ECON2_1 - MULTIPLE CHOICE. Choose the one alternative that...

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Unformatted text preview: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Allocative efficiency is achieved when 1) _______ A) firms produce goods and services at the lowest cost. B) there are no shortages or surpluses in the market. C) goods and services are fairly distributed among consumers in an economy. D) firms produce the goods and services that consumers value most. 2) _______ 2) Consider the following economic agents: a. the government b. consumers c. producers Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy? A) producers B) consumers C) the government D) the government, consumers and producers E) consumers and producers 3) The extra cost associated with undertaking an activity is called A) net loss. B) foregone cost. C) marginal cost. D) opportunity cost. 4) In economics, the term equity means A) economic benefits are distributed fairly. B) everyone has an equal standard of living. C) only elected officials have high standards of living. D) the hardest working individuals consume all they want. 5) The economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage: a. The minimum wage law causes unemployment. b. A minimum wage law benefits some groups and hurts others. c. In some cities such as San Francisco and New York, it would be impossible for low-skilled workers to live in the city without minimum wage laws. d. The gains to winners of a minimum wage law should be valued more highly than the losses to losers because the latter primarily comprises businesses. Which of the consequences above are positive statements and which are normative statements? A) A and c are positive statements, b and d are normative statements B) A and b are positive statements, c and d are normative statement. C) Only a is a positive statement, b, c and d are normative statements. D) A, b, and c are positive statements and d is a normative statement. 3) _______ 4) _______ 5) _______ 6) In the first six months of 2003, branches of Commerce Bank in New York City were robbed 14 times. The New York City Police recommended steps the bank could take to deter robberies, including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice. According to a deputy commissioner of police, "Commerce does very little of what we recommend. They've told our detectives they have no interest in ever putting in the barriers." It would seem that Commerce bank would have a strong incentive to install "bandit barriers" to deter robberies. Why wouldn't they do it? A) The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have no interest in ever putting in the barriers. B) The banks would rather delay installation of any theft deterring equipment in anticipation of new lower cost innovations in the security devices market. C) The banks probably resent any interference from the police department. D) The banks are concerned that bandit barriers would send the wrong message to customers -- that the bank is unsafe. 7) Which of the following is a positive economic statement? A) People should not buy SUVs. B) Scarcity necessitates that people make trade-offs. C) The government should mandate electric automobiles. D) Foreign workers should not be allowed to work for lower wages than the citizens of a country. 8) How are the fundamental economic questions answered in a market economy? A) The government alone decides the answers. B) Large corporations alone decide the answers. C) Individuals, firms, and the government interact in markets to decide the answers to these questions. D) Households and firms interact in markets to decide the answers to these questions. 9) Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it robberies than to install is less costly to allow some bank expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives? A) a only. B) b only. C) c only. D) a and b. 6) _______ 7) _______ 8) _______ 9) _______ E) a, b, and c. Figure 2-1 10) Refer to Figure 2-1. Point C is A) unattainable with current resources. B) technically efficient. C) is the equilibrium output combination. D) inefficient in that not all resources are being used. Figure 2-2 10) _____ _ Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. 11) Refer to Figure 2-2. What is the opportunity cost of one pound of meat? 11) _____ _ A) B) 16 pounds of vegetables pounds of vegetables C) 1.6 pounds of vegetables Figure 2-4 D) pounds of vegetables Figure 2-4 shows various points on three different production possibilities frontiers for a nation. 12) Refer to Figure 2-4. Consider the following events: a. a decrease in the unemployment rate b. general technological advancement c. an increase in consumer wealth Which of the events listed above could cause a movement from V to W ? A) a, b, and c. B) b and c only C) a only D) a and b only Figure 2-7 12) _____ _ Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. 13) Refer to Figure 2-7. If the two countries have the same amount of resources and the same technological knowledge, which country has an absolute advantage in the production of cotton? A) Indonesia B) Pakistan C) They have the same advantage. D) cannot be determined. Figure 2-9 13) _____ _ 14) Refer to Figure 2-9. The segment of the circular flow diagram in the 14) _____ _ Figure shows the flow of goods and services from market C to economic agents A. What is market C and who are economic agents A? A) C = factor markets; A = households B) C = product markets; A = households C) C= product markets; A = firms D) C = factor markets; A = firms TRUE/FALSE. Write T if the statement is true and F if the statement is false. _ 15) Examining the conditions that could lead to a recession in an economy is 15) _____ an example of macroeconomics topic. 16) If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 16) _____ _ suede jackets, then the difference of $120 is the marginal cost of producing the 4th suede jacket. 17) _____ _ 17) The basis for trade is comparative advantage, not absolute advantage. 18) If Blake can pick more cherries in one hour than Cody, then Blake has a 18) _____ _ comparative advantage in cherry picking. SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 19) _____________ 19) Define allocative efficiency. Explain the significance of this concept in economics? 20) Suppose in the United States, the opportunity cost of producing 20) _____________ a motor engine is 4 auto bodies. In Canada, the opportunity cost of producing a motor engine is 2 auto bodies. a. What is the opportunity cost of producing an auto body for the United States? b. What is the opportunity cost of producing an auto body for Canada? c. Which country has a comparative advantage in the production of auto bodies? d. Which country has a comparative advantage in the production of motor engines? 1) D 2) D 3) C 4) A 5) B 6) A 7) B 8) D 9) E 10) A 11) D 12) C 13) A 14) B 15) TRUE 16) TRUE 17) TRUE 18) FALSE 19) Allocative efficiency is an efficiency criterion that describes a situation where the marginal benefit (or marginal valuation) of the last unit purchased is equal to the marginal cost of producing that unit. In other words, allocative efficiency occurs when production reflects consumer preferences. This is a significant concept in that all societies face scarcity which necessitates that societies make choices about what goods and services to produce. To maximize societys wealth, resources must flow to their highest valued use. This value is determined by consumers. 20) a. For the United States, the opportunity cost of producing an auto body is 1/4 th of a motor engine. b. For Canada, the opportunity cost of producing an auto body is 1/2 of a motor engine. c. The United States has a comparative advantage in the production of auto bodies. d. Canada has a comparative advantage in the production of motor engines. ...
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