Econ101FinalRed-S06 - Econ 101, sections 2 and 6, S06...

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Econ 101, sections 2 and 6, S06 Schroeter Final Exam, Red Choose the single best answer for each question. 1. Adam Smith used the "invisible hand" reference to describe how a. democratically elected public officials direct economic activity. b. the government controls the allocation of the nation's resources. c. the economic influence of large corporations is often overlooked. *. people acting selfishly bring about socially-desirable outcomes. 2. An economy can use its resources to produce two goods: capital goods and consumption goods. Suppose that the production possibility graph for this economy has the familiar "bowed-outward" appearance. Consider two points on the production possibility frontier: Points A and B. Point A has more consumption goods and fewer capital goods than does Point B. At which of these points is the opportunity cost of consumption goods lower? a. Point A. *. Point B. c. Neither point A nor point B. (The opportunity costs of consumption goods are equal at these two points because they are both on the production possibility frontier.) d. Impossible to determine without more information. (We would need to know which of the two goods is plotted on the horizontal axis.) 3. Which of the following is an example of a normative statement? a. "An increase in interest rates will slow the economy's rate of growth." b. "Persistent federal government deficits will lead to an increase in interest rates." c. "The average interest rate on home mortgages has increased over the past year." *. None of the above. (All of these statements are positive statements.) Questions 4, 5, and 6 are based on the following information. Two small countries, Winneshiek and Allamakee, use their labor resources to produce goods of two types: manufactured goods and agricultural goods. The table below gives the number of hours of labor needed to produce one unit of each type of good in each country. Hours needed to produce one unit of manufactured goods agricultural goods Winneshiek 3 2 Allamakee 2 2 4. The opportunity cost of 1 unit of manufactured goods in Allamakee is *. 1 unit of agricultural goods. b. 2 units of agricultural goods. c. 3 units of agricultural goods. d. none of the above.
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2 5. Which of the following is true? *. Allamakee has the comparative advantage in the production of manufactured goods. b. Winneshiek has the absolute advantage in the production of manufactured goods. c. Both a and b are true. d. None of the above is true. 6. Suppose that there were international markets in manufactured goods and agricultural goods and that the prices in these markets implied the following terms of trade: One unit of agricultural goods could be exchanged for two units of manufactured goods. At these terms of trade: a. Both countries would sell manufactured goods and buy agricultural goods.
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This note was uploaded on 08/01/2011 for the course ECON 101 taught by Professor Brentkreider during the Fall '07 term at Iowa State.

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Econ101FinalRed-S06 - Econ 101, sections 2 and 6, S06...

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