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Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"? a. Melissa can attend the concert only if she takes her sister with her. b. Greg is hungry and homeless. c. Brian must repair the tire on his bike before he can ride it to class. d. Kendra must decide between going to Colorado or Cancun for spring break. 2. Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that a. trade can make everyone better off. b. people face trade-offs c. rational people think at the margin. d. people respond to incentives. 3. Guns and butter are used to represent the classic societal tradeoff between spending on a. durable and nondurable goods. b. imports and exports. c. national defense and consumer goods. d. law enforcement and agriculture. 4. In economics, the cost of something is a. the dollar amount of obtaining it. b. always measured in units of time given up to get it. c. what you give up to get it. d. often impossible to quantify, even in principle. 5. When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included? a. Your full room-and-board expenses should always be included. b. None of your room-and-board expenses should ever be included. c. You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college. d. You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college. 6. An example of an externality is the impact of a. bad weather on the income of farmers. b. the personal income tax on a person's ability to purchase goods and services. c. pollution from a factory on the health of people in the vicinity of the factory. d. increases in health care costs on the health of individuals in society. 7. Over the past century, the average income in the United States has risen about a. twofold. b. fivefold. c. eightfold. d. tenfold. 8. Productivity is defined as the a. amount of goods and services produced from each unit of labor input. b. number of workers required to produce a given amount of goods and services.

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c. amount of labor that can be saved by replacing workers with machines. d. actual amount of effort workers put into an hour of working time. The amount of goods and services produced from each unit of labor input is called a. opportunity cost. b. productivity. c. externality. d. marginal benefit. Suppose a typical worker in France can produce 32 units of product in an eight-hour day, while a typical worker in Germany can produce 30 units of product in a 10-hour day. We can conclude that a. worker productivity in Germany is higher than in France. b. the standard of living will likely be higher in France than in Germany. c. productivity is 4 units per hour for the German worker and 3 units per hour for the French worker. d. there will be no difference between the standard of living in France and Germany. Historical episodes are a. valuable to economists because they allow economists to see how the science of economics has evolved. b. valuable to economists because they allow economists to evaluate economic theories of the present. c. not of concern to economists because economics is about predicting the future, not dwelling on the past. d. not of concern to economists because the exact circumstances of historical episodes are unlikely to be observed again. The circular-flow diagram is a a. visual model of the economy. b. visual model of the relationships among money, prices, and businesses. c. model that shows the effects of government on the economy. d. mathematical model of how the economy works. In the circular-flow diagram, a. firms are buyers in the markets for goods and services. b. households are sellers in the markets for the factors of production. c. firms are sellers in the markets for factors of production and in the markets for goods and services. d. dollars that are spent on goods and services flow directly from firms to households. In the circular-flow diagram, which of the following items flows from households to firms through the markets for goods and services? a. goods and services b. dollars paid to land, labor, and capital c. dollars spent on goods and services d. wages, rent, and profit Figure 2-2

____ 15. Refer to Figure 2-2. Boxes C and D of this circular-flow diagram represent a. households and government. b. firms and government. c. the markets for goods and services and the markets for financial assets. d. the markets for goods and services and the markets for factors of production. Figure 2-6
barrels 45 40 35 30 25 20 15 10 5 2 4 6 8 10 12 14 16 bathtubs G C B F A D

____ 16. Refer to Figure 2-6. What is the opportunity cost of moving from point A to point B? a. zero b. 6 bathtubs c. 6 bathtubs and 15 barrels d. 15 barrels ____ 17. A normative economic statement such as The minimum wage should be abolished a. would likely be made by an economist acting as a scientist. b. would require values and data in order to be evaluated. c. would require data but not values in order to be evaluated. d. could not be evaluated by economists acting as policy advisers. ____ 18. Which of the following is correct? a. A horizontal line has an infinite slope, and a vertical line has a zero slope. b. A horizontal line has a slope of 1, and a vertical line has a slope of -1. c. A horizontal line has a zero slope, and a vertical line has an infinite slope. d. A horizontal line has a slope of -1, and a vertical line has a slope of 1.

