Deck 2: Economic Models and Gains From Trade

Question 1

Why do economists use models?

A) Models are used to add complexity to a simple world.
B) Models allow us to study a simplified version of a complex world.
C) Models allow us to control external factors.
D) Models make the world harder to understand.
E) Models allow us to examine more factors than what actually exists in our world.

Answer 1

Models allow us to study a simplified version of a complex world.

Question 2

Which of the following is a normative statement?

A) The sky is blue.
B) The sky is green with pink polka dots.
C) Points on the production possibilities frontier (PPF) are efficient.
D) Points outside the PPF are unattainable with current resources.
E) We should strive to push the PPF outward.

Answer 2

We should strive to push the PPF outward.

Question 3

The scientific method and the tools of economics are useful in examining:

A) only how individuals make decisions.
B) only how business firms make decisions.
C) only how government policies affect macroeconomic outcomes.
D) only the trade-offs evident in production possibilities frontier (PPF).
E) anything; economists will use their tools to study anything in the world around them.

Answer 3

anything; economists will use their tools to study anything in the world around them.

Question 4

A positive statement:

A) is a claim that can be tested.
B) is a statement about what ought to be.
C) is a declaration of opinion.
D) is a claim that cannot be tested.
E) cannot be evaluated using the scientific method.

Question 5

The process of examining a change in one variable in a model while assuming that all the other variables remain constant is called:

A) external factors.
B) ceteris paribus.
C) normative analysis.
D) positive analysis.
E) faulty assumptions.

Question 6

Which of the following is a positive statement?

A) My dog should lose some weight.
B) Legally requiring dogs to have rabies shots will reduce the number of rabid dogs.
C) You should take your dog to the veterinarian once a year for a checkup.
D) Chihuahuas are cuter than bulldogs.
E) All dogs should be required to wear leashes at all times.

Question 7

Which of the following is a positive statement?

A) Individuals should make good long-term decisions.
B) Corporations should maximize shareholder value.
C) Government should reduce the level of unemployment.
D) The most important effects of policy happen in the short term.
E) The unemployment rate is 8%.

Question 8

The important act of holding all other variables constant while examining a particular variable is known as:

A) constraint.
B) a normative statement.
C) a positive statement.
D) macroeconomics.
E) ceteris paribus.

Question 9

Which of the following is a normative statement?

A) You should wear a helmet when cycling.
B) The sky is blue.
C) A bicycle has two wheels.
D) A unicycle has five wheels.
E) Electricity follows the path of least resistance.

Question 10

An economist's use of experiments and real-world data to test a theory is an example of:

A) the scientific method in economics.
B) macroeconomics.
C) economic growth.
D) normative analysis.
E) comparative advantage.

Question 11

A model without any simplifying assumptions:

A) is highly complex and likely unworkable.
B) excludes important predictive variables.
C) is very helpful for solving tough, real-world problems.
D) does not look like the real-world problem it is meant to address.
E) provides simplified solutions to complex problems.

Question 12

A graph that shows the maximum attainable combinations of two goods when society efficiently uses its productive resources is called:

A) a production possibilities frontier (PPF).
B) a supply curve.
C) opportunity cost.
D) a consumer demand curve.
E) absolute advantage.

Question 13

Which of the following is a positive statement?

A) Winters in Arkansas are too cold.
B) Everyone should work in a bank to understand the true value of money.
C) Harvard University is the top education institution in the country.
D) On average, people save 15% when they switch to GEICO.
E) Everyone ought to have a life insurance policy.

Question 14

Which of the following is a positive statement?

A) An economist should test every theory at least twice.
B) Increases in the minimum wage cause unemployment.
C) We ought to deregulate the mortgage market.
D) The government must provide unlimited health care to citizens.
E) We should forgo some current consumption in order to invest in the future.

Question 15

On the television show MythBusters,the hosts design experiments,collect data,and test theories based on popular myths.This is an example of:

A) the scientific method as used in economics.
B) economic growth.
C) gains from trade.
D) production possibilities.
E) absolute advantage.

Question 16

Which of the following is necessary to build a good economic model?

A) normative statements
B) assumptions
C) opinions
D) complex math
E) realism

Question 17

Ceteris paribus means:

A) in sets of two.
B) constant opportunity cost.
C) other things being equal.
D) buyer beware.
E) there is no reason to argue about people's tastes.

Question 18

Economists use the scientific method and the tools of economics to study:

A) only the decisions of individuals.
B) only the decisions of business firms.
C) only economic growth and gross domestic product (GDP).
D) only the production possibilities curve.
E) anything around them; the world is the economist's laboratory.

Question 19

One reason that economists make assumptions when designing models is to:

A) exclude variables that do not add predictive power to the model.
B) make models more like the real world.
C) make models more complex.
D) increase internal factors.
E) ensure that all possible factors are included.

Question 20

Which of the following is a normative statement?

A) The current exchange rate is 0.7 British pounds per U.S.dollar.
B) In January, the average temperature in Fargo, North Dakota, is 56 degrees.
C) Winters in Arkansas are too cold.
D) On average, people save 15% when they switch to GEICO.
E) University of Virginia graduates earn more than Duke University graduates.

Question 21

Refer to the following figure to answer the questions that follow.

Which statement best describes the opportunity cost evident in the production possibilities frontier (PPF)for the corresponding figure?

A) The law of increasing relative cost applies because the PPF is a straight line.
B) The law of increasing relative cost applies because the PPF is bowed outward.
C) The opportunity cost is constant because the PPF is a straight line.
D) The opportunity cost is constant because the PPF is bowed outward.
E) The opportunity cost decreases because the line has a negative slope.

Question 22

Refer to the following figure to answer the questions that follow.

Based on the graph,what is the most preferred consumption point for a pie-appreciating society?

A) point A
B) point B
C) point C
D) point D
E) point E

Question 23

The area inside (within)the production possibilities frontier (PPF)contains ________ points.

A) normative
B) positive
C) efficient
D) inefficient
E) high opportunity cost

Question 24

Refer to the following figure to answer the questions that follow.

In the figure,point A is:

A) an efficient point.
B) unattainable with current resources.
C) an inefficient point.
D) the equilibrium.
E) the point where society would prefer to consume.

Question 25

Refer to the accompanying figure to answer the questions that follow.

Which point(s)on the figure show inefficient use of resources?

A) point A.
B) point B.
C) point C.
D) point D.
E) points B, C, and E.

Question 26

Refer to the following figure to answer the questions that follow.

Which point in the corresponding figure represents a combination of smoothies and milk shakes that society cannot currently produce?

A) point A
B) point B
C) point C
D) point D
E) point E

Question 27

Refer to the following figure to answer the questions that follow.

Which point on the figure represents a point that is unattainable with current resources and technology?

A) point A
B) point B
C) point C
D) point D
E) point E

Question 28

Refer to the following figure to answer the questions that follow.

Which point on the figure shows inefficient use of resources?

A) point A
B) point B
C) point C
D) point D
E) point E

Question 29

Refer to the accompanying figure to answer the questions that follow.

How is opportunity cost illustrated in the figure?

A) a move from point A to point B
B) a move from point A to point C
C) a move from point C to point D
D) a move from point B to point C
E) a move from point D to point E

Question 30

At full employment,a society produces:

A) somewhere within its production possibilities frontier (PPF).
B) somewhere outside its PPF.
C) at the origin on its PPF graph.
D) on its PPF.
E) only one good.

Question 31

Refer to the accompanying figure to answer the questions that follow.

Based on the figure,you would need even more hours in each day in order to attain:

A) point A.
B) point B.
C) point C.
D) point D.
E) point E.

Question 32

Refer to the accompanying figure to answer the questions that follow.

The inefficient point(s)on the figure is/are:

A) point A.
B) points C and D.
C) point C.
D) point D.
E) points B, C, and E.

