Question 1

Brett, who is a chef, divides his time between fishing and cooking meals.His production set is described by the equation $x + 4 y = 15$ , where $x$ is the number of salmon he catches and y the number of meals he cooks.If Brett catches 5 salmon and cooks 2 meals,
A)he is overusing his resources.
B)the result is economically efficient.
C)the result is economically inefficient.
D)he is achieving the best possible outcome.

Accepted Answer

If Brett catches 5 salmon and cooks 2 meals, then plugging those values into the production set equation gives 5 + 4(2) = 13. This means that Brett is not using all of his available resources (which would be 15 in this case). Therefore, the result is economically inefficient. To achieve the best possible outcome, Brett would need to adjust his salmon catching and meal cooking to fully utilize his available resources.

Question 2

The shares of the economic value of a particular transaction that accrues to the seller and the buyer depend on:
A)the buyer's opportunity cost.
B)the relative bargaining powers of the two parties.
C)the cost of production incurred by the seller while producing the good.
D)the lobbying techniques adopted by the two parties.

Accepted Answer

The relative bargaining powers of the two parties determine the share of economic value that accrues to the seller and the buyer. If one party has more bargaining power than the other, they can negotiate a better deal for themselves, thereby receiving a larger share of the value of the transaction. Therefore, option B is the correct answer. Options A, C, and D may also play a role in determining the economic value of a transaction but are not the primary factors that determine the share of value that accrues to the seller and the buyer.

Question 3

_____ determine the efficient pattern of specialization in production.
A)Total costs
B)Opportunity costs
C)Marginal costs
D)Sunk costs

Accepted Answer

The answer of _____ determine the efficient pattern of specialization...

Question 4

The production of 1,000 shirts leaves an apparel manufacturer with a capacity to produce no more than 1,100 trousers during a month.This implies:
A)the production level is inefficient.
B)that if the production of trousers is reduced, that of shirts will also decline.
C)that a reallocation of resources may make previously unachievable outcomes achievable.
D)the production level is efficient.

Accepted Answer

The answer of The production of 1,000 shirts leaves an...

Question 5

Suppose a buyer and a seller agree to split the cost of hiring an interpreter who charges $4 per transaction.The seller's opportunity cost is $35, while the buyer values the good at $45.If the gains from this transaction are split equally between the buyer and the seller, how much will each gain from this transaction?
A)$10
B)$4
C)$3
D)$5

Accepted Answer

The answer of Suppose a buyer and a seller agree...

Question 6

Jake can wash 6 cars or mow 3 lawns during the same time.His marginal cost of washing a car is:
A)mowing one-third lawn.
B)mowing half a lawn.
C)mowing one lawn.
D)mowing 2 lawns.

Accepted Answer

Jake can wash 6 cars or mow 3 lawns in the same amount of time, which means washing 1 car is equivalent to mowing 1/2 a lawn in terms of time and effort.

Question 7

Suppose a buyer hires an interpreter who charges $5 to negotiate a deal with a seller.The buyer's valuation of the good is $50 and the seller's opportunity cost is $35.If the net benefit to the buyer is equal to the same received by the seller, what is the price agreed upon by the two parties?
A)$42
B)$40
C)$44
D)$38

Accepted Answer

The answer of Suppose a buyer hires an interpreter who...

Question 8

If the production of 2,000 cars and 500 tons of corn during a year is economically efficient for a country which produces only these two products, which of the following conclusions can be drawn?
A)It satisfies domestic demand completely.
B)The production of cars can not be increased without reducing the production of corn.
C)The reallocation of resources to change the production level must reduce production of both goods.
D)It is possible to increase the production of both if resources can be reallocated.

Accepted Answer

Economic efficiency implies that resources are allocated in a way that maximizes the production of goods. If the production is economically efficient, producing more of one good (cars) would require reallocating resources away from the other (corn), thus reducing its production.

Question 9

What matters in Economics is:
A)how much gain a transaction yields.
B)how the gains from a transaction are split between the buyer and the seller.
C)how much gain the buyer realizes from a transaction.
D)that the transaction between a buyer and a seller takes place.

Accepted Answer

The answer of What matters in Economics is:
A)how much gain...

Question 10

In the early twentieth century, general stores in the upper Midwest had more power over prices because:
A)they acted as intermediaries between farmers and buyers.
B)the transportation network was bad, leaving farmers and buyers with no alternatives except the general stores in small towns.
C)inventories at the general stores were low and demand was high.
D)stockouts were a chronic problem and there was little variety.

Accepted Answer

The poor transportation network in the upper Midwest during the early twentieth century limited farmers and buyers to the small towns and their general stores, giving these stores more power over prices.

Question 11

Suppose the seller's opportunity cost of producing shirts is $12 and the buyer's valuation is $22.If the seller gains $2 more than the buyer from this transaction, what is the price at which the good is exchanged between the two parties?
A)$17
B)$18
C)$19
D)$20

Accepted Answer

If the seller's opportunity cost is $12 and gains $2 more than the buyer's valuation of $22, then the seller must receive $24. 
The price of the shirt is somewhere between the buyer's valuation of $22 and seller's opportunity cost of $12. 
Since the seller is gaining $24 - $12 = $12 from the transaction, the price must be $12 + $12 = $24. 
Therefore, the only option that falls between $12 and $24 is option B) $18.

Question 12

Which of the following statements is true regarding the opportunity cost of time?
A)Retired people are more likely to visit supermarkets than farmers' markets.
B)Students are more likely to visit farmers' markets even during exams.
C)Working professionals are more likely to frequent convenience stores.
D)The opportunity cost of time for farmers and buyers participating in the farmers' market is usually very high.

Accepted Answer

Working professionals often have less free time due to their job commitments, making convenience stores a more attractive option due to their accessibility and time-saving nature. This reflects the concept of opportunity cost of time, where the value of time spent on one activity is measured by the value of the best alternative activity that could have been done instead.

Question 13

The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is $50 as Ed's opportunity cost of selling is $135 and Luis' valuation of the good is $185.Suppose Ed and Luis do not speak the same language and Ed hires an interpreter who charges $2 per hour.Ed and Luis finally agree to a price of $160.This implies:
A)Luis' valuation of the good will increase.
B)Ed's opportunity cost will decline.
C)economic value from the transaction will decline.
D)Ed will receive to a lower benefit than Luis.

Accepted Answer

Ed's benefit is $25 ($160 - $135), while Luis' benefit is $25 ($185 - $160). After paying the interpreter $2, Ed's net benefit is $23, which is lower than Luis' benefit of $25.

Question 14

The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is $50 as Ed's opportunity cost of selling is $135 and Luis' valuation of the good is $185.If each gains $25 from this transaction, which of the following conclusions can be drawn?
A)Transaction costs are zero.
B)Luis has higher bargaining power than Ed.
C)Ed has higher bargaining power than Luis.
D)Transaction costs are positive.

Accepted Answer

Transaction costs are zero because both Ed and Luis gain $25 from the transaction, which means that the total surplus created by the transaction is $50. This is equal to the economic value that can be created by the transaction, which means that there are no transaction costs.

Question 15

Reducing _____ the benefits available to the buyer and seller and might also enable them to make exchanges that were previously impossible.
A)transaction costs decreases
B)transaction costs increases
C)marginal costs decreases
D)marginal costs increases

Accepted Answer

The answer of Reducing _____ the benefits available to the...

Question 16

The main reason Sears Roebuck became the largest retailer in the United States during the late nineteenth century was that:
A)it reduced a host of transaction costs which allowed higher profits to shareholders and lower prices to customers.
B)the railroad network improved substantially and charged higher rates for transporting goods.
C)the lack of competition lowered the cost of advertising and increased profits for shareholders.
D)his organization only interacted with the best wholesalers, distributors, and shippers in the business.

Accepted Answer

Sears Roebuck reduced transaction costs by cutting out middlemen and establishing direct relationships with manufacturers. This allowed them to offer lower prices to customers and higher profits to shareholders, which ultimately led to their success as the largest retailer in the United States during the late nineteenth century. The other options (B, C, and D) do not accurately explain Sears Roebuck's success during this time period.

Question 17

Suppose Zia spends her time picking berries and apples.Her production set is described by the equation $x + 2 y = 40$ , where $x$ is the number of berries and y the number of apples.Which of the following statements will be true?
A)25 apples and 10 berries is achievable but inefficient.
B)10 berries and 2 apples is efficient but unachievable.
C)20 apples and 5 berries is an inefficient level of production.
D)30 berries and 5 apples is an efficient level of production.

