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Randy and Frank are bothlandscapers. Randy can mow 8 lawns per day or prune 12 trees. Frank canmow 10 lawns per day or prune 20 trees. What is each man’s opportunity cost ofmowing lawns? Who has a comparative advantage in each task, and who, if anyone, hasan absolute advantage at each task?
The opportunity cost ofmowing lawns for Randy is 1.5.
The opportunity cost ofmowing lawns for Frank is 2.
Randy: has a comparative advantage in mowing lawns.
Frank has a comparative advantage in pruning trees.
Frank has an absolute advantage in mowing lawns.
Frank has an absolute advantage in pruning trees.
Larry has a comparativeadvantage in writing a term paper if he
has a low opportunity cost for writing a term paper.
The opportunity cost of anactivity is the value of
the next-best alternative forgone.
The scarcity principleindicates that
with limited resources, having more of "this" means having less of "that."
Whether studying the sizeof the U.S. economy or the number of children a couple will choose to have, theunifying concept is that wants are
unlimited, resources are limited, and thus trade-offs must be made.
Toby can produce 5 gallonsof apple cider or 2.5 ounces of feta cheese per hour. Kyle can produce 3gallons of apple cider or 1.5 ounces of feta cheese per hour.
The opportunity costof producing one ounce of feta cheese for Toby: 2 gallons of apple cider.
The opportunity costof producing one ounce of feta cheese for Kyle: 2 gallons of apple cider.
Can Toby and Kyle benefitfrom specialization and trade? No
The benefits ofspecialization can be used to explain why
trade can make both parties to the trade better off.
Large developed countriescan produce more of practically everything than can a small, less developedcountry. Therefore,
trade will benefit both countries if each country has a comparative advantage in a traded product.
The slope of anyproduction possibilities curve is __________ because __________.
negative; more production of one good means less production of the other
If a producer is operatingat an inefficient point on a production possibilities curve using currentlyavailable resources, that producer:
can produce more of one good without producing less of the other good.
When a firm builds a newfactory, this is an example of an investment in:
Which of the following isan example of an investment in physical capital?
A firm purchases new equipment for a manufacturingprocess.
Physical capital is:
the factories and machinery used to produce other goods and services.
Entrepreneurs are peoplewho:
create new economic enterprises.
The Principle ofIncreasing Opportunity Costs implies that:
to increase production, you should use the resources with the lowest opportunity cost first.
The key to resolving theapparent paradox of international trade increasing total output yet facing muchpolitical opposition is noting that:
everyone does not benefit equally from trade.
When firms engage inoutsourcing, ________ benefit and ______ are harmed.
consumers; the firm's domestic employees
In Cuba, a bureaucraticcommittee makes the production decisions for the country's firms and factories.Therefore, Cuba is an example of a:
In order to understand howthe price of a good is determined in the free market, one must account for thedesires of:
purchasers and sellers.
A market is said to be inequilibrium when:
The quantity demanded equals the quantity supplied.
The quantity of Revlonnail polish demanded by Jen decreased after the price of Revlon nail polishincreased. Jen decides to find a cheaper brand of nail polish. This is calleda(n):
substitution effect of a price change.
Supply curves aregenerally _______ sloping because _______________
upward; of the principle of increasing opportunity costs.
Which of thefollowing is a determinant of (would shift) supply?
The prices of the factors of production
Assume that steel is usedto produce monkey wrenches. If the price of steel rises, then:
The supply curve for monkey wrenches will shift to the left.
A market comprised of adownward-sloping demand curve that intersects an upward-sloping supply curve issaid to be stable because:
at any price other than equilibrium, forces in the market move price towards the equilibrium.
A movement along a demandcurve from one price-quantity combination to another is called
a change in quantity demanded.
A change in demand meansthere has been a shift in the demand curve, and a change in quantity demanded:
Means that price has changed and there is movement along the demand curve.
An increase in thequantity demanded of tea occurs whenever
the price of the tea falls.
Which of the followingwould cause an increase in quantity supplied of wheat?
The price farmers receive for their wheat rises.
Which of the following ismost likely to cause an increase in the quantity demanded of perfume?
A decrease in the price of perfume
When the price of a goodis below its equilibrium value:
consumers will bid the price up.
If the quantity demandedof a good is greater than the quantity supplied of the good at the currentprice, then:
Price will increase until it reaches the equilibrium price.
When the demand for coffeeincreases, the equilibrium price will also increase because:
A shortage exists at the old equilibrium price.
You notice that yourgrocery store always has day-old bakery products at a reduced price. Why mightthat be?
At the original price, quantity supplied was greater than quantity demanded.
Tickets to a sportingevent go on sale and sell out almost instantly. This implies that:
The price for the tickets is below the equilibrium price.
If bagels and donuts aresubstitutes, then a decrease in the price of donuts will result in:
A decrease in the demand for bagels.
Assume two goods aresubstitutes. A decrease in the price of one good will cause the equilibriumprice of the other good to:
Decrease and the equilibrium quantity of the other good to decrease.
Assume peanut butter and jelly are complements. Anincrease in the price of peanut butter will cause the equilibrium price forjelly to:
Decrease and the equilibrium quantity of jelly to decrease.
If the demand for steakincreases as income increases, this means that steak is a(n):
If the demand forcomputers shifts to the right as consumers' incomes rise, computers are
As consumers' incomesincrease, the demand for ground beef decreases. Ground beef is called a(n):
In 2007 a company sold35,000 MP3 players at $150 each. In 2008 the same company sold 40,000 MP3players at $170 each. This information suggests that:
The demand for MP3 players increased from 2007 to 2008.
Suppose you notice thatmore and more people are driving gas-guzzling cars. Since you drive an economycar, their increased demand for gas:
causes the price you pay for gas to increase.
How will a new lawmandating an increase in required levels of automobile insurance affect theequilibrium price and quantity in the market for new automobiles?
Equilibrium price will fall; quantity will fall.
What will happen to theequilibrium price and quantity of beef if the price of chickenfeed (andtherefore the price of chicken) increases?
Both will increase.
What will happen to theequilibrium price and quantity of fish if fish oils are found to help prevent heartdisease?
Both will increase.
A decrease in the demandfor bananas with no concurrent change in the supply of bananas will result in a________ equilibrium price and a(n) ________ equilibrium quantity.
What will happen to theequilibrium price and quantity of oranges if the wage paid to orange pickersrises?
Equilibrium price will increase and quantity will fall.
An increase in the supplyof gasoline, will cause equilibrium price:
To fall and quantity to rise.
Assume milk is used toproduce ice cream. A decrease in the price of milk will cause theequilibrium price of ice cream to:
Decrease and the equilibrium quantity of ice cream to increase.
An increase in the numberof sellers of running shoes causes equilibrium price to:
Decrease and equilibrium quantity to increase.
What will happen to the equilibriumprice and quantity of beef if consumer income increases? (Assume that beef is anormal good).
Both will increase.
What will happen to the equilibriumquantity and equilibrium price of potatoes if population increases and a newhigher-yielding variety of potato plant is developed?
Equilibrium quantity will increase and equilibrium price may increase or decrease.
Suppose both the demand andsupply of salsa increase (although not necessarily by the same amount). Whatcan we conclude about changes in the price and quantity of salsa?
The quantity increases but the change in the price cannot be determined
Suppose there are a seriesof forest fires which affect the lumber industry while, at the same time,consumers demand more wooden furniture. The wooden furniture market wouldexperience:
An increase in price and an indeterminate change in quantity.
A rightward shift in ademand curve and a leftward shift in a supply curve both result in a:
Higher equilibrium price.
A rightward shift in ademand curve and a rightward shift in a supply curve both result in a:
Higher equilibrium quantity.
