1. A country's consumption possibilities frontier can be outside its production
possibilities frontier if
a. the country engages in trade.
b. the citizens of the country have a greater desire to consume goods and
services than do the citizens of other countries.
c. the country’s technology is superior to the technologies of other countries.
d. All of the above are correct.
2. A production possibilities frontier will be a straight line if
a. increasing the production of one good by x units entails no opportunity cost in
terms of the other good.
b. increasing the production of one good by x units entails a constant opportunity
cost in terms of the other good.
c. the economy is producing efficiently.
d. the economy is engaged in trade with at least one other economy.
3. If Shawn can produce more donuts in one day than Sue can produce in one day, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn has an absolute advantage in the production of donuts.
d. Shawn should produce donuts and Sue should spend her time on a different
activity.
Hours needed to make 1 pound of Pounds produced in 40 hours
Meat Potatoes Meat Potatoes
A 8 2
B 4 5
4. Refer to the table above.
Which of the following statements is true?
a. The opportunity cost of 1 pound of potatoes for A is 1.5 pounds of meat.
b. The opportunity cost of 1 pound of meat for B is 2 pounds of potatoes.
c. A has an absolute advantage in meat and B has a comparative advantage
in potatoes.
d. A and B both could benefit if A were to specialize in potatoes and B were to
specialize in meat.
6. Total output in an economy increases when each person specializes because
a. there is less competition for the same resources.
b. each person spends more time producing that product in which he or she has
a comparative advantage.
c. a wider variety of products will be produced within each country due to
specialization.
d. government necessarily plays a larger role in the economy due to
specialization.
7. Shown to the right are the production possibilities Good
schedules of U.S. and France. Computer Wine
Both countries produce two goods, x y
computer (c) and wine (w). Qc Qw
Hint: Graph the production possibilities Country mil mil gal
frontiers on the diagram below first, U.S. 60 240
then answer the question. France 33 1/3 200
280 Qw
260
240
220
200
180
160
140
120
100
80
60
40
20
0 10 30 50 Qc
20 40 60
Which of the following statements is false?
a. The linear equation of France's production possibilities frontier is
Qw = -6 Qc + 200
b. The U.S. has an absolute advantage in both goods. France does not have
an absolute advantage in any good.
c. In France the opportunity cost of producing one computer is 5 gallons of
wine.
d. The U.S. has a comparative advantage in computer, and France has a
comparative advantage in wine.
8. Refer to the diagram in question 7 to answer this question.
Assuming that without trade,
- the U.S. produces 30 million computers, and
- France produces 80 million gallons of wine.
Also assuming that
- both countries will completely specialize in the good in which they have a
comparative advantage,
- they will trade with one another using the following terms of trade:
1 computer = 5 gallons of wine,
- the U.S. has 120 millions gallons of wine to consume after trade.
Which of the following statements is true?
a. Without trade, France will produce 30 million computers.
b. The U.S. will specialize in wine and produce 120 million gallons of wine.
c. After specialization and trade, France will have 100 million gallons of wine
and 20 million computers to consume.
d. After specialization and trade, the U. S. will have 120 million gallons of wine
and 36 million computers to consume.
9. For a competitive market, which of the following statements is correct?
a. A seller can always increase her profit by raising the price of her product.
b. If a seller charges more than the going price, buyers will go elsewhere to make
their purchases.
c. A seller often charges less than the going price to increase sales and profit.
d. A single buyer can influence the price of the product, but only when purchasing
from several sellers in a short period of time.
10. Despite the fact that not all markets are perfectly competitive, the study of perfect
competition is worthwhile, in part because
a. buyers and sellers are price takers in all markets, not just in perfectly
competitive markets.
b. buyers find it difficult to buy all they want to buy, and sellers find it difficult to sell
all they want to sell, in all markets, not just in perfectly competitive markets.
c. some degree of competition is present in most markets, not just in perfectly
competitive markets.
d. perfectly competitive markets are the most difficult markets to analyze, and
this makes the study of other types of markets easy in comparison.
11. If Francis experiences a decrease in his income, we would expect that, as a result,
Francis’s demand for
a. each good he purchases will remain unchanged.
b. normal goods will increase.
c. luxury goods will increase.
d. inferior goods will increase.
12. Suppose today people change their expectations about the future. This change in
expectations
a. can affect today’s demand.
b. can affect future demand, but not today’s demand.
c. cannot affect either today’s demand or future demand.
d. results in a movement along a demand curve.
13. Which of these statements best represents the law of demand?
a. When buyers’ tastes for a good increase, they purchase more of the good.
b. When income levels increase, buyers respond by purchasing more of most
goods.
c. When buyers’ demands for a good increase, the price of the good will increase.
d. When the price of a good falls, buyers respond by purchasing more of the
good.
14. Suppose Spencer and Kate are the only two demanders of lemonade. Each month,
Spencer buys 6 glasses of lemonade when the price is $1.00 per glass, and he
buys 4 glasses when the price is $1.50 per glass. Each month, Kate buys 4
glasses of lemonade when the price is $1.00 per glass, and she buys 2 glasses
when the price is $1.50 per glass. Which of the following points is on the market
demand curve?
a. (quantity demanded = 3, price = $1.50)
b. (quantity demanded = 10, price = $1.00)
c. (quantity demanded = 4, price = $2.50)
d. (quantity demanded = 16, price = $2.50)
16. If the price of a good is low,
a. firms would increase profit by increasing output.
b. the supply curve for the good will shift to the left.
c. the quantity supplied of the good could be zero.
d. firms can and should raise the price of the product.
17. When we compare an increase in supply with an increase in quantity supplied, we
know that
a. the former is depicted by a movement along the supply curve and the latter is
depicted by a shift of the curve.
b. the former could be caused by a decrease in input costs and the latter would be
caused by an increase in the price of the good.
c. both are always caused by a change in demand.
d. both are always caused by a change in the number of market participants.
18. Which of the following events could shift both the demand curve and the supply curve
for a good?
a. Everyone revises upward their expectation of next month’s price of the good.
b. Incomes of all buyers of the good increase.
c. The number of sellers of the good increases.
d. A technological advance pertaining to the production of the good is observed.
Price Quantity demanded Quantity supplied
P ($) Qd (units) Qs (units)
10 10 60
8 20 45
6 30 30
4 40 15
2 50 0
19. Refer to the table above, which of the following statements is true?
a. The equilibrium price and quantity, respectively, are $6 and 30 units.
b. If the price were $8, a surplus of 25 units would exist and price would tend to
fall.
c. If the price were $2, a shortage of 50 units would exist and price would tend to
rise.
d. All of the above.
20. Which of the following events will definitely cause equilibrium price to fall?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase
21. When supply and demand both decrease, equilibrium
a. price will increase.
b. price will decrease.
c. quantity may increase, decrease, or remain unchanged.
d. price may increase, decrease, or remain unchanged.
20 P ($)
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0 100 300 500 Q (units)
200 400 600 800
22. The demand and supply schedules of a market are shown below:
Price Quantity demanded Quantity supplied
P ($) Qd Qs
20 200
14 600
5 500
4 100
Hint: Graph the demand and supply curves (lines) on the diagram above first,
then answer the question.
Which of the following statements is true?
a. The equilibrium price and quantity, respectively, are $10 and 400 units.
b. If the price were $9, a surplus would exist and price would tend to fall.
c. If the price were $11, a shortage would exist and price would tend to rise.
d. All of the above.
23. Refer to the diagram in question 22 above to answer this question.
Which of the following statements is true?
a. The inverse demand equation is Qd = -20 P + 500.
b. The inverse supply equation is Qs = 50 P - 200.
c. If the price were $16, a surplus of 420 units would exist.
d. If the price were $6, a shortage of 300 units would exist.
24. A market has the following demand and supply equations:
Qd = -50 P + 1,000 (1)
Qs = 150 P -400 (2)
Which of the following statements is true?
a. If the price were $9, a surplus of 300 units would exist and price would tend to
fall.
b. If the price were $3, a shortage of 800 units would exist and price would tend to
rise.
c. The equilibrium price and quantity, respectively, are $8 and 600 units.
d. The equilibrium price and quantity, respectively, are $6 and 500 units
Could you find the answers?
1. A country's consumption possibilities frontier can be outside its production
possibilities frontier if
a. the country engages in trade.
b. the citizens of the country have a greater desire to consume goods and
services than do the citizens of other countries.
c. the country’s technology is superior to the technologies of other countries.
d. All of the above are correct.
2. A production possibilities frontier will be a straight line if
a. increasing the production of one good by x units entails no opportunity cost in
terms of the other good.
b. increasing the production of one good by x units entails a constant opportunity
cost in terms of the other good.
c. the economy is producing efficiently.
d. the economy is engaged in trade with at least one other economy.
3. If Shawn can produce more donuts in one day than Sue can produce in one day, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn has an absolute advantage in the production of donuts.
d. Shawn should produce donuts and Sue should spend her time on a different
activity.
As you can see, cut-and-paste operations don't always work well on Jiskha.
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3. If Shawn can produce more donuts in one day than Sue can produce in one day, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn has an absolute advantage in the production of donuts.
d. Shawn should produce donuts and Sue should spend her time on a different
activity.
1. The correct answer is d. All of the above are correct. A country's consumption possibilities frontier can be outside its production possibilities frontier if the country engages in trade, if the citizens of the country have a greater desire to consume goods and services than citizens of other countries, or if the country's technology is superior to the technologies of other countries.
