sample questions for exam 1 trade and ppf

8/16/2019 Sample Questions for Exam 1 Trade and PPF

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Microeconomics

Sample Questions Trade and PPF1. Produced goods, such as machinery and tools, used as inputs for the production of other goods comprise the

resource known asa. natural resources. b. services.c. capital.d. entrepreneurship.

2. Here are three things you could do if you do not attend your neighbor's barbecue: watch television with somefriends you value this at !1"#, read a good novel you value this at !1$#, or go in to work you could earn !1%during the barbecue#. &he opportunity cost of going to your neighbor's barbecue isa. !1%, because this is the only alternative of the three where you actually receive a monetary

payment. b. !1$, because this is the lowest valued alternative forfeited.c. !1", because this is the highest valued alternative forfeited.d. !$", because this is the total dollar sum of the alternatives forfeited.

. (t usually takes less time to buy a si)*pack of "*+p, a loaf of bread, and a half*gallon of ice cream at a smallconvenience store such as a "*leven# than at a large, full*service grocery store. -hich of the following personsis most likely to buy these items at a convenience storea. a person with high opportunity cost of time b. a person with low opportunity cost of timec. a person who is out of work d. &here is not enough information to answer the /uestion.

$. 0ttempts to determine what is are part of economics.a. positive b. normativec. positive and normatived. neither positive nor normative

3. &he condition in an economy that makes a rationing device a necessity is the fact thata. the economy is organi4ed around free markets. b. the economy is centrally planned by the government.c. scarcity e)ists.d. there are fewer types of goods than there are people in the economy.

%. 5ecision making at the margin means making a choice based on of a decision.a. the total benefits b. the total costsc. comparing the total benefits and costsd. comparing the additional benefits to additional costs

". Prior to attending college, 5arius is offered a lucrative four*year contract as an actor in a daytime soap opera.0ssuming that acting and attending college are 5arius' preferred alternatives and that he must choose between thetwo, his cost of attending college after receiving the offer a. increases. b. decreases.c. stays the same.d. increases or stays the same depending on whether he accepts the offer.

6. (n an interview an economist states, &his problem should be of greater concern to the federal government. -ecan e)plicitly put this statement in the category of a. microeconomics. b. macroeconomics.c. positive economics.d. normative economics.


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7. &he cost of building a new interstate highway system is reported to be high at !23 billion. 5oes it necessarilyfollow that the interstate highway is not worth buildinga. 8es, because it is better to spend !23 billion on ending poverty than on building another

interstate highway system. b. 9o, because building a new interstate highway system promotes economic growth, which

helps everyone.c. 9o, because the benefits of building a new interstate highway system may be greater than

!23 billion.d. 8es, because the benefits of building a new interstate highway system may be greater than

!23 billion.

Exhibit 1-1

:

a r g i n a l ; e n e f i t ,

: a r g i n a l < o s t

&ime =pent =tudying hours#

:<

:;

2 $ % 6

1>. ?efer to )hibit 1*1. &he student whose study habits are illustrated here will ma)imi4e the net benefits ofstudying when she has studieda. 2 hours b. $ hoursc. % hours

d. 6 hours

11. ?efer to )hibit 1*1. (f the student whose study habits are illustrated here is currently studying for 6 hours sheshoulda. cut back on the number of hours she is studying because the marginal benefit of studying

for 6 hours is less than the marginal cost of doing so. b. cut back on the number of hours she is studying because the marginal benefit of studying

for 6 hours is greater than the marginal cost of doing so.c. increase the number of hours she is studying because the marginal benefit of studying for

6 hours is less than the marginal cost of doing so.d. increase the number of hours she is studying because the marginal benefit of studying for

6 hours is greater than the marginal cost of doing so.

12. Ceteris paribus meansa. one variable too many. b. the correct relationship specified.c. assuming economic motives.d. all other things held constant.

