Test one– Chapter two

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The existence of scarcity requires
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that people must make choices and face‚Äč trade-offs in using their resources.
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Which of the following is not generally considered to be a resource‚Äč (factor of‚Äč production)?
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A bond issued by the Chrysler Corporation
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Each individual must make choices because
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resources are limited and therefore cannot satisfy‚Äč one’s many competing wants.
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Why do economists avoid making the distinction between wants and needs‚Äč?
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The term need is subjective making it difficult to distinguish between something someone wants and something they need.
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Opportunity cost is best defined as______alternative(s) that must be sacrificed to obtain something or to satisfy a want. Which of the following would least likely‚Äč be, for the typical‚Äč student, the opportunity cost of attending a class at‚Äč 11:00 a.m.? The opportunity cost of attending a class at‚Äč 11:00 a.m. will likely differ from the opportunity cost of attending a class at‚Äč 8:00 a.m. because?
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the next best Partying with a close circle of friends the number and variety of alternatives at 11 a.m. are likely to differ from those available at 8 a.m. AND a‚Äč student’s evaluation of any given set of alternatives is likely to be‚Äč time-sensitive.
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‚ÄčRecently, a woman named Mary Krawiec attended an auction in‚Äč Troy, New York. At the‚Äč auction, a bank was seeking to sell a foreclosed‚Äč property: a large Victorian house suffering from years of neglect in a neighborhood in which many properties had been on the market for years yet remained unsold. Her‚Äč $10 offer was the highest bid in the‚Äč auction, and she handed over a‚Äč $10 bill for a title to ownership. Once she acquired the‚Äč house, however, she became responsible for all taxes on the property amounting to ‚Äč$4 comma 5004,500 and for an overdue water bill of ‚Äč$2 comma 0002,000. In‚Äč addition, to make the house‚Äč habitable, she and her husband devoted months of time and unpaid labor to renovating the property. In the‚Äč process, they incurred explicit expenses totaling ‚Äč$67 comma 14467,144. Calculate Mary‚Äč Krawiec’s explicit cost. ‚Äč$ Mary‚Äč Krawiec’s total cost is___her explicit cost. If the bank were to own the‚Äč property, its total costs were likely to be____ Mary‚Äč Krawiec’s explicit cost. The bank was willing to sell the house at auction to Ms. Krawiec for only‚Äč $10 because if the bank paid to renovate the‚Äč property, paid the back‚Äč taxes, and paid the overdue water‚Äč bill,
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‚Äč$73654 higher than higher than the expected selling price for the property would have been lower than the‚Äč bank’s total costs.
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The graph shows a production possibilities curve for a student who currently spends 8 hours a week studying. How could the student get a B in both‚Äč classes?
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The student could study more than 8 hours a week.
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During a debate on the floor of the U.S.‚Äč Senate, Senator Creighton‚Äč states, ‚Äč”Our nation should not devote so many of its fully employed resources to producing capital goods because we already are not producing enough consumption goods for our‚Äč citizens.” In response to Senator‚Äč Creighton’s statement, Senator Long‚Äč replies, ‚Äč”We must remain at our current production combination if we want to be able to produce more consumption goods in the‚Äč future.” Of the labeled points on the diagram to the‚Äč right, the one which could depict the future production combination Senator Long has in mind is d
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d, the point to the right of the opportunity cost line
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Economic growth can be pictured in the accompanying diagram by
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shifting the PPC upward and outward.
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You are investing your resources in a college education because
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your personal PPC will grow faster by investing in human capital and you will be better off.
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What is the difference between absolute advantage and comparative‚Äč advantage?
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Absolute advantage is when someone can produce more of a good using a given quantity of inputs while comparative advantage is when someone can produce a good at a lower opportunity cost.
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The division of labor increases the output of society by
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allowing resources to specialize in the tasks for which they have a comparative advantage.
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Which of the following statements is‚Äč true?
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Everyone can benefit when people specialize where they have a comparative advantage and then trade with each other.
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GermanyGermany and SingaporeSingapore are countries that trade with each other. If GermanyGermany has a comparative advantage in carscars and SingaporeSingapore has a comparative advantage in shoesshoes‚Äč, which of the following is a correct statement about the effects of trade between these‚Äč nations?
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Both countries are likely to be better‚Äč off, and world production will increase.
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Which of the following is not generally considered to be a resource‚Äč (factor of‚Äč production)?
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. A U.S. Treasury bond.
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When an individual proclaims the need for a new‚Äč car, the person typically means
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they want something they currently do not have.
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Juanita has just opened a new business selling pet supplies through the Internet.
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Juanita is an entrepreneur.
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A friend‚Äč says, “I‚Äč really, really need a new‚Äč car.” As an‚Äč economist, you’re thinking
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This is an example of how objectively undefinable needs are. Many would argue that this friend could get along just fine with a reliable used car.
