's delegate offers to give you 1,000 fish in exchange for 500 coconuts, you A) accept because you will then have a total of 2,500 fish. B) refuse because your island cannot produce enough coconuts to trade. C) refuse because the trade would leave you at a level of consumption that is less than what you could produce on your own. D) accept because the trade will leave you at a level consumption of that is more than what you could produce on your own. E) counter, offering to give them 400 coconuts in exchange for 1,000 fish.
Answer: C 45.You have arrived with 300 coconuts to trade. The minimum number of fish you would be willing to accept in exchange for those coconuts A) depends on whether the islanders prefer fish to coconuts. B) is 1500 fish, because that's how many you can catch without trade. C) is 1200 fish, because that is just enough to offset the opportunity cost of harvesting the coconuts. D) is 301 fish, because anything better than a one-for-one trade benefits your island. E) is 901 fish, because that is just a little more than the opportunity cost of harvesting the coconuts.
Answer: E 46.If you offer to give the other island 400 coconuts in exchange for 1500 fish, A) they will refuse your offer because it makes them worse off than producing on their own. B) they will accept your offer because it keeps them on their original PPC, and so is efficient. C) they will accept your offer because it gives them 800 coconuts, which is more than they can make on their own. D) they will accept your offer because it allows them to consume a combination of fish and coconuts that would be unattainable on their own. E) they will accept your offer because they feel sorry for the poor citizens of your island.
Answer: D 47.Both countries specialize exclusively in the product for which they have a comparative advantage. You have agreed to sell them 350 coconuts in exchange for 1300 fish. After the trade your country has a total of _____ coconuts and _____fish. A) 150; 2800 B) 500; 1300 C) 150; 1300 D) 500; 1500 E) None of the above
Answer: C
48.Both countries specialize exclusively in the product for which they have a comparative advantage. You have agreed to sell them 350 coconuts in exchange for 1300 fish. After the trade the other country has a total of _____ coconuts and _____fish. A) 850; 1200 B) 500; 1200 C) 350; 1500 D) 350; 1200 E) None of the above
Answer: D Use the following to answer questions 49-50:
Hours studying per day 9 8
8
9
Hours at work per day
49.The diagram shows Sven's Production Possibilities for one day. For Sven, the opportunity cost of spending one more hour studying A) is diminishing with each additional hour. B) is increasing with each additional hour. C) is exactly one hour of paid work. D) is the marginal benefit from studying. E) depends on whether Sven looks at the dashed line or the solid line.
Answer: C 50.Sven could move from the bold PPC to the dashed PPC by A) finding a job that paid a higher wage. B) studying fewer hours but more effectively per hour. C) devoting fewer hours to sleeping D) spending more time on leisure activities. E) spending more time on the activity for which he has a comparative advantage.
Answer: C 51.In a market, the demanders are the _______ and the suppliers are the ______. A) bosses; workers D) sellers; buyers
B) poor; wealthy C) buyers; sellers
E) wholesalers; retailers
Answer: C 52."Holding all other relevant factors constant, consumers will purchase more of a good as its price falls." This statement reflects the behavior underlying A) the demand curve. D) a decrease in the demand curve. B) an increase in demand. E) the production possibilities curve. C) the supply curve.
Answer: A 52.The demand curve illustrates the fact that consumers A) tend to purchase more of a good as its price rises. B) purchase name brand products more frequently than generic products. C) tend to purchase more of a good as its price falls. D) purchase more of a good as their incomes fall. E) purchase more of a good as their incomes rise.
Answer: C 53.Which of the following is NOT true of a demand curve? A) It has negative slope. B) It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. C) It relates the price of an item to the quantity demanded of that item. D) It shows how an increase in price leads to an increase in quantity demanded of a good. E) It shows that consumers tend to purchase less of a good as its price rises.
Answer: D 54.The shape, slope, and position of a demand curve is determined by A) competition in the marketplace. D) by (a), (b), and (c). B) consumers' preferences. E) by (b) and (c). C) consumers' wealth.
Answer: E 55.A demand curve is ________ sloping because __________________. A) downward; of increasing opportunity costs. B) upward; people prefer to purchase high quality consumer goods. C) downward; reservation prices tend to fall over time. D) upward; people are upwardly mobile. E) downward; fewer people are willing to buy the item at higher prices.
Answer: E 56.As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for coffee decreases. This is called A) the income effect. D) a shift in the supply curve. B) the change in equilibrium. E) a shift in the demand curve. C) the substitution effect.
Answer: C 57.You can spend $5 for lunch and you would like to have two Double Cheeseburgers. When you get to the restaurant you, find out the price for Double Cheeseburger has increased from $2.50 to $2.99. You decide to have two single Cheeseburgers for lunch. This is best described as a(n) A) substitution effect. D) seller's reservation price. B) income effect. E) none of the above. C) buyer's reservation price.
Answer: B 58.The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n) A) substitution effect of a price change. D) increase in buyer's reservation price. B) income effect of a price change. E) shift in the supply curve. C) decrease in buyer's reservation price.
Answer: A 59.Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping. A) goods; not B) less; downward C) more; downward D) less; upward E) more; upward
Answer: E 60.The supply curve illustrates that firms A) increase the supply of a good when its price rises.
B) C) D) E)
increase the quantity supplied of a good when its price rises. decrease the quantity supplied of a good when input prices fall. increase the quantity supplied of a good when input prices rise. decrease the quantity supplied to earn higher profits.
