Understanding Economics International Edition, 14th Edition by Russell S. Sobel – Test Bank

Macroeconomics Chapter 2 B—Some Tools of the Economist

MULTIPLE CHOICE

Use the figure to answer the following question.

Figure 2-11

225.In Figure 2-11, which shows the production possibilities curve,

a.	A is efficient.
b.	B is inefficient.
c.	C is unattainable.
d.	all of the above are true.

ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA: DISC: Productivity and growth TOP: Production Possibilities Curve

KEY: Bloom’s: Application MSC: Coursebook

226.Dr. Jones, a dentist, is choosing between driving and flying from Pittsburgh to New York City. If Jones drove, she would have to close her office four hours earlier than if she flew by airplane. Her expected income (after taxes) from her practice is $50 per hour. Assuming all other factors are equal, if Jones was a rational decision maker, she would drive if the price differential (air cost minus driving) was greater than

a.	$50.
b.	$100.
c.	$150.
d.	$200.

ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA: DISC: Productivity and growth TOP: Production Possibilities Curve

KEY: Bloom’s: Application MSC: Coursebook

227.According to the law of comparative advantage,

a.	each producer should strive toward self-sufficiency in order to maximize the total production of the economy.
b.	each product should be produced by the lowest opportunity cost producer in order to maximize output.
c.	one should never compare one’s abilities with those of another.
d.	each product should be produced by the individual who can produce more of that product than any other individual.

ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

STA:DISC: Gains from trade, specialization and trade

TOP: Trade, Output, and Living Standards KEY: Bloom’s: Comprehension

MSC: Coursebook

228.”The economic wealth of this country was built primarily by some individuals profiting from a transaction, whereas others were harmed by that transaction.” This statement indicates the speaker

a.	fails to comprehend the idea that all voluntary trades benefit both parties involved.
b.	fails to comprehend the fallacy of composition.
c.	fails to understand the significance of the production possibilities curve.
d.	uses the economic way of thinking. The statement is essentially correct.

ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA: DISC: Gains from trade, specialization and trade TOP: Trade Creates Value

KEY: Bloom’s: Application MSC: Coursebook

229.(I) When individuals engage in a voluntary exchange, both parties are made better off.

(II) By channeling goods and resources to those who value them most, trade creates value and increases the wealth created by a society’s resources.

a.	I is true; II is false.
b.	I is false; II is true.
c.	Both I and II are true.
d.	Both I and II are false.

ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

STA: DISC: Gains from trade, specialization and trade TOP: Trade Creates Value

KEY: Bloom’s: Application MSC: Coursebook

The following question(s) relate(s) to the material in the addendum to Chapter 2. Use the production possibilities data for Lebos and Slavia below to answer the question(s).

Table 2-4

Lebos	Slavia
Food	Clothing	Food	Clothing
0	8	0	8
2	6	1	6
4	4	2	4
6	2	3	2
8	0	4	0

230.Refer to Table 2-4. Which of the following is correct?

a.	In Lebos, the opportunity cost of producing one unit of food is equal to one unit of clothing.
b.	In Slavia, the opportunity cost of producing one unit of food is equal to two units of clothing.
c.	The opportunity cost of producing food in Lebos is less than the opportunity cost of producing food in Slavia.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA: DISC: Productivity and growth TOP: Production Possibilities Curve

KEY: Bloom’s: Application MSC: Coursebook

231.Refer to Table 2-4. Which of the following is correct?

a.	Lebos has the comparative advantage in both goods.
b.	Slavia has the comparative advantage in food.
c.	Lebos has the comparative advantage in food.
d.	Lebos has the comparative advantage in clothing.

ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA: DISC: Productivity and growth TOP: Production Possibilities Curve

KEY: Bloom’s: Application MSC: Coursebook

232.The process by which new products and methods of production are continuously replacing old ones is known as:

a.	opportunity cost.
b.	the production possibilities frontier.
c.	creative destruction.
d.	the fallacy of composition.

ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

STA: DISC: Productivity and growth TOP: Production Possibilities Curve

KEY: Bloom’s: Knowledge MSC: Coursebook

233.Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis, her choice was

a.	irrational, because economic analysis suggests you should always attend classes that you have already paid for.
b.	irrational, because oversleeping is not in Keri’s self-interest.
c.	rational if Keri has not missed any other classes.
d.	rational if Keri values sleep more highly than the benefit she expects to receive from attending the class.

ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA:DISC: Scarcity, tradeoffs, and opportunity cost

TOP:Production Possibilities CurveKEY:Bloom’s: Application

MSC:On-line Practice

234.If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,

a.	the stranded motorist must not understand that four quarters are worth $1.
b.	economic theory is unable to explain this transaction.
c.	both parties have gained from this exchange.
d.	the passerby was made better off and the motorist worse off.

ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA: DISC: Gains from trade, specialization and trade TOP: Trade Creates Value

KEY:Bloom’s: ApplicationMSC:On-line Practice

235.When private ownership rights are well-defined and enforced, owners

a.	can ignore the wishes of others, without bearing the cost.
b.	have little incentive to take care of things.
c.	can do anything they want with their property.
d.	can be held accountable for damage to others through misuse of their property.

ANS: D PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

STA: DISC: The role of government TOP: The Importance of Property Rights

KEY:Bloom’s: KnowledgeMSC:On-line Practice

236.The production possibilities curve illustrates the basic principle that

a.	an economy’s capacity to produce increases in proportion to its population.
b.	if the resources of an economy are being used efficiently, more of one good can be produced only if less of another is produced.
c.	an economy will automatically seek the output at which all of its resources are fully employed.
d.	the distribution of income among households is the major determinant of the economic welfare of a nation.

ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA: DISC: Productivity and growth TOP: Production Possibilities Curve

KEY:Bloom’s: KnowledgeMSC:On-line Practice

237.Which of the following attributes of trade explain why it is important for economic prosperity?

a.	Trade moves goods from people who value them less to people who value them more.
b.	Trade makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production.
c.	Trade makes it possible to produce a larger output as a result of gains from division of labor and specialization.
d.	All of the above.

ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

STA:DISC: Gains from trade, specialization and trade

TOP: Trade, Output, and Living Standards KEY: Bloom’s: Knowledge

MSC:On-line Practice

238.The size of a country’s “economic pie” is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie

a.	is a fixed total waiting to be divided up among people.
b.	determines how much wealth an individual can obtain.
c.	is variable, not fixed, across time periods.
d.	depends solely upon the natural resources of a country.

ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

STA: DISC: The role of money TOP: Human Ingenuity and the Creation of Wealth

KEY:Bloom’s: KnowledgeMSC:On-line Practice

239.In a market economy,

a.	a larger income for one person means a smaller one for another.
b.	the government answers all the basic economic questions.
c.	a larger income for one person means it is possible for others to earn more too.
d.	economic output shrinks as we discover better ways of doing things.

ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

STA: DISC: The role of money TOP: Human Ingenuity and the Creation of Wealth

KEY:Bloom’s: ApplicationMSC:On-line Practice

240.According to the law of comparative advantage, a particular task is performed most efficiently by the individual with the lowest

a.	wage rate.
b.	tax liability.
c.	net worth.
d.	opportunity cost.

ANS: D PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

STA:DISC: Gains from trade, specialization and trade

TOP: Trade, Output, and Living Standards KEY: Bloom’s: Knowledge

MSC:On-line Practice

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