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The following table lists the costs incurred by a student attending a public university for one semester. ‚Äč(Note: By attending‚Äč college, the student will have to work fewer hours but will stay in his current‚Äč apartment.) Tuition and Fees $5000 Room and Board ‚Äč$950 Books and supplies ‚Äč$ 500 Lost wages ‚Äč$6,000 What is the total opportunity cost that the student incurs by attending college for one‚Äč semester?
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$11500
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Which of the following sets of terms describes the problem of scarcity in‚Äč economics?
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Choices, opportunity‚Äč costs, and‚Äč trade-offs
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The production possibilities curve shows all possible combinations of
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two goods that can be efficiently produced with a given set of resources.
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How does an economy represented by a‚Äč straight-line production possibilities curve differ from one represented by a traditional production possibilities curve with a bowed‚Äč shape?
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In the economy represented by a‚Äč straight-line production possibilities‚Äč curve, the law of increasing relative cost does not apply.
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Technology
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is the recipe for combining land, labor, physical capital, and entrepreneurship to produce a good
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The production possibilities curve will shift outward‚Äč (upward, and‚Äč or, to the‚Äč right) when
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economic growth occurs.
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Current production of capital goods means that
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the production possibilities curve can be expected to shift outward in the future.
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In order for a production possibilities curve to shift to the‚Äč right, which of the following must‚Äč occur?
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economic growth
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When an economy sacrifices production of consumption goods to produce more capital‚Äč goods, we would expect that the production possibilities curve will
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shift outward.
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SteveSteve can‚Äč wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. His roommate Mike can‚Äč wash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. The absolute advantage in laundry is held by The comparative advantage in meal preparation is held by
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steve, mike
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GermanyGermany and MalaysiaMalaysia are countries that trade with each other. If GermanyGermany has a comparative advantage in carscars and MalaysiaMalaysia has a comparative advantage in shoesshoes‚Äč, which of the following is a correct statement about the effects of trade between these‚Äč nations?
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Both countries are likely to be better‚Äč off, and world production will increase.
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The making and selling of a pencil for ten cents would likely NOT be‚Äč possible, but for
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the division of labor
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When nations specialize in their areas of comparative advantage and then trade with the rest of the‚Äč world, the result is that
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the average standard of living in the world will go up.
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Economic goods are
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goods that are scarce
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Economists are concerned with an‚Äč individual’s
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wants bc the existence of wants leads to scarcity
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Samia has decided that with the two hours in between classes she can do one of 3 things. She has ranked her‚Äč choices, from highest to lowest‚Äč as, (1) chat with her‚Äč friends, (2) study economics or‚Äč (3) take a nap. The opportunity cost of chatting with her friends is
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the value of studying economics, the next best use of time
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John and Mary work eight hours at a bakery. John can decorate either 10 iceminus‚ąícream cakes or 4 wedding‚Äč cakes; Mary can decorate either 8 iceminus‚ąícream cakes or 2 wedding cakes. According to this‚Äč scenario,
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john has the absolute advantage in decorating wedding cakes
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Many state governments claim a shortage of funds because there are‚Äč “unmet needs.” This claim is
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false because of scarcity.
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Mariko is buying a soft drink. She can choose between iced tea‚Äč, cola‚Äč, and diet cola. She‚Äč doesn’t like diet cola‚Äč, and after some‚Äč thought, she chooses iced tea. What is the opportunity cost of this‚Äč choice?
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The cola
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A production possibilities curve represents
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all possible combinations of output that could be produced assuming fixed productive resources and their efficient use.
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A‚Äč straight-line production possibilities curve takes this shape because
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the opportunity cost of producing a good is constant.
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The production possibilities curve‚Äč (PPC) illustrates economic growth by‚Äč a(n)
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outward shift of the PPC.
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Current production of capital goods means that
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the production possibilities curve can be expected to shift outward in the future.
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Whenever a society forgoes current consumption to invest in capital‚Äč goods
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that society can consume more in the future.
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TanyaTanya can make 33 loaves of breadloaves of bread or 1 apple pieapple pie in one hour. JonathanJonathan can make 22 loaves of breadloaves of bread or 1 apple pieapple pie in one hour. Based on this‚Äč information, which of the following is a true‚Äč statement?
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TanyaTanya has a comparative advantage in making breadbread.
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Specialization of labor and trade yield greater economic efficiency when applied to interstate‚Äč trade,
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and when applied to international trade.
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Suppose that Canadian farmers can grow wheat more cheaply than can U.S. farmers. In the interest of‚Äč efficiency, what is the desirable‚Äč outcome?
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Allow the Canadian farmers to sell their wheat for a lower price

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