Unit 1
If Nation X produces coffee at a higher opportunity cost than Nation Y, which of the following is true?
A) Nation X must have an absolute advantage in producing coffee.
B) Nation X must have a comparative advantage in producing coffee.
C) Nation Y must have an absolute advantage in producing coffee.
D) Nation Y must have a comparative advantage in producing coffee.
D) Nation Y must have a comparative advantage in producing coffee.
Consider the market for arugula, a normal good. Which of the following changes would result in an increase in both the equilibrium price and the equilibrium quantity of arugula?
A) A decrease in consumer income
B) An increase in the price of salad dressing, a complement in consumption
C) A decrease in the price of radicchio, a substitute in consumption
D) An increase in the price of water irrigation for arugula farms
E) An increase in population
E) An increase in population
A graph shows quantity of output produced on the horizontal axis and shows total variable cost and total cost on the vertical axis. Which of the following is true about the vertical distance between total variable cost and total cost as output increases?
A) It decreases.
B) It remains constant.
C) It increases.
D) It decreases and then increases.
E) It increases and then decreases.
B) It remains constant.
In productive efficiency products are being produced in the least costly way.
True
shows how sensitive quantity is to a change in price.
elasticity
Which of the following is an example of a non rival resource?
A) National park camping sites that can be reserved by anyone
B) Farmland that can be used to grow corn or soybeans
C) Solar energy
D) Fish in the ocean
E) Timber in a forest
C) Solar energy
Which of the following will initially result from an increase in the market demand for a good?
A)There will be a matching increase in supply.
B) There will be a decrease in quantity supplied.
C) The equilibrium price will decrease.
D) There will be a temporary shortage at the original equilibrium price.
E) Total producer surplus in the market will decrease.
B) There will be a decrease in quantity supplied.
Which of the following is true about economies of scale and increasing returns to scale?
A) Economies of scale and increasing returns to scale are the same thing.
B) Economies of scale refers to the relationship between inputs and output. Increasing returns to scale refers to the relationship between long-run average total cost and the size of the firm.
C) Economies of scale refers to the relationship between long-run average total cost and the size of the firm. Increasing returns to scale refers to the relationship between inputs and output.
D) Economies of scale is a long-run concept, while increasing returns to scale is a short-run concept.
E) Increasing returns to scale is a long-run concept, while economies of scale is a short-run concept.
C) Economies of scale refers to the relationship between long-run average total cost and the size of the firm. Increasing returns to scale refers to the relationship between inputs and output.
An inelastic demand curve is flat
False
It is steep.
What are the 4 factors of production?
Land, Labor, Capital, and entrepreneurship
Assume both Italy and Greece produce only two goods: wine and olive oil. If Italy holds a comparative advantage in the production of wine, then which of the following statements is NOT true?
A) Italy must hold an absolute advantage in the production of wine.
B) Greece holds a comparative advantage in the production of olive oil.
C) Italy's opportunity cost of producing one additional unit of wine is lower than Greece's.
D) Greece's opportunity cost of producing one additional unit of olive oil is lower than Italy's.
E) If trade is open between them, these countries have an incentive to trade.
A) Italy must hold an absolute advantage in the production of wine.
Which of the following would cause the supply of good
to become more elastic?
A) Greater availability of substitutes for good X
B) Increased prices of inputs required to produce good X
C) The ability to easily reallocate inputs to production of good X
D) A short time frame for making production decisions
E) More elastic demand for good X
C) The ability to easily reallocate inputs to production of good X
A competitive profit-maximizing firm is currently producing at an output level at which the marginal revenue is equal to marginal cost. Which of the following changes will NOT affect the profit-maximizing quantity?
A) An increase in the price
B) An increase in variable costs
C) An increase in fixed costs
D) An increase in labor productivity
E) An increase in the firm’s revenues
C) An increase in fixed costs
An exicse tax is a per unit tax on consumers.
False. A tax on producers.
shows if two goods are substitutes or complements
Cross-Price elasticity
Because of conflict and political instability in Country Y, millions of its citizens emigrate to Country X. Which of the following best explains what will happen to Country X?
A) Country X’s PPC will not change, but its consumption of goods will decrease.
B) Country X’s production will move to a point inside its PPC, indicating slower growth.
C) Country X’s production will move to a point on its PPC at which it produces only consumer goods.
D) Country X’s PPC will shift outward over time.
E) Country X’s PPC will shift inward over time.
D) Country X’s PPC will shift outward over time.
A firm estimates that the absolute value of the price elasticity of demand for its signature sandwich is 2. If the firm increases its sandwich price by 10 percent, what will happen to the quantity demanded?
A) It will increase by 5 percent
B) It will increase by 20 percent
C) It will decrease by 5 percent
D) It will decrease by 20 percent
E) It will remain unchanged
D) It will decrease by 20 percent
In a comparison of a profit-maximizing perfectly competitive firm's short-run equilibrium to its long-run equilibrium, which of the following is true?
A) Price must equal marginal cost in the long run, but not necessarily in the short run.
B) Economic profit must be positive in the long run, but not necessarily in the short run.
C)The firm can set price in the short run, but not necessarily in the long run.
D) The firm must produce at minimum average total cost in the short run, but not necessarily in the long run.
E) Price equals average total cost in the long run, but not necessarily in the short run.
E) Price equals average total cost in the long run, but not necessarily in the short run.
inelastic goods have many substitutes
False
Elastic goods have many susbtitutes
assumes that you always consume where MU/P for each product is equal
The utility maximizing rule
Nation Aga can produce either 3 units of good X or 1 unit of good Y with one hour of labor, while nation Kaza can produce either 4 units of good X or 2 units of good Y with one hour of labor. Assuming that labor is the only input, mutually beneficial exchange can take place between Aga and Kaza if
A) Aga exchanges 1/2 unit of good X
for 1 unit of good Y from Kaza.
B) Aga exchanges 1 1/2 units of good X
for 1 unit of good Y from Kaza.
C) Aga exchanges 2 1/2 units of good X
for 1 unit of good Y from Kaza.
D) Kaza exchanges 1 unit of good Y for 1 unit of good X from Aga.
E) Kaza exchanges 2 units of good Y
for 1 unit of good X from Aga.
C) Aga exchanges 2 1/2 units of good X
for 1 unit of good Y from Kaza.
The market supply curve for a product is derived from the individual firm supply curves by
A) multiplying the equilibrium quantity sold by the number of consumers in the market
B) multiplying the equilibrium quantity sold by the number of producers in the market
C) multiplying the quantities each producer sells by the market price
D) summing the quantities each producer sells at each possible price
E) summing the quantities each producer sells and multiplying by the market price
D) summing the quantities each producer sells at each possible price
Suppose a firm’s production process exhibits dis-economies of scale. How and why will costs change if the firm reduces its output?
A) Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce.
B) Long-run average fixed costs will increase because the firm produces fewer units of output.
C) Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.
D) Long-run average fixed costs will decrease because the firm produces fewer units of output.
E) Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.
C) Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.
Perfect Competition forces producers to use limited resources to their fullest.
True
1. Low unemployment-everyone has a job
2. Great Job Security-the government doesn’t go out of business
3. Equal incomes means no extremely poor people
4. Free Health Care
What is good about communism?