2. If an economy is operating at a point inside the production
a. its resources are being wasted.
b. the curve will begin to shift inward.
c. the curve will begin to shift outward.
d. This is a trick question because an economy cannot produce at a point inside the curve.
3. The primary benefit that results when a nation employs
its resources in accordance with the principle of comparative advantage
a. an expansion in capital investment resulting from a reallocation of resources away from consumption.
b. a larger output resulting from a more efficient use of resources.
c. greater equality of income resulting from an increase in the number of workers.
d. an increase in the profitability of business enterprises resulting from an increase in capital formation.
4. The price of an airline ticket from Denver to Washington,
D.C., is $600. A bus ticket is $150. Traveling by plane takes six hours,
compared with 36 hours by bus. Other things constant, an individual would
gain by choosing air travel if, and only if, his time were valued at more
a. $6 per hour.
b. $8 per hour.
c. $10 per hour.
d. $15 per hour.
5. Does voluntary exchange create wealth (value)?
a. No, exchange does not expand output.
b. No, if one person gains, the other party must lose an equal amount.
c. Uncertain, it does when it results in the creation of additional goods and services; otherwise it does not.
d. Yes, trade generally permits the trading partners to gain more of what they value; this is why they agree to the terms of the exchange.
6. "Now that Blake paints the broad surfaces and I do
the trim work, we can paint a house in three-fourths the time that it took
for each of us to do both." This statement most clearly reflects
a. the importance of secondary effects.
b. the fallacy of composition.
c. the law of comparative advantage.
d. behavior inconsistent with economizing.
7. Which of the following will most likely occur under
a system of clearly defined and enforced private property rights?
a. Resource owners will fail to conserve vital resources, even if they expect their scarcity to increase.
b. Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned.
c. Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources.
d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
8. Three basic decisions must be made by all economies.
What are they?
a. how much will be produced; when it will be produced; how much it will cost
b. what the price of each good will be; who will produce each good; who will consume each good
c. what will be produced; how goods will be produced; for whom goods will be produced
d. how the opportunity cost principle will be applied; if and how the law of comparative advantage will be utilized; whether the production possibilities constraint will apply
9. If a firm or a nation desires to maximize its output,
each productive assignment should be carried out by those persons who
a. have the highest opportunity cost.
b. have a comparative advantage in the productive activity.
c. can complete the productive activity most rapidly.
d. least enjoy performing the productive activity.
10. "The economic wealth of this country is primarily
the result of the profit made by some individuals at the expense of others."
The person who made this statement
a. has failed to comprehend that mutual gains result from specialization and exchange.
b. has failed to comprehend the fallacy of composition.
c. has failed to understand the significance of the production possibilities constraint.
d. has utilized the economic way of thinking; the statement is essentially correct.