Macroeconomics Ch. 2

Opportunity cost exists because
a.
technology is fixed at any point in time
b.
the law of comparative advantage is working
c.
resources are scarce but wants are unlimited
d.
the value of lost opportunities varies from person to person
e.
efficiency is measured by the monetary cost of an activity
C. Resources are scarce but wants are unlimited
Opportunity cost is defined
a.
only in terms of money spent
b.
as the value of all alternatives not chosen
c.
as the value of the best alternative not chosen
d.
as the difference between the benefits from a choice and the benefits from the next best alternative
e.
as the difference between the benefits from a choice and the costs of that choice
C. As the value of the best alternative not chosen
Suppose you have an hour before your next class starts. You can either read a book, get something to eat, or take a nap. The opportunity cost of getting something to eat is
a.
the cost of what you eat
b.
the value of reading and sleeping
c.
the loss of value from not reading or sleeping
d.
the net benefit of sleeping for another hour
e.
impossible to determine because the most preferred alternative is not known
E. Impossible to determine because the most preferred alternative is not known
Your opportunity cost of choosing a particular activity
a.
can be easily and accurately calculated
b.
cannot even be estimated
c.
does not change over time
d.
varies, depending on time and circumstances
e.
is measured by the money you spend on the activity
D. varies, depending on time and circumstances
The opportunity cost of going to college is best measured by the
a.
cost of room and board
b.
cost of tuition
c.
cost of room and board plus tuition
d.
income forgone by not working, plus tuition
e.
income forgone by not working, plus tuition and room and board
D. income forgone by not working, plus tuition

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Upon graduating from high school you Upon graduating from high school you have a job offer which would provide you with $20,000 in income for the coming year. You have also been accepted to Isaac and Avery college. Tuition for the coming year at I&A college is $15,000, room and board is $10,000 and you expect that books will cost you $2,000. What is the opportunity cost of attending I&A college?
a.
$37,000
b.
$27,000
c.
$20,000
d.
$32,000
e.
$47,000
A.
Expenses for room and board
a.
are opportunity costs of attending college, because they are subsidized by the government or by the college
b.
are opportunity costs of attending college since they involve cash expenditures
c.
are opportunity costs of attending college if you are on scholarship, but not otherwise
d.
are not usually part of the opportunity cost of attending college, because you would have to live somewhere and eat something even if you didn’t attend college
e.
are not usually part of the opportunity cost of attending college, because they are already included in room and board charges, and we wish to avoid double counting
D. Are not usually part of the opportunity cost of attending college, because you would have to live somewhere and eat something even if you didn’t attend college
Melissa is a self-employed lawyer who chooses a higher-priced restaurant 2 miles from home over a cheaper restaurant 15 miles from home. Which of the following is the most likely explanation for her behavior?
a.
The opportunity cost of her time is very low.
b.
She doesn’t take travel time into consideration.
c.
She doesn’t like to cook or doesn’t know how.
d.
The prices at the more expensive restaurant understate the opportunity cost of eating there.
e.
The higher monetary cost of the more expensive restaurant is offset by the higher opportunity cost of the lower-priced restaurant.
E. The higher monetary cost of the more expensive restaurant is offset by the higher opportunity cost of the lower-priced restaurant.
Comparative advantage is based on opportunity costs.
a.
True
b.
False
A. True
The law of comparative advantage says that a person should produce a good if she
a.
has the greatest desire to consume that good
b.
has the lowest opportunity cost of producing that good
c.
has an absolute advantage in a related activity
d.
has a comparative advantage in a related activity
e.
is equally good at producing this good as someone else is
B. Has the lowest opportunity cost of producing that good
The law of comparative advantage says that
a.
the individual with the lowest opportunity cost of producing a particular good should produce it
b.
comparative advantage exists only when one person has an absolute advantage in the production of two goods
c.
whoever has a comparative advantage in producing a good also has an absolute advantage in producing that good
d.
whoever has an absolute advantage in producing a good also has a comparative advantage in producing that good
e.
gains from trade are possible only when one person has the comparative advantage in producing both goods
A. the individual with the lowest opportunity cost of producing a particular good should produce it.
If Robin has an absolute advantage in both gardening and baking when compared to Robert, then
a.
