Chapter 2 Thinking Like an Economist

Test B
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Since economists are unable to obtain economic data by conducting experiments, they generally must a. do without data. b. use whatever data the world gives them. c. select a committee of economists to make up data for all economists to use. d. ask policymakers to conduct experiments for them. ANSW !" b. use whatever data the world gives them. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " / !AN(+&" $
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&odels a. allow economists to learn how the economy works. b. make the economics profession more difficult than necessary. c. based on false assumptions cannot be useful to economists. d. must include every possible variable in the economy to be useful to economists. ANSW !" a. allow economists to learn how the economy works. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " / !AN(+&" $
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When building a model, economists begin by a. applying for government funding. b. conducting controlled experiments in a lab. c. making assumptions. d. reviewing statistical forecasts. ANSW !" c. making assumptions. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " / !AN(+&" $
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*n a simple two2sector circular2flow diagram, a. firms are sellers in the resource market and the product market. b. households are sellers in the resource market. c. firms are buyers in the product market. d. households are buyers in both the resource market and the product market. ANSW !" b. households are sellers in the resource market. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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*n a simple two2sector circular2flow diagram, a. spending on goods and services flow from firms to households. b. goods and services flow from households to firms. c. factors of production flow from firms to households. d. income from factors of production flows from firms to households. ANSW !" d. income from factors of production flows from firms to households. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $

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*n the circular2flow diagram shown, boxes A and , represent a. households and firms. b. government and the foreign sector. c. the goods and services market and the factors of production market. d. households and government. ANSW !" a. households and firms. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 1 !AN(+&" N
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*n the circular2flow diagram shown, boxes ) and ( represent a. households and firms. b. the goods and services market and the financial market. c. the goods and services market and the factors of production market. d. households and government. ANSW !" c. the goods and services market and the factors of production market. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 1 !AN(+&" N
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Which of the following statements about production possibilities frontiers is correct? a. An economy can produce only on its production possibilities frontier. b. &ore than one point on a production possibilities frontier can be produced if there is an increase in available resources. c. An economy can produce at any point on or inside the production possibilities frontier. d. An economy can produce at any point outside the production possibilities frontier ANSW !" c. An economy can produce at any point on or inside the production possibilities frontier. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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A point that is on a production possibilities frontier represents a combination of two goods that an economy a. will never be able to produce. b. can produce using all available resources and technology. c. can produce using some of its resources and technology. d. may be able to produce sometime in the future with additional resources and technology. ANSW !" b. can produce using all available resources and technology. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $

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#he curved shape of the production possibilities frontier can be explained by a. the fact that some resources are better suited for some types of production than are other resources. b. constant cost production. c. scarcity. d. economic growth. ANSW !" a. the fact that some resources are better suited for some types of production than are other resources. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $ NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINEQUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. the nation is producing beyond its capacity, and inflation will occur. b. the nation is producing inefficiently. c. the nation is producing efficiently. d. there will be a large opportunity cost if the nation tries to increase production. ANSW !" b. the nation is producing inefficiently. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $

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+n the production possibilities frontier shown, which point or points are N+# possible for this economy to produce? a. A, ,, ), ( b. and : c. only d. : only ANSW !" c. only #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" / !AN(+&" $

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+n the production possibilities frontier shown, which point or points are efficient? a. A, ,, ), ( b. , and ) c. and : d. : only ANSW !" a. A, ,, ), ( #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" / !AN(+&" $
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+n the production possibilities frontier shown, the opportunity cost to this economy of getting /A additional tubas by moving from point , to point ) is a. 3 dishwashers. b. 1A dishwashers. c. 13 dishwashers. d. *t is impossible to know the opportunity cost without knowing the cost of the resources used to produce the additional tubas. ANSW !" b. 1A dishwashers. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" $
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+n the production possibilities frontier shown, the opportunity cost of getting 1A additional dishwashers by moving from point ) to point is a. 3 tubas. b. 1A tubas. c. 13 tubas. d. *t is impossible for the economy to move from point ) to point . ANSW !" d. *t is impossible for the economy to move from point ) to point . #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" $
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+n the production possibilities frontier shown, the opportunity cost of getting 1A additional dishwashers by moving from point : to point , is a. Bero, since this economy has additional resources available to produce 1A more dishwashers. b. #en tubas, since all available resources are already being used. c. :ifteen tubas, since this economy has increasing costs, we must give up more than 1A tubas to get 1A additional dishwashers. d. *t is impossible for the economy to move from point : to point ,. ANSW !" a. Bero, since this economy has additional resources available to produce 1A more dishwashers. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" $

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Which of the following would most likely have caused the production possibilities frontier to shift outward from A to , in the graph shown? a. an increase in resources necessary to produce capital goods b. an improvement in the technology of producing consumer goods c. an increase in the level of technology in the economy d. an increase in unemployment ANSW !" c. an increase in the level of technology in the economy #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 3 !AN(+&" $
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Anytime an economyCs production possibilities frontier shifts outward, we can say that this economy is experiencing a. economic growth. b. a downturn in the economy. c. a more eDuitable distribution of income within the economy. d. an improvement in the allocation of available resources. ANSW !" a. economic growth. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 3 !AN(+&" $ Pr$%&'t($) P$ss(*(+(t(es ,$r Mat+$'- Is+a)% ,! A( &*8' EloavesF EgallonsF 1A A 0A /A /A 03 1A 13 A 3A
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. 9iven the table shown, what is the opportunity cost to &atlock *sland of increasing the production of bread from 1A to /A loaves? a. 3 gallons of milk b. 1A gallons of milk c. /A gallons of milk d. *t is impossible to tell what the opportunity cost is since in this example costs are not constant. ANSW !" b. 1A gallons of milk #$% " & ' $1" # S )#*+N" 1 +,- )#*. " 0 *NS#!<)#*+N" > !AN(+&" N
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9iven the table shown, which of the following statements accurately describes the production possibilities for &atlock *sland? a. #he opportunity cost of an additional 1A loaves of bread is /A gallons of milk. b. #he opportunity cost of an additional 1A loaves of bread is 1A gallons of milk. c. Without additional information, it is impossible to determine the opportunity cost of an additional 1A loaves of bread. d. #he opportunity cost of an additional 1A loaves of bread increases as more bread is produced. ANSW !" d. #he opportunity cost of an additional 1A loaves of bread increases as more bread is produced. #$% " & ' $1" # S )#*+N" 1 +,- )#*. " 0 *NS#!<)#*+N" > !AN(+&" N

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&acroeconomics is concerned primarily with the a. way things are produced. b. prices of particular goods and services. c. behavior of consumers. d. study of economy2wide phenomena. ANSW !" d. study of economy2wide phenomena. #$% " & ' $1" ( S )#*+N" / +,- )#*. " 3 !AN(+&" $
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G#he government should use any budget surplus to reduce taxes instead of paying down the national debtH is an example of a. a positive economic statement. b. sound fiscal management. c. a normative economic statement. d. a welfare statement. ANSW !" c. a normative economic statement. #$% " & ' $1" ( S )#*+N" / +,- )#*. " 3 !AN(+&" $
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conomists from the #reasury (epartment provide a. the annual Economic Report of the President. b. advice on tax policy to the %resident. c. enforcement of the <. S. Antitrust laws. d. )ongress with the annual budget. ANSW !" b. advice on tax policy to the %resident. #$% " & ' $1" ( S )#*+N" / +,- )#*. " 6 !AN(+&" $

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*n the graph shown, the variables I and $ are a. directly related and therefore move in the same direction. b. directly related and therefore move in opposite directions. c. inversely related and therefore move in opposite directions. d. independent of each other. ANSW !" c. inversely related and therefore move in opposite directions. #$% " & ' $1" 9 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" N

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#he slope of a straight line is calculated by a. rise divided by run. b. run divided by rise. c. the average of rise and run. d. rise plus run. ANSW !" a. rise divided by run. #$% " & ' $1" ( !AN(+&" $

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ANSW !" b. use whatever data the world gives them. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " / !AN(+&" $
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ANSW !" a. allow economists to learn how the economy works. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " / !AN(+&" $
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ANSW !" c. making assumptions. ' $1" ( S )#*+N" 1 +,- )#*. " / !AN(+&" $

ANSW !" b. households are sellers in the resource market. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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ANSW !" d. income from factors of production flows from firms to households. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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ANSW !" a. households and firms. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 1 !AN(+&" N
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ANSW !" c. the goods and services market and the factors of production market. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 1 !AN(+&" N
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ANSW !" c. An economy can produce at any point on or inside the production possibilities frontier. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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ANSW !" b. can produce using all available resources and technology. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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ANSW !" a. the fact that some resources are better suited for some types of production than are other resources. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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ANSW !" b the nation is producing inefficiently. #$% " & ' $1" ( S )#*+N" 1 +,- )#*. " 0 !AN(+&" $
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ANSW !" c. only #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" / !AN(+&" $
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ANSW !" a. A, ,, ), ( #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" / !AN(+&" $

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ANSW !" b. 1A dishwashers. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" $
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ANSW !" d. *t is impossible for the economy to move from point ) to point . #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" $
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ANSW !" a. Bero, since this economy has additional resources available to produce 1A more dishwashers. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" $
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ANSW !" c. an increase in the level of technology in the economy #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 3 !AN(+&" $
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ANSW !" a. economic growth. #$% " & ' $1" 9 S )#*+N" 1 +,- )#*. " 0 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 3 !AN(+&" $
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ANSW !" b. 1A gallons of milk #$% " & ' $1" # S )#*+N" 1 +,- )#*. " 0 *NS#!<)#*+N" > !AN(+&" N
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ANSW !" d. #he opportunity cost of an additional 1A loaves of bread increases as more bread is produced. #$% " & ' $1" # S )#*+N" 1 +,- )#*. " 0 *NS#!<)#*+N" > !AN(+&" N
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ANSW !" d. study of economy2wide phenomena. #$% " & ' $1" ( S )#*+N" / +,- )#*. " 3 !AN(+&" $
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ANSW !" c. a normative economic statement. #$% " & ' $1" ( S )#*+N" / +,- )#*. " 3 !AN(+&" $
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ANSW !" b. advice on tax policy to the %resident. #$% " & ' $1" ( S )#*+N" / +,- )#*. " 6 !AN(+&" $
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ANSW !" c. inversely related and therefore move in opposite directions. 9!A%5 :+!&A#" & ;< S#*+N *NS#!<)#*+N" 0 !AN(+&" N ANSW !" a. !AN(+&" $ rise divided by run.

#$% " & ' $1" (