Question 33

On a production possibilities frontier (PPF)that shows the trade-off between consumer goods and capital goods given a fixed amount of labor,unemployment is illustrated by:

A) movement from a point within the frontier to a point on the frontier.
B) a point outside the frontier.
C) a point within the frontier.
D) movement from a point on the frontier to another point on the frontier.
E) a point on the frontier.

Question 34

Refer to the following figure to answer the questions that follow.

You can see that the opportunity cost of moving from point B to point D is different from the opportunity cost of moving from point D to point C because:

A) apples are bigger than blueberries.
B) the slope of the production possibilities frontier (PPF) is different in each of the two segments.
C) they are all efficient points.
D) they are all attainable points.
E) the opportunity cost is constant along the PPF.

Question 35

Refer to the following figure to answer the questions that follow.

In the figure,point E is:

A) an efficient point.
B) unattainable with current resources.
C) an inefficient point.
D) the equilibrium.
E) evidence that trade does not enrich society.

Question 36

Think of the production possibilities frontier (PPF)model.When society is producing the largest possible output from its resources,it is operating:

A) inefficiently.
B) efficiently.
C) with no opportunity cost.
D) inside (within) the PPF.
E) beyond its opportunity cost.

Question 37

Refer to the following figure to answer the questions that follow.

Which point in the corresponding figure shows that productive resources are NOT fully employed?

A) point A
B) point B
C) point C
D) point D
E) point E

Question 38

How will a reduction in the national unemployment rate affect a nation's production possibilities frontier (PPF)?

A) It will cause the PPF to shift inward.
B) It will cause the PPF to shift outward.
C) It will move society to a point farther inside the PPF.
D) It will move society outward to a point closer to or on the PPF.
E) It will push society to a point outside its PPF.

Question 39

The ________ illustrates the various combinations of output that a society can produce if all of its resources are being used efficiently.

A) concept of absolute advantage
B) law of positive statements
C) law of demand
D) production possibilities frontier (PPF)
E) principle of comparative advantage

Question 40

Ceteris paribus,if a society is producing at a point on the production possibilities frontier (PPF),it can only increase the production of one good by:

A) also increasing the production of the second good.
B) decreasing the production of the second good.
C) increasing the price of the second good.
D) decreasing the price of the second good.
E) reducing the resources available for production.

Question 41

Refer to the following table to answer the questions that follow.

Given an eight-hour workday,which statement best describes the absolute advantage evident in the table?

A) Jay-Z has an absolute advantage in making pizzas, and Alicia Keys has an absolute advantage in making cheesesteaks.
B) Alicia Keys has an absolute advantage in making pizzas, and Jay-Z has an absolute advantage in making cheesesteaks.
C) Jay-Z has an absolute advantage in the production of both foods.
D) Alicia Keys has an absolute advantage in the production of both foods.
E) Neither party has an absolute advantage.

Question 42

The ________ states that the opportunity cost of producing a good always rises as you produce more of it.

A) law of increasing relative cost
B) law of positive economics
C) law of demand
D) production possibilities frontier (PPF) model
E) zero-sum game

Question 43

When the opportunity cost of producing a good rises as you produce more of it,you experience:

A) normative economics.
B) increasing relative costs.
C) downward-sloping demand.
D) inferior goods.
E) increasing marginal utility.

Question 44

The movie Saving Private Ryan is about a military mission to find and recover a particular soldier-Private Ryan.The movie is predominantly about how much was given up in an effort to save this one particular soldier.The main economic theme of the movie is:

A) absolute advantage.
B) opportunity cost.
C) normative analysis.
D) comparative advantage.
E) positive advantage.

Question 45

Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the questions that follow.

What is Michael's opportunity cost of a sculpture?

A) 2 paintings
B) 1/2 painting
C) 3 paintings
D) 1/3 sculpture
E) 1/2 sculpture

Question 46

Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the questions that follow.

What is Angelo's opportunity cost of a painting?

A) 1/3 painting
B) 1/3 sculpture
C) 2/5 sculpture
D) 3 paintings
E) 3 sculptures

Question 47

Refer to the following table to answer the questions that follow.

Given the same quantity of resources,what is Alicia Keys's opportunity cost of producing a New York pizza?

A) 5/2 Philly cheesesteaks
B) 2/5 Philly cheesesteak
C) 3 Philly cheesesteaks
D) 1/3 New York pizza
E) 4/5 New York pizza

Question 48

Consider the production possibilities frontier (PPF) shown in the figure below to answer the questions that follow.

The set of efficient points is best described as which places on the figure?

A) only area O: points outside the PPF.
B) points on the PPF only.
C) only area I: points inside the PPF.
D) area I: inside the PPF and points on the PPF.
E) area O: outside the PPF and points on the PPF.

Question 49

Refer to the following table to answer the questions that follow.

Given the same quantity of resources,what is Jay-Z's opportunity cost of producing a New York pizza?

A) 5/2 Philly cheesesteaks
B) 1/3 Philly cheesesteak
C) 3 Philly cheesesteaks
D) 120/125 New York pizza
E) 4/5 New York pizza

Question 50

Suppose you are studying a production possibilities frontier (PPF)that has a bowed-out shape relative to the origin.What causes this shape?

A) economic growth
B) the law of increasing relative cost
C) absolute advantage
D) normative economics
E) more resources

Question 51

Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the questions that follow.

What is Angelo's opportunity cost of a sculpture?

A) 1/2 painting
B) 1/3 painting
C) 3 paintings
D) 1/3 sculpture
E) 6/10 sculpture

Question 52

Which of the following is NOT an assumption that economists make when developing a production possibilities frontier (PPF)?

A) We live in a world with only two goods.
B) There are no increases in technology.
C) There is no change in available resources.
D) Society will always be producing somewhere on the PPF.
E) There are no decreases in technology.

Question 53

A society that is producing its maximum combination of goods and using all available resources for production:

A) has minimized its opportunity cost.
B) has maximized its opportunity cost.
C) is operating on its production possibilities frontier (PPF).
D) is operating outside its production possibilities frontier (PPF).
E) has eliminated scarcity.

Question 54

Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the questions that follow.

Does either Michael or Angelo have an absolute advantage?

A) Yes, Michael has an absolute advantage in both sculptures and paintings.
B) Yes, Angelo has an absolute advantage in both sculptures and paintings.
C) Yes, Michael has an absolute advantage in paintings, and Angelo has an absolute advantage in sculptures.
D) Yes, Michael has an absolute advantage in sculptures, and Angelo has an absolute advantage in paintings.
E) No, neither has an absolute advantage.

Question 55

Consider the production possibilities frontier (PPF) shown in the figure below to answer the questions that follow.

Given current resources and technology,the attainable range is best described as which places on the figure?

A) only area O: points outside the PPF.
B) points on the PPF only.
C) only area I: points inside the PPF.
D) area I: points inside the PPF and points on the PPF.
E) area O: points outside the PPF and points on the PPF.

Question 56

Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the questions that follow.

What is Michael's opportunity cost of a painting?

A) 1/2 painting
B) 1/2 sculpture
C) 3 paintings
D) 2 sculptures
E) 2 paintings

Question 57

Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the questions that follow.

Does either Michael or Angelo have a comparative advantage?

A) Yes, Michael has a comparative advantage in both sculptures and paintings.
B) Yes, Angelo has a comparative advantage in both sculptures and paintings.
C) Yes, Michael has a comparative advantage in paintings, and Angelo has a comparative advantage in sculptures.
D) Yes, Michael has a comparative advantage in sculptures, and Angelo has a comparative advantage in paintings.
E) No, neither has a comparative advantage.

Question 58

As you move from one efficient point on the production possibilities frontier (PPF)to another efficient point on the PPF,you experience:

A) decreasing relative cost.
B) opportunity cost.
C) macroeconomics.
D) unlimited resources.
E) unattainable combinations.

Question 59

The production possibilities frontier (PPF)shows:

A) the trade-off between the efficient production of two different goods.
B) the difference between micro analysis and macro analysis.
C) the difference between normative and positive analysis.
D) how a firm should price a new product.
E) how price and quantity are related for a single good.

Question 60

Consider the production possibilities frontier (PPF) shown in the figure below to answer the questions that follow.

Given current resources and technology,the unattainable range is best described as which places on the figures?

A) only area O: points outside the PPF.
B) points on the PPF only.
C) only area I: points inside the PPF.
D) area I: inside the PPF and points on the PPF.
E) area O: outside the PPF and points on the PPF.

Question 61

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between building wooden boats and solving crimes. Refer to these figures to answer the questions that follow.

Which statement best describes absolute advantage?

A) DiNozzo has an absolute advantage in the production of wooden boats.
B) DiNozzo has an absolute advantage in both.
C) Gibbs has an absolute advantage in solving crimes, whereas DiNozzo has an absolute advantage in making wooden boats.
D) Gibbs has an absolute advantage in both.
E) Gibbs has an absolute advantage in making wooden boats, whereas DiNozzo has an absolute advantage in solving crimes.

Question 62

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the questions that follow.

What is Jim's opportunity cost of making a stromboli?

A) 1/2 pizza
B) 2/3 pizza
C) 2 pizzas
D) 2 stromboli
E) 25 pizzas

Question 63

Refer to the following figure for the questions that follow.

As you move from points N to M to L,the opportunity cost of additional apple pie:

A) decreases due to the law of increasing relative cost.
B) increases due to the law of increasing relative cost.
C) decreases due to the law of normative economics.
D) increases due to the law of marginal analysis.
E) decreases due to enhancements in technology.

Question 64

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between building wooden boats and solving crimes. Refer to these figures to answer the questions that follow.

What is Gibbs's opportunity cost of making a wooden boat?

A) 20 solved crimes
B) 30 solved crimes
C) 10 solved crimes
D) 1/20 of a boat
E) 1/10 of a boat

Question 65

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between building wooden boats and solving crimes. Refer to these figures to answer the questions that follow.

What is Gibbs's opportunity cost of solving a crime?

A) 20 solved crimes
B) 30 solved crimes
C) 5 solved crimes
D) 1/20 of a boat
E) 1/10 of a boat

Question 66

Refer to the following table to answer the questions that follow.

Given an eight-hour workday,to experience gains from trade:

A) Alicia should make pizzas and Jay-Z should make cheesesteaks.
B) Alicia should make cheesesteaks and Jay-Z should make pizzas.
C) each should make their own cheesesteaks and pizzas.
D) Alicia should produce both pizzas and cheesesteaks.
E) Jay-Z should produce both pizzas and cheesesteaks.

Question 67

Opportunity cost is evident on the production possibilities frontier (PPF)graph:

A) as you move from one point on the frontier to another point on the frontier.
B) as you move from the origin to any inefficient point.
C) as you move from one unattainable point to an efficient point on the frontier.
D) as you move from an inefficient point to the origin.
E) at any one single point on the graph.

Question 68

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the questions that follow.

What is Pam's opportunity cost of making a stromboli?

A) 30 pizzas
B) 20 stromboli
C) 2 pizzas
D) 1.5 pizzas
E) 2/3 pizza

Question 69

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the questions that follow.

Based on the figures,which statement about comparative advantage is true?

A) Jim has a comparative advantage in the production of stromboli because his opportunity cost is lower.
B) Jim has a comparative advantage in the production of stromboli because his opportunity cost is higher.
C) Jim has a comparative advantage in the production of pizzas because his opportunity cost is lower.
D) Jim has a comparative advantage in the production of pizzas because his opportunity cost is higher.
E) Jim has a comparative advantage in the production of both pizzas and stromboli.