1. Points outside or beyond# the PP@ area. attainable. b. unattainable.c. efficient.d. inefficient.


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1$. apples and 2> pears, and point ;, at which thereare " apples and 21 pears. (f the economy is currently at point 0, the opportunity cost of moving to point ; isa. 1 pear. b. " apples.c. apples.d. 21 pears.

13. =uppose the economy goes from a point on its production possibilities frontier PP@# to a point inside that [email protected] that the PP@ has not shifted, this could be due to

a. a gain of resources. b. a loss of resources.c. technological improvement in the production of both goods.d. a new law that interferes with economic efficiency.

1%. -hich of the following is an illustration of the law of increasing opportunity costsa. 0s more cars are produced, the opportunity cost of each additional car is greater than for

the preceding unit. b. 0s more cars are produced, the opportunity cost of each additional car is less than for the

preceding unit.c. 0s more cars are produced, the opportunity cost of each additional car is the same as for

the preceding unit.d. People pay lower prices for cars the higher the costs of producing cars.

Exhibit 2-6

1". ?efer to )hibit 2*%. -hich graph depicts a technological breakthrough in the production of good 8 onlya. 1# b. 2#c. #d. $#

16. ?efer to )hibit 2*%. -hich graph depicts a discovery of a new cheap source of energy that assists in the production of both good A and good 8a. 1# b. 2#c. #d. $#e. none of the above

17. ?efer to )hibit 2*%. -hich graph best depicts the conse/uence of a large*scale natural disastera. 1# b. 2#c. #d. $#e. none of the above


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Exhibit 2-5

2>. ?efer to )hibit 2*3. &he economy is currently operating at point @. &he opportunity cost of moving to point isa. 3 fa) machines. b. 33 fa) machines.c. 4ero. @a) machine consumption can increase without giving up &B consumption if the

inefficiency can be eliminated.d. not possible to determine.

21. ?efer to )hibit 2*3. 0s more fa) machines are produced, the opportunity cost of producing thema. increases. b. decreases.c. remains constant.d. first decreases and then increases.

22. ?efer to )hibit 2*3. (n order to produce one more television set, we must forfeit the production of one fa)machine. &his statement describes a movement froma. point < to point 5. b. point 5 to point .c. point to point @.d. point to point 5.e. point 5 to point


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Cey for -ord ultiple


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goods ;e specific about what will happen to 5altons production of each good as more and moremanufacturing goods are produced.*1 b% )plain what it is about the resources used to produce manufacturing goods versus technologicalgoods that might e)plain why this effect occurs.H(9&: ?ecall what causes the PP@ to be bowedoutward#

Essa$ (15 pts!"o #e$% See Student &nstructor%

&he differences between capitalism and socialism can be described as:+nder capitalism, the individual says I( want to be make myself better off, IGo ahead answeredcapitalism and you will find, to your surprise, that you have also incidentally enriched society.+nder socialism, the individual says I( want to make myself better off, I5evote yourself to enrichingsociety answered socialism and you will find, to your surprise, that this is also the surest way to enrichyourself (n Ha4litts book Time will Run Back , the main character, Peter, describes that while the socialist view istrue mathematically** it does not seem to work. Peter notes two problems with how -on-orldseconomy functions. 1# -on-orld has too few of some goods grain# and yet too much of another goodswindows#. 2# -orkers seem not be working to the best of their ability.5escribe how a market economy avoids the problems that Peter describes. J1# (ndicate the role in a free

market of prices, proits, incenti.es and 'dam Smith/s 0in.isible hand to describe how a freemarket avoids the problem described in the book of too many of one good windows# and too little ofanother good grain#, and how people know which resources are scarce and need to be conserved andwhich resources are not as scarce and should be utili4ed. J2# (ndicate why socialism has difficultygetting workers to work hard. (n particular, why did workers not work harder when the above statementis obviously true &hat is, if each worked harder, more would be produced, and if everyone basically#shares e/ually in this increased output, then each person will be able to consumer more. # -hat keepsthis from working J# -hy is it that free markets do not have the same problem getting workers towork hard as the socialist economy and how does the person who is only seeking to benefit himself endup benefiting society hint: how does a person in a free market earn money -hat do they have to do toearn it 0nd when do people trade in a free market#


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&he following are the answers to the sample /uestions provided in the P5@ 5ocument.1) ED2) C3) D4) A

5) A6) A7) C8) D9) C10) C11) B12) C13) B14) B15) BA CAED ;Aet to ente! cell

+!>et #&&l $ec!eses in co+te! +!>et, $!i%ing #& &!ice

=hort 0nswer 1:1) Follow 1 o%e! to the $e+n$ c#!%e n$ $own, l"el this ?$

2) Follow 1 o%e! to s#&&l c#!%e n$ $own, (ie follow $otte$ line) l"el this &oint ?s3) ;he sho!t si$e of the +!>et lws &!e%ils so ?$ will "e echnge$4) De$ weight loss is AEA C @ AEA F5) o!e t!$es sho#l$ h%e t>en &lce "etween ?$ n$ wht wo#l$ h%e "een the

+!>et e#ili"!i#+ #ntit (fo#n$ " the inte!section of $e+n$ n$ s#&&l c#!%es

$own to the ?#ntit is) "ec#se the +!ginl "ene.t (shown " the $e+n$

c#!%e) fo! these #nits is g!ete! thn the +!ginl cost of &!o$#cing these #nits (s

shown " the s#&&l c#!%e ;he!efo!e, since B is g!ete! thn C of &!o$#cing

these #nits, these #nits sho#l$ h%e "een t!$e$ Both si$es (&!o$#ce! n$

cons#+e!) wo#l$ h%e "ene.te$ f!o+ these t!$es ;he will not occ#! "ec#se

.!+s !e not llowe$ to !ise &!ice "o%e 1 so e%en tho#gh c#sto+e!s %l#e the

goo$ (ie thei! B) +o!e thn the C of &!o$#cing those #nits, this +!ginl cost(fo! these #nits) is g!ete! thn wht the .!+ is llowe$ to ch!ge ;he!efo!e, the

.!+ will not &!o$#ce these #nits "ec#se fo! the .!+ the C will ecee$ the &!ice

the !e llowe$ to ch!ge (ie the .!+ wo#l$ lose +one on these t!$es ;his

+ens the will not "e willing to &!o$#ce these #nits6) o+e cons#+e!s + "e "ette! o F the got the &!o$#ct n$ F the o&&o!t#nit

cost of the+ li>el h%ing to wit in line is not too g!et e+e+"e! when sho!tges

occ#! the !e #s#ll !esol%e$ " .!st co+e .!st se!%e$ so e%e!one who wnts to

cons#+e the goo$ hs n incenti%e to "e the .!st in line owe%e!, e%en if the $o

get the goo$ the +ight not "e "ette! o "ec#se &!ice ceilings ten$ to c#se .!+s


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to !e$#ce the ?A; of the goo$ n c#sto+e!s + "e lso wo!se o "ec#se

the cnnot "# the goo$ "ec#se of the sho!tges c!ete$ " the &!ice ceiling o

e%en if the %l#e the goo$ (B) +o!e thn the cost fo! the .!+ to &!o$#ce it fo!

the+ (C), the +ight h%e to $o witho#t

7) !o$#ce!s !e wo!se o At the lowe! &!ice s#!e +o!e &eo&le will wnt to "# "#t

the .!+s will "e willing to &!o$#ce E "ec#se the lowe! &!ice +ens so+e #nits

cn no longe! "e &!o.t"l &!o$#ce$ ("ec#se the +!ginl cost will ecee$ the

&!ice the !e llowe$ to ch!ge) ;ht is, the &!ice ceiling c#se$ the .!+ to !e$#ceo#tt AD sell fewe! #nits ;he .!+s in gene!l !e wo!se o

sample questions for exam 1 trade and ppf

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