____ 19. The following table contains some production possibilities for an economy for a given month. Sweaters 4 6 8 Gloves 300 ? 100

If the production possibilities frontier is bowed outward, then ? could be a. 100. b. 150. c. 200. d. 250. ____ 20. Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible? a. Jim has an absolute advantage in the production of baseball bats and in the production of hockey sticks. b. Jim has an absolute advantage in the production of baseball bats and a comparative advantage in the production of hockey sticks. c. Jim has an absolute advantage in the production of hockey sticks and a comparative advantage in the production of baseball bats. d. Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks. ____ 21. The principle of comparative advantage does not provide answers to certain questions. One of those questions is a. Do specialization and trade benefit more than one party to a trade? b. Is it absolute advantage or comparative advantage that really matters? c. How are the gains from trade shared among the parties to a trade? d. Is it possible for specialization and trade to increase total output of traded goods? Table 3-2 Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 Cooler Radio 2 5 1 4

Aruba Iceland

____ 22. Refer to Table 3-2. Assume that Aruba and Iceland each has 80 labor hours available. If each country divides its time equally between the production of coolers and radios, then total production is a. 28 coolers and 50 radios. b. 30 coolers and 9 radios. c. 60 coolers and 18 radios. d. 120 coolers and 36 radios. ____ 23. Refer to Table 3-2. Aruba and Iceland would not be able to gain from trade if Iceland's opportunity cost of one radio changed to a. 0 coolers. b. 0.25 coolers. c. 2.5 coolers.

d. Aruba and Iceland can always gain from trade regardless of their opportunity costs. Table 3-3 Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Machine Minutes Needed to Make 1 Toothbrush Hairbrush 3 10 5 6

Zimbabwe Portugal

____ 24. Refer to Table 3-3. Zimbabwe and Portugal would not be able to gain from trade if Zimbabwe's opportunity cost of one toothbrush changed to a. 0 coolers. b. 5/6 cooler. c. 6/5 coolers. d. Zimbabwe and Portugal can always gain from trade regardless of their opportunity costs. Table 3-6 Assume that Hilda and Carlos can switch between producing quilts and producing dresses at a constant rate. Hours Needed To Make 1 Quilt Dress Hilda Carlos 30 90 10 45 Amount Produced in 90 Hours Quilt Dresses s 3 9 1 2

____ 25. Refer to Table 3-6. We could use the information in the table to draw a production possibilities frontier for Hilda and a second production possibilities frontier for Carlos. If we were to do this, measuring dresses along the horizontal axis, then a. the slope of Hildas production possibilities frontier would be -3 and the slope of Carlos production possibilities frontier would be -2. b. the slope of Hildas production possibilities frontier would be -0.33 and the slope of Carlos production possibilities frontier would be -0.5. c. the slope of Hildas production possibilities frontier would be 0.33 and the slope of Carlos production possibilities frontier would be 0.5. d. the slope of Hildas production possibilities frontier would be 3 and the slope of Carlos production possibilities frontier would be 2. Table 3-9 Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim can switch between setting up and testing computers at a constant rate. The following table applies. Minutes Needed to Number of Computers Set Up or Tested in a

40-Hour Week Set Up 1 Computer 48 30 Test 1 Computer ? 40 Computers Set Up 50 80 Computers Tested 40 60

Barb Jim

____ 26. Refer to Table 3-9. Barbs opportunity cost of testing one computer is setting up a. 4/5 computer and Jims opportunity cost of testing one computer is setting up 3/4 computer. b. 4/5 computer and Jims opportunity cost of testing one computer is setting up 4/3 computers. c. 5/4 computers and Jims opportunity cost of testing one computer is setting up 3/4 computer. d. 5/4 computers and Jims opportunity cost of testing one computer is setting up 4/3 computers. Figure 3-3 Bobs Production Possibilities Frontier
500 450 400 350 300 250 200 150 100 50 50 100 150 200 250 300 350 400 tacos burritos 500 450 400 350 300 250 200 150 100 50 50 100 150 200 250 300 350 400 tacos

Enids Production Possibilities Frontier


burritos

____ 27. Refer to Figure 3-3. If Bob and Enid each divides their time equally between the production of tacos and burritos, then total production is a. 200 tacos and 150 burritos. b. 400 tacos and 250 burritos. c. 400 tacos and 300 burritos. d. 800 tacos and 500 burritos. Figure 3-4
Perrys Production Possibilities Frontier Jordans Production Possibilities Frontier

20 18 16 14 12 10 8 6 4 2

poems

20 18 16 14 12 10 8 6 4 2

poems

novels

novels

____ 28. Refer to Figure 3-4. The opportunity cost of 1 novel for Jordan is a. 1/3 poem. b. 3 poems. c. 4 poems. d. 12 poems. ____ 29. Refer to Figure 3-4. The opportunity cost of 1 poem for Perry is a. 1/12 novel. b. 1/6 novel. c. 2 novels. d. 6 novels. Figure 3-7 Bintus Production Possibilities Frontier
10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 bowls cups 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 bowls

Jubas Production Possibilities Frontier


cups

____ 30. Refer to Figure 3-7. Bintu has an absolute advantage in the production of a. bowls and Juba has an absolute advantage in the production of cups. b. cups and Juba has an absolute advantage in the production of bowls. c. both goods and Juba has an absolute advantage in the production of neither good. d. neither good and Juba has an absolute advantage in the production of both goods.