Exam 1

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Review Questions (Chapters 1, 2, 3 and 7)

1.We have to make choices because:
A)we have unlimited income.
B)resources are scarce.
C)resources are infinite
D)with good planning, trade-offs can be avoided.

2.The best measure of the opportunity cost of any choice is: A)the monetary cost of that choice.
B)whatever you have given up to make that choice, even if no monetary costs are involved. C)the cost associated with not taking full advantage of the opportunity offered by that choice. D)your hourly wage.

3.A busy professor can't decide whether to stay in his office to grade papers for another hour or to go home and go to bed. This is an example of: A) equity versus efficiency.
B) how one person's spending is another person's income.
C) economic incentives.
D) marginal analysis.

4.Grades are low in class and your professor makes available a 10-point extra credit assignment. Most of the students turn in the assignment. This statement best represents this economic concept: A) The real cost of something is what you must give up to get it. B) “How much” is a decision at the margin.

C) People usually exploit opportunities to make themselves better off. D) There are gains from trade.

5.Specialization and trade should lead to all of the following except: A) individuals learning specific skills and earning a salary. B) a decrease in total economic output.
C) higher living standards.
D) the exchange of goods and services in markets.

6.Economists define an efficient use of resources as a situation where: A) one person can be made better off but only by making another person worse off. B) all persons can be made better off without making anyone worse off. C) all persons receive an equal share of the resources.

D) all persons are made worse off when one person is made better off.

7.Although for smokers the marginal benefit from smoking may exceed the marginal cost of smoking, the negative effects of second-hand smoke may increase the marginal costs of smoking to society to a point where it exceeds that marginal benefit to society. This is an example of: A) individual actions whose side effects are not properly taken into account by the market. B) one party preventing mutually beneficial trades in an attempt to capture a greater share of resources for itself. C) some goods' unsuitability for efficient management by markets. D) regulating self-interest.

8.The models that economists construct:
A) never make unrealistic assumptions.
B) always assumes other things equal.
C) rarely use mathematical equations or graphs.
D) attempt to replicate the real world.

9.In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that: A) Japan has a comparative advantage in the production of automobiles. B) the United States has an absolute advantage in the production of steel. C) Japan has a comparative advantage in the production of both goods. D) the United States has a comparative advantage in the production of automobiles.

10.(Table: Coffee and Salmon Production Possibilities) Look at the table Coffee and Salmon Production Possibilities. This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Brazil has an absolute advantage in producing: A) coffee only.

B) salmon only.
C) both coffee and salmon.
D) neither coffee nor salmon.

11.(Table: Coffee and Salmon Production Possibilities II) Look at the table Coffee and Salmon Production Possibilities II. This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Alaska has an absolute advantage in producing: A) coffee only.

B) salmon only.
C) both coffee and salmon.
D) neither coffee nor salmon.

12.(Table: Coffee and Salmon Production...
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