Robin cannot benefit by trading with Robert
b.
Robin can benefit by specializing in gardening if Robert specializes in baking
c.
Robin can benefit by specializing in baking if Robert specializes in gardening
d.
Robin and Robert may benefit from trading, but there is insufficient information to determine who should specialize in what
e.
neither Robin nor Robert can benefit from trading with the other
D. Robin and Robert may benefit from trading, but there is insufficient information to determine who should specialize in what
Helen gives up the opportunity to bake 40 cakes for each room she paints; Josh can paint one room in the time it takes him to bake 60 cakes. The opportunity cost of a cake for Josh is
a.
painting one room
b.
painting 1/40 of a room
c.
painting 1/60 of a room
d.
painting 2/3 of a room
e.
painting 3/2 of a room
C. Painting 1/60 of a room
Each point on a production possibilities frontier requires full employment of resources.
a.
True
b.
False
A. True
Each point along a nation’s production possibilities frontier represents efficient use of all resources.
a.
True
b.
False
A. True
A point outside the production possibilities frontier
a.
represents unemployment of resources
b.
represents full employment of resources
c.
would not represent an efficient combination of goods
d.
cannot be reached using the available technology
e.
is less desirable than one that lies inside the frontier
D. Cannot be reached using the available technology
The typical concave (i.e., bowed-out) shape of the production possibilities frontier reflects the law of increasing opportunity cost.
a.
True
b.
False
A. True
The law of increasing opportunity cost explains why
a.
opportunity cost is constant along the production possibilities frontier
b.
the production possibilities frontier is downward sloping
c.
the production possibilities frontier is curved
d.
efficient points lie along the production possibilities frontier
e.
technology remains constant along a production possibilities frontier
B. The production possibilities frontier is downward sloping
On a straight-line production possibilities frontier, which of the following is true?
a.
The problem of scarcity does not exist.
b.
Resources are imperfect substitutes.
c.
Opportunity costs are constant.
d.
Technology is rapidly expanding.
e.
Some resources are not being used efficiently.
C. Opportunity costs are constant.
On a production possibilities frontier, the opportunity cost of one more unit of a commodity per time period is measured by the
a.
monetary price of the commodity
b.
amount of the other commodity that must be sacrificed
c.
amount of unemployed resources that must be used
d.
amount of satisfaction it gives consumers
e.
amount of tax paid to government for production, sale, and use of the commodity
B. Amount of the other commodity that must be sacrificed.
An outward shift of the production possibilities frontier
a.
reflects economic stability
b.
reflects economic growth
c.
reflects economic decline
d.
does not relate to the state of the economy
e.
is always a parallel shift
B. Reflects economic growth
Adam Smith’s term, “the invisible hand,” refers to
a.
the hidden role of government in setting regulations that govern trading in markets
b.
the most capable entrepreneurs in the economy
c.
market forces
d.
the unseen work of the financial markets that facilitates trade
e.
the role of technological change and random events in the economy
C. Market forces
Adam Smith believed that people’s pursuit of their own self-interests
a.
tended to promote the general welfare
b.
required the government’s “invisible hand” to keep the economy running smoothly
c.
might cause aggregate demand to be greater than aggregate supply
d.
would increase the wealth of a nation, which was the quantity of gold and silver it owned
e.
would decrease the wealth of a nation, which was its ability to produce goods and services
A. Tended to promote the general welfare
The “invisible hand” described by Adam Smith refers to the
a.
allocative role of markets and market forces
b.
importance of government intervention and central planning
c.
actions of successful entrepreneurs in directing the economy
d.
role of monopolized industries in leading the nation
e.
value of religious belief in creating an ideal economy
A. Allocative role of markets and market forces
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