Question 1

Why does the government's role of enforcing contracts facilitate exchange?

Accepted Answer

Enforcing contracts allows people to trust that the other party will fulfill their end of the agreement, which in turn facilitates exchange. It provides a sense of security and certainty when both parties know that there are legal consequences for breaching the contract. This leads to more trades and transactions being completed, boosting economic activity. Options A and B are incorrect as enforcing contracts benefits both parties involved and does not guarantee either party's bailout by the government. Option D is also incorrect as enforcing contracts does not make the government a partner in any business, but rather serves to promote and protect the interests of both parties.

Question 2

A market failure could be caused by:

Accepted Answer

Imperfect competition can lead to a market failure because there may not be enough competition to ensure that prices are set at the optimal level for both consumers and producers. This can result in lower output, higher prices, and reduced efficiency in the market. Imperfect production, many firms competing against each other for customers, and profit are not necessarily causes of market failure.

Question 3

Can an individual with no absolute advantage find himself with a comparative in producing a good or a service?

Accepted Answer

The answer of Can an individual with no absolute advantage...

Question 4

Table 3.2
-Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Sharon's opportunity cost of producing 1 coconut is:

Accepted Answer

The answer of  Table 3.2
-Consider two individuals, Rose and...

Question 5

Table 3.2
-Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Which of the following is true?

Accepted Answer

The answer of  Table 3.2
-Consider two individuals, Rose and...

Question 6

Table 3.1
-Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. Based on the table, Willy's opportunity cost of 1 carrot is:

Accepted Answer

Willy can produce 6 apples or 4 carrots per hour. So, the opportunity cost of 1 carrot is 6 apples / 4 carrots = 1.5 apples.

Question 7

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions:
-According to the application, the US government protecting the domestic sugar industry by restricting sugar imports causes:

Accepted Answer

The US government's protection of the domestic sugar industry by restricting sugar imports causes domestic sugar prices to be artificially high.

Question 8

When the government provides its citizens an unemployment insurance program, it is:

Accepted Answer

By providing citizens with unemployment insurance, the government aims to reduce economic uncertainty for those who have lost their jobs. This insurance helps to mitigate the negative effects of job loss on individuals and families, which can also have a broader impact on the economy.

Question 9

When it comes to pollution, economists believe that the government must:

Accepted Answer

Economists believe in the concept of externalities, which is when the actions of one party impose costs or benefits on another party without compensation. Pollution is an example of a negative externality, as the actions of firms impose costs on society in the form of environmental damage, health problems, etc. Therefore, economists believe that firms should be able to pollute as long as they bear the full cost of their pollution (i.e. internalize the externality). This can be achieved through government intervention, such as implementing a pollution tax or cap-and-trade system, which incentivizes firms to reduce their pollution levels to avoid paying the associated costs. Allowing pollution to exist unabated (choice A) or allowing firms to pollute with positive benefits (choice B) ignores the negative externalities imposed on society. Never allowing pollution to exist (choice D) may not be practical or feasible in certain industries.

Question 10

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, who has the comparative advantage in baking a cake?

Accepted Answer

Bob has the comparative advantage in baking a cake because he sacrifices fewer pairs of jeans (5) compared to Joe (8) when he bakes a cake.

Question 11

When there is imperfect competition, the role of the government is to:

Accepted Answer

When there is imperfect competition, the government's role is to foster competition. This can be done through policies that promote new entrants into the market, prevent mergers or acquisitions that would lead to a monopoly, and enforce antitrust laws that prohibit unfair business practices. Taking over production or telling firms how much to produce would not address the issue of imperfect competition and may lead to inefficiencies in the market.

Question 12

When a person producing a particular product has a lower opportunity cost than another person, that person is considered to have a _______ over the other.

Accepted Answer

The answer of When a person producing a particular product...

Question 13

People who develop new products and production processes increase their profitability by taking out _______  on their inventions.

Accepted Answer

The answer of People who develop new products and production...

Question 14

What is an import?

Accepted Answer

The answer of What is an import?...

Question 15

When the government provides its citizens an unemployment insurance program, it is providing its citizens:

Accepted Answer

A social safety net is a support system provided by the government to help its citizens when they are in need, such as unemployment. By providing unemployment insurance, the government is helping to provide a safety net for those who have lost their jobs and need financial support until they can find new employment.

Question 16

A centrally planned economy has a planning authority that decides:

Accepted Answer

In a centrally planned economy, the planning authority is responsible for making decisions about how products are produced, who receives them, and what products are produced. This is because the government has complete control over the economy and makes all the major economic decisions.

Question 17

Adam Smith used the metaphor "invisible hand" to explain that:

Accepted Answer

Adam Smith's metaphor of the "invisible hand" is that individual self-interest can lead to unintended social benefits. In a market economy, individuals pursue their own interests, such as maximizing profits or minimizing costs, which in turn leads to competition and innovation. This competition and innovation ultimately aim to provide goods and services that benefit society as a whole, as consumers receive higher quality products at lower prices. Smith believed that government intervention should be limited, as the market can regulate itself through the invisible hand.

Question 18

An example of a public good is:

Accepted Answer

All of the options listed involve goods or services that are non-excludable and non-rivalrous, meaning they are available to all members of the public and one person's use of the good does not diminish others' ability to use it. Space exploration benefits society as a whole by advancing scientific knowledge, a levee provides flood protection to the surrounding community, and national defense protects the entire nation. Therefore, they all qualify as public goods.

Question 19

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

Accepted Answer

According to the application, the gamers who sold virtual gold coins had a low opportunity cost of their time, indicating that they had more time to spend on collecting the coins and were willing to sell them for profit rather than use them in the game.

Question 20

Recall Application 3, "The Shakers and the Market for Garden Seeds," to answer the following questions:
-Based on the application, one can infer that the economic system adopted by each Shaker community more closely resembles that of a:

Accepted Answer

The Shaker communities operated under a centrally planned economy where decisions were made collectively, and resources were allocated according to the community's needs rather than market forces.

Quiz 3: Exchange and Markets

Why does the government's role of enforcing contracts facilitate exchange?

A market failure could be caused by:

Can an individual with no absolute advantage find himself with a comparative in producing a good or a service?

Table 3.2 -Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Sharon's opportunity cost of producing 1 coconut is:

Table 3.2 -Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are shown in Table 3.2. Which of the following is true?

Table 3.1 -Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots. Based on the table, Willy's opportunity cost of 1 carrot is:

Recall Application 1, "Candy Cane Makers Move to Mexico for Cheap Sugar," to answer the following questions: -According to the application, the US government protecting the domestic sugar industry by restricting sugar imports causes: