PRACTICE QUESTIONS TO BE DISCUSSED IN CLASS Wednesday, January 23

Guns per period 18 16 12 8 4 E H F A B Production possibilities curve

12

16

18 20

Butter per period

Guns and Butter Use the following to answer questions 1-7: The numbers are a misplaced in this graph. Point B is 16 Guns and 12 Butter; Point E is 8 guns and 1. (Exhibit: Guns and Butter) Points A, B, E, and F: A) indicate combinations of guns and butter that society can produce using all of its factors efficiently. B) show that the opportunity cost of more guns increases, but that of more butter decreases as more of each good is produced.. C) indicate that society wants butter more than guns. D) indicate constant costs for guns and increasing costs for butter. Ans:

2. (Exhibit: Guns and Butter) This production possibilities curve is: A) linear and because of the constant cost and B) bowed in toward the origin because of increasing opportunity costs. C) bowed in toward the origin because of constant cost of guns and butter. D) bowed out from the origin because of increasing opportunity costs. Ans:

3. (Exhibit: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter: A) indicates you can have more butter and guns simultaneously. B) makes it clear that this economy experiences decreasing opportunity costs. C) involves a loss of 8 units of guns per period. D) involves a loss of 4 units of guns per period. Ans:

4. (Exhibit: Guns and Butter) The combination of guns and butter at point H: A) can be obtained, but would cost too much. B) cannot be attained given the level of technology and the factors of production available. C) has no meaning since it does not relate to the preferences of consumers. D) Is attainable but would increase unemployment. Ans:

5. (Exhibit: Guns and Butter) If the economy were producing 8 units of guns and 12 units of butter per period: A) this is a possible choice, but would involve unemployment and/or inefficiency. B) the notion of increasing opportunity cost is invalidated. C) the economy is still efficient but has made a decision not to buy as much as it could. D) something must be done to reduce the amount of employment. Ans:

6. (Exhibit: Guns and Butter) A movement from producing 12 units of guns and 16 units of butter per period to point B means a: A) gain of 4 units of guns and a loss of 6 units of butter per period. B) gain of 2 units of guns and a loss of 4 units of butter per period. C) loss of 4 units of butter and a gain of 4 units of guns per period. D) loss of 2 units of guns and a gain of 4 units of butter per period. Ans:

7. (Exhibit: Guns and Butter) The maximum amounts of guns and butter this economy can produce is: A) 18 units of guns and 0 units of butter per period. B) 0 units of guns and 20 units of butter per period. C) 16 units of guns and 12 units of butter per period. D) all of the above combinations are maximum possible combinations. Ans:

Panel (a) P S1 S2 P

Panel (b) S2 S1

D Quantity per period Panel (c) P S P Panel (d)

D Quantity per period

D1 D2 D2 D1 Quantity per period Quantity per period

The Determinants of Demand and Supply Use the panel above to answer questions 8-13. 8. (Exhibit: The Determinants of Demand and Supply) The exhibit shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for used furniture, an inferior good? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d) Ans:

9. (Exhibit: The Determinants of Demand and Supply) The exhibit shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating a tomato a day prevents aging. Which panel best describes how this will affect the market for tomatoes? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d) Ans:

10. (Exhibit: The Determinants of Demand and Supply) The exhibit shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's orange crop. Which panel best describes how this will affect the market for oranges? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d) Ans:

11. (Exhibit: The Determinants of Demand and Supply) The exhibit shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's orange crop. Which panel best describes how this will affect the market for Vitamin C tablets, which are a substitute for oranges? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d) Ans:

12. (Exhibit: The Determinants of Demand and Supply) The exhibit shows how supply and demand might shift in response to specific events. Suppose the population increases. Which panel best describes how this will affect the market for apples? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d) Ans:

13. (Exhibit: The Determinants of Demand and Supply) The exhibit shows how supply and demand might shift in response to specific events. Suppose a new machine is developed that allows restaurants and fast-food outlets to produce French fries at a lower cost. Which panel best describes how this will affect the market for French fries? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d) Ans: