Chapter 2

One thing economists do to help them understand how the real world works is A. ignore the past. B. make assumptions. C. try to capture every aspect of the real world in the models they construct. D. All of the above are correct.

Economists make assumptions to A. provide issues for political discussion B. make a complex world easier to understand C. make it easier to teach economic concepts and analysis D. create policy alternatives that are incomplete or subject to criticism

An economic theory about international trade that is based on the assumption that there are only two countries trading two goods A. is useless, since the real world has many countries trading many goods. B. can be useful only in situations involving two countries and two goods C. can be useful in the classroom but is useless in the real world D.can be useful in helping economists understand the complex world of international trade involving many countries and many goods

Which of the following statements about economic models is correct? A. Economic models are useful, but they should not be used for the purpose of improving public policies B. Economic models seldom incorporate equations or diagrams C. Because economic models omit many details, they allow us to see what is truly important D. Economic models are built to mirror reality exactly

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that A. the nation is producing an efficient combination of goods. B.there will be a large opportunity cost if the nation tries to increase production of any good C. the nation is not using all available resources. D. the nation is producing beyond its capacity.

If this economy devotes all of its resources to the production of clocks, then it will produce A. 10 clocks and 25 candles. B. 16 clocks and 0 candles. C. 0 clocks and 35 candles. D. 16 clocks and 35 candles.

This economy has the ability to produce at which point(s)? A. A, B B. A, B, C, F, G C. A, B, D D. C, F, G

If the resource is not fully utilized (e.g., unemployment), could this economy produce at which point(s)? A. C, D, F, G B. C, F, G C. D D. A, B

What is the opportunity cost of moving from point A to point B? A. 6 clocks and 15 candles B. 6 clocks C. zero D. 15 candles

For this economy, as more and more clocks are produced, the opportunity cost of an additional clock produced (in terms of candles) A. This cannot be determined from the figure. B. decreases C. increases D. remains constant.

The movement from point B to point D could not be caused by A. unemployment B. an advance in production technology. C. an improvement in efficiency. D. economic growth.

Which of the following events would explain the shift of the production possibilities frontier from A to B? A. The economy experienced a technological advance in the production of books. B. The economy's citizens developed an enhanced taste for books. C. More capital became available in the economy. D. More labor became available in the economy.

When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good A. does not change as more of the good is produced B. increases as more of the good is produced. C. decreases as more of the good is produced. D. may increase, decrease, or not change as more of the good is produced.

Cakes Rolls (in dozens) 100 5000 120 4600 140 ? If the production possibilities frontier is bowed outward, then "?" could be A. 4300 B. 4400. C. 4100. D. 4200

Production possibilities frontiers are usually bowed outward. This is because A. it reflects the fact that the opportunity cost of producing a good decreases as more and more of that good is produced. B. resources are specialized; that is, some are better at producing particular goods rather than other goods. C. of the effects of technological change. D. the more resources a society uses to produce one good, the fewer resources it has available to produce another good.

Which of the following is an example of a positive, as opposed to normative, statement? A. All of the above are positive statements. B. When the quantity of money grows rapidly, inflation is a predictable consequence. C. Income tax rates should not have been cut as they were a few years ago D. The quantity of money has grown too slowly in recent years.