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Multiple Choice questions 1)One of its most basic economic problems is that society  A) must decide how to lower a product price

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Multiple Choice questions

1)One of its most basic economic problems is that society 

A) must decide how to lower a product price.

B) has more products available than it needs.

C) has more resources available than it needs. 

D) must decide how to allocate available resources. 

 

2. Which of the following statements is FALSE? 

A) Economics is a behavioral science. 

B) In large measure, economics is the study of how people make choices. 

C) If poverty were eliminated there would be no reason to study economics. 

D) Economic analysis can be used to explain how both individuals and societies make decisions. 

 

3. The concept of opportunity cost 

A) is relevant only to economics. 

B) can be applied to the analysis of any decision-making process. 

C) applies to consumers but not to firms. 

D) refers only to actual payments and incomes. 

 

4. Opportunity cost is 

A) that which we forgo, or give up, when we make a choice or a decision. 

B) a cost that cannot be avoided, regardless of what is done in the future. 

C) the additional cost of producing an additional unit of output. 

D) the additional cost of buying an additional unit of a product. 

 

5.You have $100 in savings. You could earn four percent interest if you put the $100 in a bank savings account for a year. What is your opportunity cost if you put the $100 under the pillow of your bed instead?

A) $0.00. 

B) $4.00. 

C) $100.00. 

D) $104.00. 

 

6. The ______________ is NOT an opportunity cost of attending college. 

A) tuition you pay 

B) income you could have earned if you didn't attend college 

C) alternative uses of the time you spend studying 

D) cost of the food that you consume while you are attending college 

 

Refer to the information provided in Figure 1.1 below to answer the questions that follow.

 

 

 

 

Figure 1.1

7.Refer to Figure 1.1. There is __________ relationship between the daily temperature and the number of gallons of ice cream purchased. 

A) a negative 

B) a positive 

C) either a negative or a positive 

D) an inverse 

 

Refer to the information provided in Figure 1.2 below to answer the questions that follow.

 

 

 

 

Figure 1.2

8. Refer to Figure 1.2. The slope of the line between Points A and B is 

A) .3. 

B) 2.3. 

C) 3.3. 

D) indeterminate from this information. 

 

9. If a straight line has negative slope, a(n) ________ in X _______ Y.

A) increase; increases 

B) decrease; lowers 

C) increase; lowers 

D) decrease; doesn’t change 

Refer to the information provided in Figure 1.3 below to answer the questions that follow.

 

 

 

 

Figure 1.3

10. Refer to Figure 1.3. The slope of the line is 

A) positive. 

B) negative. 

C) increasing at an increasing rate. 

D) decreasing at an increasing rate. 

 

11. Refer to Figure 1.3. The slope of the line between the origin and Point B is 

A) 5. 

B) -2. 

C) 0.5. 

D) 2. 

 

12. Refer to Figure 1.3.  If a 45 degree line were also graphed, the line shown would __________ it. 

A) lie above 

B) lie below 

C) cross 

D) indeterminant from this information 

13. Refer to Figure 1.3. At Point A, what is the value of Y? 

A) 7. 

B) 8. 

C) 12. 

D) Indeterminate from this information 

 

14. Refer to Figure 1.3. At Point A the slope of the line is 2, so at Point D the slope would be 

A) greater than 2. 

B) less than 2. 

C) equal to 2. 

D) indeterminate from this information. 

 

Exercises

 

1. Referring to Situation #1 suppose that for the time being you can only afford to hire the first executive. What is the opportunity cost of the first executive’s work from the viewpoint of the company? Explain.

 

 

2. Referring to Situation #1 suppose that you can now hire two workers. What is the opportunity cost of the second executive’s work from the viewpoint of the company? Explain.

 

3.         Referring to Situation #1 suppose that you decide that you have to fire the first and the third executive without hiring any replacements. What would be the opportunity cost of the second executive’s work? Explain why your answer is not the same as in the question above.

 

 

4.Explain why it is more likely that the opportunity cost of attending a 7:00 a.m. class is forgone sleep but that this is not reasonably likely to be the case for a class that meets at 12:00 noon.

 

Problem Sets

1. The following table shows output per hour for Martha and Stewart who make gift baskets

and potholders:

 

	Output per Hour
	Martha	Stewart
Gift Baskets	10	8
Potholders	20	12

 

What is the opportunity cost of a gift basket for Martha?  What is the opportunity cost of a gift basket for Stewart?  Who has a comparative advantage in producing gift baskets?  How can you tell?

 

 

 

2. Explain the difference between absolute advantage and comparative advantage.

 

 

           

 

3. The following table shows output per hour for Martha and Stewart who make gift baskets and potholders:

	Output per Hour
	Martha	Stewart
Gift Baskets	10	8
Potholders	20	12

 

What is the opportunity cost of a potholder for Martha?  What is the opportunity cost of a potholder for Stewart?  Who has an absolute advantage in producing potholders?  Who has a comparative advantage in producing potholders?

 

 

4. The following table shows output per hour for Mexico and Canada, two countries that produce beer and T-shirts:

 

	Output per Hour
	Mexico	Canada
Beer (thousands of bottles)	5	10
T-shirts (thousands)	10	12

 

What is the opportunity cost of a bottle of beer for Mexico?  What is the opportunity cost of a T-shirt for Mexico?  Who has a comparative advantage in producing beer?  How can you tell?

 

 

           

 

5. Suppose that Rosie and Betty spend their free time making cakes and cookies.  Is it possible for Betty to have an absolute advantage in the production of both cakes and cookies?  Is it possible for Betty to have a comparative advantage in the production of both cakes and cookies?  Explain.

 

 

 

           

SCENARIO 1: Consider the following data for the harvest of crabs versus the harvest of fish of the coast of Virginia in answering the following questions.

 

 

 

 

 

6. Refer to Scenario 1. Graph the production possibilities frontier and calculate the

average opportunity cost of any of the first fifteen crabs produced.

 

 

 

 

 

 

7. Refer to Scenario 1. What is the economic significance of 25 fish captured and 25 

              crabs captured?

 

 

8. Refer to Scenario 1. Explain how this economy might be able to produce 45 fish and 45 crabs?

 

 

 

 

9. Refer to Scenario 2. Graphically illustrate the production choices on a production possibilities frontier. Which country’s PPF will likely move out farther in the future and why?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10. Refer to Scenario 2. What would be the impact of improvements in technology assuming that each country spends one-half of its resources on capital goods?

 

 

 

11. Refer to Scenario 2. What happens to the relative income distribution between the two countries under the conditions in the previous question? Explain.