Answer: B 61.As the price of a good rises, A) firms earn larger profits. B) more firms can cover their opportunity costs of producing the good. C) firms find they can raise price by even more. D) consumers become more willing to purchase the good. E) government regulation becomes more justified.
Answer: B 62.Supply curves are generally _______ sloping because _______________ A) downward; more consumers will buy the good if the price falls. B) upward; of the principle of increasing opportunity costs C) downward; it is less expensive to mass produce goods D) upward; of inflation E) downward; prices fall when firms specialize
Answer: B 63.A market comprised of a downward sloping demand curve that intersects an upward sloping supply curve is said to be stable because A) price will never change. B) quantity will never change. C) demand will never change. D) supply will never change. E) at any price other than equilibrium, forces in the market move price towards the equilibrium.
Answer: E 64.Which of the following is NOT a characteristic of a market in equilibrium? A) Quantity demanded equals quantity supplied. B) Excess supply is zero. C) All consumers are able to purchase as much as they wish. D) Excess demand is zero. E) The equilibrium price is stable, i.e., there is no pressure for it to change.
Answer: C 65.A market in disequilibrium would feature A) a stable price. B) consumers able to purchase all they wish at the market price. C) a stable quantity. D) either excess supply or excess demand. E) firms able to sell all they wish at the market price.
Answer: D 66.The equilibrium price and quantity of any good or service is established by A) only demanders. D) both demanders and suppliers. B) only suppliers. E) custom and tradition. C) government regulations.
Answer: D Use the following to answer questions 67-72: This graph shows the original market for plywood in a coastal Florida town.
Price of Plywood $70 $60 $50 $40 $30 $20 $10 100 200 300 B 400 500 600 Quantity of Plywood A
67.In the graph above, A) line A is the demand curve and line B is the supply curve. B) line B is the demand curve and line A is the equilibrium curve. C) line A is the supply curve and line B is the equilibrium curve. D) line B is the demand curve and line A is the supply curve. E) line B is the demand curve and line A is the price control.
Answer: D 68.As drawn, the equilibrium price is _____ and the equilibrium quantity is _____. A) $20; 300 B) $35; 300 C) $50 ; 400 D) $60; 200 E) $40; 200
Answer: B 69.A hurricane has been spotted headed directly toward the town in which this market is located. The residents know that the best way to protect themselves is to board up all of their windows. You would expect the curve(s) labeled _____ to shift _______ A) A; rightward B) B; rightward C) A and B; rightward D) A; leftward E) B; leftward
Answer: B 70.A hurricane has been spotted headed directly toward the town in which this market is located. The residents know that the best way to protect themselves is to board up all of their windows. You would expect A) the price of plywood to rise. B) the supply of plywood to fall. C) the price of plywood to remain constant, but the quantity demanded to increase. D) the price of plywood to remain constant, but demand to increase. E) the price of plywood to remain constant, but the quantity supplied to increase.
Answer: A 71.The Governor of Florida would like to alleviate the plywood shortage in the wake of the hurricane. What should he do? A) Impose price controls to prevent gouging. B) Require all plywood suppliers to maintain their pre-hurricane price and inventory. C) Allow prices to fall to the new post-hurricane equilibrium D) Allow prices to rise to the new post-hurricane equilibrium E) None of these would help.
Answer: D
72.The Governor of Florida has decided to impose price controls in the wake of the hurricane. What is the most likely outcome? A) People will be able to obtain the plywood that they need in order to rebuild. B) Plywood suppliers from out of state will increase deliveries to Florida to take advantage of the strong demand. C) There will be persistent excess demand for plywood. D) Quantity supplied will increase to meet new demand. E) Both B and D.
Answer: C 73.A movement along a demand curve from one price-quantity combination to another is called A) a change in quantity demanded. D) a change in quantity supplied. B) a shift in the demand curve. E) a change in supply. C) a change in demand.
Answer: A 74.If the price of computers increases and the demand for monitors decreases, then A) computers and monitors are complements. B) computers are a normal good and monitors are inferior. C) computers and monitors are substitutes. D) computers are an inferior good and monitors are normal. E) none of the above is true.
Answer: A 75."As the price of personal computers continues to fall, demand increases." This headline is inaccurate because A) a change in the price of personal computers shifts the demand curve. B) a change in the price of personal computers shifts the supply curve. C) the statement is backwards: increased demand leads to lower prices. D) falling prices for personal computers increases quantity demanded, not demand. E) falling prices for personal computers increases quantity supplied.
Answer: D 76.If the demand for a good decreases as income decreases, it is a(n) A) complementary good. D) substitute good. B) normal good. E) consumer good. C) inferior good.
Answer: B 77.In the market for coffee, for some consumers A) tea is a substitute. B) non-dairy creamer is a substitute. C) cola beverages are complements.
D) coffee mugs are substitutes. E) espresso is a complement
Answer: A 78.What might cause a demand function to shift to the right? A) An increase in the price of a substitute. B) An increase in the product's own price. C) An increase in the price of a complement. D) A decrease in the price of a substitute. E) An expectation that the product's own price will fall in the future.
Answer: A 79.If pizzas are normal good, then a decrease in the price of pizza will cause a(n) A) increase in demand. D) decrease in supply. B) increase in quantity demanded. E) decrease in the number of consumers. C) decrease in quantity demanded.
Answer: B 80.Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect A) the demand for gasoline to decrease. B) the demand for sport utility vehicles to decrease. C) the demand for sport utility vehicles to increase. D) the quantity of gasoline demanded to increase. E) the quantity of sport utility vehicles demanded to decrease.
Answer: B