2. The correct answer is b. Increasing the production of one good by x units entails a constant opportunity cost in terms of the other good. If a production possibilities frontier is a straight line, it means that the opportunity cost of producing one good remains the same as more of the other good is produced.
3. The correct answer is a. Shawn has a comparative advantage in the production of donuts. Comparative advantage is determined by the opportunity cost of producing a good. If Shawn can produce more donuts in one day than Sue, he has a lower opportunity cost of producing donuts and therefore has a comparative advantage.
4. The correct answer is c. A has an absolute advantage in meat and B has a comparative advantage in potatoes. Absolute advantage refers to the ability to produce more of a good using the same amount of resources. A can produce more meat in 40 hours compared to B. Comparative advantage refers to the ability to produce a good at a lower opportunity cost. The opportunity cost of producing 1 pound of potatoes for A is 1.5 pounds of meat, while the opportunity cost of producing 1 pound of meat for B is 2 pounds of potatoes.
6. The correct answer is b. Each person spends more time producing the product in which he or she has a comparative advantage. When individuals specialize in what they are relatively more efficient at, total output in the economy increases because resources are allocated more efficiently.
7. The correct answer is d. The U.S. has a comparative advantage in computers, and France has a comparative advantage in wine. Comparative advantage is determined by the opportunity cost of producing a good. In France, the opportunity cost of producing one computer is 5 gallons of wine, while in the U.S., the opportunity cost of producing one computer is 1/6th of a gallon of wine.
8. The correct answer is d. After specialization and trade, the U.S. will have 120 million gallons of wine and 36 million computers to consume. If the U.S. specializes in the good in which it has a comparative advantage (computers) and trades with France using the terms of trade, it will be able to consume more wine and more computers.
9. The correct answer is b. If a seller charges more than the going price, buyers will go elsewhere to make their purchases. In a competitive market, buyers have many options and can easily switch to other sellers if one seller charges a higher price. As a result, sellers are incentivized to keep their prices competitive.
10. The correct answer is c. Some degree of competition is present in most markets, not just in perfectly competitive markets. While not all markets may exhibit perfect competition, there is usually some level of competition present. Understanding perfect competition can provide insights into how markets generally function.
11. The correct answer is b. Normal goods will increase. When income decreases, people tend to purchase less of normal goods. Normal goods are those for which demand increases as income increases.
12. The correct answer is a. It can affect today's demand. A change in expectations about the future can impact people's buying decisions today. For example, if people expect prices to increase in the future, they may increase their demand for a good now to avoid paying higher prices later.
13. The correct answer is d. When the price of a good falls, buyers respond by purchasing more of the good. The law of demand states that as the price of a good decreases, the quantity demanded of that good increases, ceteris paribus.
14. The correct answer is b. (quantity demanded = 10, price = $1.00). The market demand curve represents the sum of individual demand. In this case, Spencer and Kate are the only two demanders of lemonade, and the market demand at a price of $1.00 is the sum of their individual quantities demanded, which is 10 glasses.
16. The correct answer is a. Firms would increase profit by increasing output. When the price of a good is low, firms can increase their profit by producing and selling more of that good. By increasing output, firms can take advantage of the low price and potentially capture a larger market share.
17. The correct answer is a. The former is depicted by a movement along the supply curve, and the latter is depicted by a shift of the curve. An increase in supply refers to a shift of the entire supply curve, while an increase in quantity supplied refers to a movement along the supply curve in response to a change in price.
18. The correct answer is d. A technological advance pertaining to the production of the good is observed. Technological advances can shift both the demand and supply curves for a good. For example, if a new technology improves the efficiency of production, it can increase the supply of the good and potentially increase demand for it as well.
19. The correct answer is d. All of the above. The equilibrium price and quantity in this market are $6 and 30 units, respectively. If the price were $8, there would be a surplus of 25 units, which would cause the price to fall. If the price were $2, there would be a shortage of 50 units, which would cause the price to rise.
20. The correct answer is c. Demand decreases and supply increases. When demand decreases and supply increases, there is an excess supply in the market and the equilibrium price will fall.
21. The correct answer is b. Price will decrease. When both supply and demand decrease, equilibrium price will decrease. The effect on quantity depends on the magnitude of the changes in supply and demand.
22. The correct answer is c. If the price were $11, a shortage would exist and price would tend to rise. The equilibrium price and quantity in this market are $10 and 400 units, respectively. If the price were $9, there would be a surplus and price would tend to fall.
23. The correct answer is b. The inverse supply equation is Qs = 50 P - 200. Inverse supply equations express price as a function of quantity supplied. The given equation represents the inverse supply relationship for this market.
24. The correct answer is c. The equilibrium price and quantity, respectively, are $8 and 600 units. To find the equilibrium price, set the quantity demanded equal to the quantity supplied and solve for price. In this case, the equilibrium price is $8, and the corresponding equilibrium quantity is 600 units.