Accepted Answer

The equation x + 2y=40 is the production possibility frontier (PPF) for Zia's berry and apple production. Any point on the line is an efficient level of production because it exhausts all available resources (time) and produces the maximum output. 
Option A is incorrect because 25 apples and 10 berries will not be an inefficient level of production since it is still on the PPF.
Option B is incorrect because 10 berries and 2 apples is an unachievable point since it will be outside the PPF.
Option C is incorrect because 20 apples and 5 berries is an efficient level of production since it is a point on the PPF.
Option D is the answer since 30 berries and 5 apples is an efficient level of production since it is a point on the PPF.

Question 18

Fiona can iron 5 shirts or cook 2 meals in an hour.Alicia can iron 6 shirts or cook 1 meal in an hour.Which of the following statements is true?
A)Fiona's marginal cost of ironing a shirt is greater than Alicia's.
B)Alicia's marginal cost of ironing a shirt is greater than Fiona's.
C)Alicia's marginal cost of cooking a meal is twice that of Fiona's.
D)Fiona's marginal cost of cooking a meal is twice that of Alicia's.

Accepted Answer

Fiona's marginal cost of ironing a shirt is 0.4 meals (2 meals/5 shirts), while Alicia's is 1 meal (1 meal/6 shirts), making Fiona's cost greater.

Question 19

The total cost of purchasing a car is:
A)the dollar amount paid for it.
B)the dollar amount paid for it plus the seller's opportunity cost.
C)the dollar amount paid for it plus the buyer's opportunity cost of time spent on buying it.
D)the dollar amount paid for it plus the seller's opportunity cost of the time spent on looking for a buyer.

Accepted Answer

The total cost of purchasing a car includes not only the dollar amount paid for it but also the buyer's opportunity cost of time spent on buying it. This could include things like researching, negotiating, and test driving. The seller's opportunity cost or time spent on looking for a buyer is not directly relevant to the total cost of purchasing a car.

Question 20

Inefficient use of resources leads to:
A)production bundles inside the production set.
B)production bundles outside the production set.
C)a reduction in the production set.
D)production of a combination on the production set.

Accepted Answer

Inefficient use of resources means that not all resources are being used in the best possible way to maximize output, which results in production bundles that are inside the production set, indicating that more could be produced with the available resources if they were used more efficiently.

Quiz 2: Transactions and Institutions: the Building Blocks

Brett, who is a chef, divides his time between fishing and cooking meals.His production set is described by the equation $x + 4 y = 15$ , where $x$ is the number of salmon he catches and y the number of meals he cooks.If Brett catches 5 salmon and cooks 2 meals,

The shares of the economic value of a particular transaction that accrues to the seller and the buyer depend on:

_____ determine the efficient pattern of specialization in production.

The production of 1,000 shirts leaves an apparel manufacturer with a capacity to produce no more than 1,100 trousers during a month.This implies:

Jake can wash 6 cars or mow 3 lawns during the same time.His marginal cost of washing a car is:

Suppose a buyer hires an interpreter who charges $5 to negotiate a deal with a seller.The buyer's valuation of the good is $50 and the seller's opportunity cost is $35.If the net benefit to the buyer is equal to the same received by the seller, what is the price agreed upon by the two parties?

If the production of 2,000 cars and 500 tons of corn during a year is economically efficient for a country which produces only these two products, which of the following conclusions can be drawn?

What matters in Economics is:

In the early twentieth century, general stores in the upper Midwest had more power over prices because:

Suppose the seller's opportunity cost of producing shirts is $12 and the buyer's valuation is $22.If the seller gains $2 more than the buyer from this transaction, what is the price at which the good is exchanged between the two parties?

Which of the following statements is true regarding the opportunity cost of time?

The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer) , is $50 as Ed's opportunity cost of selling is $135 and Luis' valuation of the good is $185.If each gains $25 from this transaction, which of the following conclusions can be drawn?

Reducing _____ the benefits available to the buyer and seller and might also enable them to make exchanges that were previously impossible.

The main reason Sears Roebuck became the largest retailer in the United States during the late nineteenth century was that:

Suppose Zia spends her time picking berries and apples.Her production set is described by the equation $x + 2 y = 40$ , where $x$ is the number of berries and y the number of apples.Which of the following statements will be true?

Fiona can iron 5 shirts or cook 2 meals in an hour.Alicia can iron 6 shirts or cook 1 meal in an hour.Which of the following statements is true?

The total cost of purchasing a car is:

Inefficient use of resources leads to: