Question 1

The reason why the government taxes the gasoline used by pollution- causing automobiles is because it is trying to:

Accepted Answer

By taxing gasoline used by pollution-causing automobiles, the government is trying to make the drivers face the full cost of their driving decisions. This is because driving a pollution-causing automobile has negative externalities for society, such as increased air pollution and healthcare costs. When drivers pay a tax on gasoline, they are paying for some of these external costs and are therefore incentivized to take steps to reduce their driving or switch to a cleaner form of transportation.

Question 2

Recall Application 2, "Gold Farming for World of Warcraft," to answer the following questions:
-According to the application, the purchase of virtual gold coins were done by online gamers who had:

Accepted Answer

The application states that the purchase of virtual gold coins were done by online gamers who had a high opportunity cost of their time. This means that these gamers valued their time highly and were willing to spend money to obtain virtual currency rather than spend hours of gameplay to earn it themselves.

Question 3

Suppose a car is completely produced and assembled in Germany and is sold to the United States. In this example, the country that imports the car is _______ while the country that exports the car is _______.

Accepted Answer

The United States is the importer because it is the country receiving the car, and Germany is the exporter because it is the country where the car was produced and from which the car is sent.

Question 4

Suppose that in the time it takes for him to bake a cake, Bob can sew 5 pairs of jeans. In the time it takes for Joe to bake a cake, he can sew 8 pairs of jeans day. In this example, Bob has advantage _______over Joe in cake baking.

Accepted Answer

The term "advantage" suggests a comparison between Bob and Joe. Therefore, it is a comparative advantage. The information given does not provide any absolute measure of their baking abilities.

Question 5

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions:
-According to the application, even though about 90% of the worlds candy canes are consumed in the US and domestic producers dominated the market, domestic producers moved production to Mexico because:

Accepted Answer

The article states that the US restricts sugar imports, leading to higher domestic prices for sugar, making it more expensive for candy cane producers to purchase sugar domestically. Therefore, they moved production to Mexico, where sugar is cheaper.

Question 6

Table 3.1
-Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

Accepted Answer

The answer of  Table 3.1
-Table 3.1 illustrates Willy and...

Question 7

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions:
-According to the application, US producers moved their candy cane production overseas due to:

Accepted Answer

The article states that US sugar prices were artificially high due to import restrictions, which offset the lower transportation costs of producing candy canes in Mexico. This economic factor led to the decision to move production overseas. The other choices (A, C, and D) are not mentioned in the article as reasons for the move.

Question 8

A contract:

Accepted Answer

A contract specifies the term of exchange, which helps strangers to transact with each other with trust and confidence. This reduces the risk faced by entrepreneurs and enables them to engage in market transactions with strangers. Contracts do not necessarily increase the profitability of inventions or provide the public with reliable information about the performance of a firm.

Question 9

Suppose a car is completely produced and assembled in Germany and is sold to the United States. In this example, if the United States restricts the purchase of the car from Germany, then the country whose overall welfare would be reduced by this policy would be:

Accepted Answer

Restricting imports from Germany would harm both countries. The United States consumers would face higher prices and fewer choices, reducing consumer welfare. Germany would lose a market for its cars, reducing producer welfare and potentially leading to job losses in the automotive sector.

Question 10

A specialized worker does not spend time switching from one task to another. This is called:

Accepted Answer

Continuity refers to the ability to work on a single task or project without interruptions or distractions, allowing for greater focus and efficiency. This is especially important for specialized workers, who may require a high level of concentration on their specific area of expertise. Repetition refers to performing the same task over and over again, while innovation and functionality are not directly related to the concept of task switching.

Question 11

_______ occurs when a firm is shifting part of its production to another country.

Accepted Answer

Outsourcing refers to the practice of shifting part of a firm's production (such as manufacturing or customer service) to another country, typically to take advantage of lower labor costs or other benefits. Exporting and importing refer specifically to the movement of goods and services across borders, and while these activities may be related to outsourcing, they are not the same thing.

Question 12

Which of the following is not a public good?

Accepted Answer

A public good is a good that is non-rivalrous (meaning one person's use of it does not diminish its availability to others) and non-excludable (meaning no one can be prevented from using it). National defense, levees, and space exploration are all examples of public goods because they meet these criteria. A hamburger, on the other hand, is a private good because it is both rivalrous (one person's consumption of it diminishes the availability to others) and excludable (people can be prevented from consuming it if they do not have the means to purchase it).

Question 13

Markets exist:

Accepted Answer

Markets exist for multiple reasons. People specialize in producing one or two products because it is more efficient and allows them to trade for other goods they need. People are not self-sufficient, and thus they need to exchange goods and services with each other. Markets provide a platform for buyers and sellers to exchange goods and services, creating the basis for trade and commerce. Therefore, all three options are correct.

Question 14

_______ is another term for "offshoring."

Accepted Answer

Offshoring refers to the practice of businesses outsourcing tasks or services to companies in another country to reduce costs or take advantage of different labor markets. Choice D (Outsourcing) is the term commonly used to refer to this practice.

Question 15

Among the roles of the government in a market economy is to:

Accepted Answer

In a market economy, the government's role is limited to enforcing property rights and ensuring a level playing field for all participants in the market. The government does not determine what is produced or own the means of production, as these decisions are made by private individuals and businesses in response to market forces. Therefore, the correct answer is A) enforce property rights.

Question 16

When the government filed a lawsuit against Microsoft in 1998 alleging that Microsoft illegally bundled Internet Explorer in its operating software, the government's objective was to:

Accepted Answer

The government's objective in filing a lawsuit against Microsoft in 1998 was to foster competition. The government alleged that Microsoft's bundling of Internet Explorer in its operating software was anti-competitive and prevented other companies from competing fairly in the web browser market. The lawsuit ultimately resulted in Microsoft being ordered to offer Windows users a choice of web browsers.

Question 17

The ability of one person or nation to produce a good at a lower absolute cost than another is called a(n):

Accepted Answer

Absolute advantage refers to a situation where one entity has the ability to produce a certain good or service at a lower cost than another entity, whereas comparative advantage refers to a situation where one entity has a lower opportunity cost of producing a certain good or service than another entity. Since the question specifies "lower absolute cost", the correct answer is D.

Question 18

Recall Application 2, "Gold Farming for World of Warcraft," to answer the following questions:
-Suppose a US "World of Warcraft" player's opportunity cost is $8.00 an hour and can collect 25 coins per hour playing in the game. If the price of the virtual coins was $0.20 each, the player would find it worth their while to:

Accepted Answer

The player can earn $5.00 per hour by collecting coins (25 coins x $0.20 each), which is less than their opportunity cost of $8.00 per hour. Therefore, it is more cost-effective for the player to buy the virtual coins rather than spend time collecting them.

Question 19

Which of the following best defines a public good?

Accepted Answer

A public good is a type of good that is non-excludable and non-rivalrous, meaning that it is available for anyone to use and consumption by one person does not deplete the good for others. Examples of public goods include clean air and national defense. Public goods may be provided by the government or by private organizations, but they are typically not provided by the market because of the free-rider problem (where people can benefit from the good without paying for it).

Question 20

Table 3.1
-Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. From the table, we can conclude that:

Accepted Answer

Comparative advantage is determined by who has the lower opportunity cost for producing a good. If Willy has a lower opportunity cost for producing carrots compared to Blythe, then he has a comparative advantage in carrots.

Quiz 3: Exchange and Markets