Suppose the current issueof the New York Times reports an outbreak of mad cow disease inNebraska, as well as the discovery of a new breed of chicken that gains moreweight than existing breeds that consume the same amount of food. How willthese developments affect the equilibrium price and quantity of chickens soldin the United States?
Equilibrium price may increase or decrease and quantity will increase.
What will happen to the equilibriumprice and quantity of apples if apples are discovered to help prevent colds anda fungus kills 10 percent of existing apple trees?
Equilibrium price will increase and quantity may increase or decrease.
What will happen to theequilibrium quantity and price of corn if the price of butter (a complement)increases and the price of fertilizer decreases?
Equilibrium price will decrease and quantity may increase or decrease.
1. Which of the following wouldeliminate the need for economics?
Resources are unlimited
The scarcity principleimplies that to have more of one thing usually means
having lessof another.
In economics, capital refers to
Factories, machines, and otherequipment
In aneconomy, the role of households is to
Supplyresources such as land, capital, labor and entrepreneurship.
Buyfinished goods and services
Ineconomics, investments refers to
Purchasing more capital
If one person can perform a task in fewer hours thananother, you know the person has __________________ in performing the task.
If a country experiences increasing opportunitycosts, its production possibilities curve will
According to the Low-Hanging Fruit Principle, inexpanding production of a good, you should first employ those resources:
with thelowest opportunity cost.
In the supply and demand model, equilibrium occurswhen
buyers and sellers are satisfied with theirrespective quantities at the market price.
supply and demand intersect.
quantity supplied equals quantity demanded.
the price has no tendency to change.
A price above equilibrium price will lead to a(n)
An increase in the price of a complement will
If an increase in income leads to a decrease in thedemand for a good, the good is a(n)
If the price of pickled herring increases, peoplewill be willing to buy less herring. This is showed in the market graph througha:
movement upthe demand curve.
Gross domestic product is ameasure of
Gross domestic product ismeasured in
The value of the flour usedto make a loaf of bread is not included in GDP because it is not a(n)
A good that is used toproduce other goods is known as a(n)
Which of the following isnot one of the components added together to measure GDP using the expendituresapproach?
GDP that has been adjustedfor (or without) inflation is called
1.A resource or factor market is any placewhere
landlabor or capital is bought and sold.
Purchased in a product market,
3.Purchased in a resource or factor market,
labor of a state universityprofessor.
4. Individual consumers supply
factors of production(resources)and purchase final goods and services.
5.A market in which final goods andservices are exchanged is a
Which of the following istrue regarding a nation's resources
6.Resources are generally owned by households and supplied to businesses.
When economists use marketvalues to aggregate output, they sum the:
price time the quantity of each item produced.
If an economy produces 3million oranges that sell for $0.25 each and 100,000 cars that sell for $25,000each, then when the market value of total output is calculated:
Oranges receive smaller weight than cars
Which of the followingtransactions would be included in the GDP of the United States?
Honda produces cars in Ohio
Homemaker included and housekeeping services sold included.
Educational services provided by public schools are included
in the GDP at cost
Intermediate goods/services theprocess of production and GDP.
Which of the followingwould be classified as a final good?
New computer sold to a firmis a final good
the value of intermediate goods is excluded from the measurementof GDP in order to
avoid double counting
One way to avoid countingthe prices of intermediate goods multiple times in computing the value of GDPis to,
sum the value added ofproducers of both intermediate goods and final goods and services.
4 components of aggregate expenditures are
consumption, investment,gov spending, net exports
Largest expenditure is
Increase U.S consumptionGDP?
You purchase a vacation atDisney world in Florida
Which of the followingexpenditures would increase the consumption component of U.S. GDP?
you buy a pizza
Consumption expenditures include spending by households on
The value of goods produced, but unsold, in the current period
is counted in GDP asinventory investment
Investment spending includes spending on
new capital goods.
Gov spending component of GDP includes
purchases of final goodsand services
Net export component
bottle of California wineis purchased in London
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