Question 70

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between building wooden boats and solving crimes. Refer to these figures to answer the questions that follow.

What is DiNozzo's opportunity cost for solving a crime?

A) 20 solved crimes
B) 30 solved crimes
C) 5 solved crimes
D) 1/20 of a boat
E) 1/10 of a boat

Question 71

Refer to the following table to answer the questions that follow.

Suppose that Alicia Keys and Jay-Z could each make either New York-style pizza or Philly cheesesteaks.Given an eight-hour workday,which of the following would permit them to consume outside their respective production possibilities frontiers (PPFs)?

A) a decrease in technology
B) a decrease in resources
C) specialization and trade
D) efficient use of all their productive resources
E) an "Empire State" of mind

Question 72

Suppose you find a production possibilities frontier (PPF)that is shaped like a straight line.What can you determine about the production of the two goods?

A) Production of the two goods is subject to decreasing relative cost.
B) Production of the two goods is subject to increasing relative cost.
C) Production of the two goods is subject to constant opportunity cost anywhere along the PPF.
D) One producer must have an absolute advantage in production.
E) More resources will not cause the PPF to shift.

Question 73

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between building wooden boats and solving crimes. Refer to these figures to answer the questions that follow.

What is DiNozzo's opportunity cost of making a wooden boat?

A) 20 solved crimes
B) 30 solved crimes
C) 10 solved crimes
D) 1/20 of a boat
E) 1/10 of a boat

Question 74

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the questions that follow.

What is Jim's opportunity cost of making a pizza?

A) 50 stromboli
B) 20 stromboli
C) 2.5 stromboli
D) 2 stromboli
E) 1.5 stromboli

Question 75

Refer to the following figure for the questions that follow.

According to the figure,a new technology that makes it easier to peel,core,and prepare apples will cause the:

A) entire production possibilities frontier (PPF) to shift outward.
B) entire PPF to shift inward.
C) PPF to rotate outward to a larger maximum quantity of apple pies with no change in maximum blueberry pies.
D) PPF to rotate outward to a larger maximum quantity of blueberry pies with no change in maximum apple pies.
E) PPF to stay exactly the same because there is no change in resources.

Question 76

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the questions that follow.

If Jim and Pam were to specialize and trade,at what exchange rate would they find some quantity of trade to be mutually beneficial?

A) 3 pizzas for 1 stromboli
B) 1 pizza for 1 stromboli
C) 10 pizzas for 2 stromboli
D) 1 pizza for 1/2 stromboli
E) 1 pizza for 1/4 stromboli

Question 77

Refer to the following figure for the questions that follow.

The opportunity cost of increasing production of apple pies from 14 to 16 pies is:

A) 2 blueberry pies.
B) 14 apple pies.
C) 7 blueberry pies.
D) 4 blueberry pies.
E) 16 blueberry pies.

Question 78

Refer to the following figure for the questions that follow.

The opportunity cost of increasing production of blueberry pies from 7 to 11 pies is:

A) 2 blueberry pies.
B) 14 apple pies.
C) 7 blueberry pies.
D) 4 apple pies.
E) 2 apple pies.

Question 79

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Refer to these figures to answer the questions that follow.

Which statement best describes the absolute advantage shown in the figures?

A) Pam has an absolute advantage in the production of both.
B) Jim has an absolute advantage in the production of both.
C) Jim has an absolute advantage in the production of pizzas, and Pam has an absolute advantage in the production of stromboli.
D) Pam has an absolute advantage in the production of pizzas, and Jim has an absolute advantage in the production of stromboli.
E) They both have an absolute advantage in the production of stromboli.

Question 80

Refer to the following figure for the questions that follow.

The opportunity cost of increasing the production of apple pies from 12 to 14 pies is:

A) 2 blueberry pies.
B) 14 apple pies.
C) 7 blueberry pies.
D) 4 blueberry pies.
E) 2 apple pies.