Chapter Economic Tools and Economics Systems Student: _ 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 The idea that resources are scarce but wants are unlimited is known as A marginal cost B opportunity cost C sunk cost D resource cost E production cost Opportunity cost is the difference between the benefits and the costs of a choice A True B False Opportunity cost is always measured in dollar terms, rather than in terms of real goods and services A True B False A rational decision maker engages in an activity if that activity is more attractive than the best alternative A True B False The Sultan of Brunei, one of the world's richest people, does not face the problem of scarcity A True B False 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 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 Suppose you have an hour before your next class starts From your most preferred alternative to the least, 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 an hour’s worth of reading your book 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 10 The opportunity cost of an activity is A zero if you choose the activity voluntarily B the amount of money spent on the activity C the value of the best alternative not chosen D the sum of benefits from all of the sacrificed alternatives E the difference between the benefits and the costs of that activity 11 The opportunity cost of an activity A depends on the individual's subjective values and opinions B is the same for everyone C must be calculated and known before undertaking that activity D is irrelevant to decision making E is not related to time 12 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 13 The opportunity cost of college is the same for all students who are receiving full-tuition scholarships A True B False 14 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 15 Suppose you have a choice of working full-time during the summer or going full-time to summer school Summer tuition and books are $2,200 If you worked, you could make $7,000 Your rent is $1,000 for the summer, regardless of your choice The opportunity cost of going to summer school is, therefore, A $2,200 B $7,000 C $8,000 D $9,200 E $10,200 16 Suppose you have a choice of going full-time to summer school or going to school full-time and working part-time Summer tuition and books are $2,200 If you worked part-time, you could make $1,000 Your rent is $1,000 for the summer, regardless of your choice The opportunity cost of going to summer school full-time and not working is, therefore, A $1,000 B $2,000 C $3,200 D $4,200 E cannot be determined from information given 17 Attending college can be viewed as a form of A investment in which costs are borne today and benefits are received in the future B investment in which benefits are received today and costs are borne in the future C consumption, because learning is an enjoyable activity D leisure, because learning is an enjoyable activity E saving for the future 18 The cost of attending college A is entirely monetary and consists of expenditures on tuition, books, transportation, and meals B is not monetary, but consists solely of forgone income C is the most valued alternative given up to attend college D is negligible for most people, because they really have no choice but to attend college E is the same whether you attend a public or a private college 19 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 20 The opportunity cost of going to college includes the costs of tuition, books, fees, and A nothing else B housing C housing and food D earnings forgone by not working full-time E housing, food, and earnings forgone by not working full-time 21 Opportunity cost is objective; therefore, its value does not change as circumstances change A True B False 22 Which economic concept does the expression "time is money" reflect? A opportunity cost B specialization C market exchange D comparative advantage E efficiency 23 Which economic concept does the expression "there’s no such thing as a free lunch" reflect? A opportunity cost B specialization C market exchange D comparative advantage E efficiency 24 A test was scheduled for Monday morning, but you went to a party on Saturday night If you hadn't attended the party, you could have studied for the test or gone to a movie Which of the following is true? A The opportunity cost of going to the movie is studying for the test B The opportunity cost of going to the party is the movie C The opportunity cost of going to the party is both the movie and the study time D Because you could go to the party only that night but could go to a movie any time, the opportunity cost of the party is the study time E From the above information, it's not possible to determine the opportunity cost of attending the party 25 The term opportunity cost suggests that A in any exchange situation where one person gains, someone else must lose B not all individuals make the most of life's opportunities C executives not always recognize opportunities for profit as quickly as they should D the only factor that is important in decision making is cost E because goods are scarce, in order to get some good you must give up some other good in return 26 If you enjoy playing golf, the opportunity cost of cleaning your room A is the same on sunny days as it is on rainy days B is greater on sunny days than it is on rainy days C is smaller on sunny days than it is on rainy days D does not change with the weather conditions E is equal to the opportunity cost of any other chore you have to that day 27 Melissa is a self-employed lawyer who chooses a higher-priced restaurant 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 28 The opportunity cost of a particular activity A must be the same for everyone B is the value of all alternative activities that are forgone C has a maximum value equal to the minimum wage D varies from person to person E can usually be known with certainty 29 The opportunity cost of an activity is best measured A only by the monetary costs B by the number of alternative activities that were forgone C by the cost difference between the chosen activity and the next best alternative D by the value expected from the best alternative that is forgone E as the time wasted choosing among various activities 30 A university should not disband its football team if it has already paid for the stadium A True B False 31 Suppose you have purchased a non-refundable plane ticket and, at the last moment, you cannot take the trip You can, however, sell the ticket If you paid $700 for the ticket, the cost of sending the ticket to someone through overnight mail is $20, and you spend $10 on a courier to get the ticket to the post office for overnight delivery, what is the minimum you should accept for the ticket? A $700 because that is what the ticket cost B $720 because that is the cost of the ticket and of getting it to the buyer C $730 because that is the total cost of the ticket and getting it to the buyer D More than $730, so that you can make a profit E $30 because the $700 is a sunk cost 32 Sunk costs A can only be measured in monetary terms B are opportunity costs C should influence a person’s choice if that person is a marginal decision maker D lower the efficiency of production E should not be considered when making economic decisions 33 If people specialize in producing those goods for which they possess a comparative advantage, then the economy as a whole can produce a greater quantity of goods A True B False 34 It is possible for one person to have a comparative advantage in the production of all products? A True B False 35 Comparative advantage is based on opportunity costs A True B False 36 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 37 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 38 Comparative advantage is A the ability of an individual to specialize and produce a greater amount of some good than can another individual B the number of units of one good given up in order to acquire something C the ability of an individual to produce a good at a lower opportunity cost than some other individual can D an expression for the amount of labor a particular individual needs to produce a fixed amount of capital goods E a reference to an individual having the greatest opportunity cost of producing the good and produces it with the fewest resources 39 If you and I agree to exchange four ginger snaps for one chocolate chip cookie, then it must be true that A we are both at least as well off as we were before B I am better off than I was before, but you are not C you are better off than you were before, but I am not D we are both better off than before E we are both worse off than before 40 The law of comparative advantage states that the person who should produce a good is the person who A has the lowest opportunity cost of producing that good B can produce that good using the fewest resources C will produce that good using the most expensive resources D has the most desire for that good E has produced that good in the past 41 A person who can produce more of a good than another person is said to possess a comparative advantage A True B False 42 It is impossible for one person to have a comparative advantage in all tasks A True B False 43 It is possible for one person to have an absolute advantage in two tasks and a comparative advantage in only one A True B False 44 It is possible for one person to have an absolute advantage in something even if she has no comparative advantage in anything A True B False 45 Absolute advantage is based on opportunity cost A True B False 46 John takes 10 minutes to iron a shirt and 20 minutes to type a paper Harry takes 10 minutes to iron a shirt and 30 minutes to type a paper Which of the following statements is correct? A Harry has a comparative advantage in ironing B Harry has a comparative advantage in typing C Harry has an absolute advantage in typing D Harry has an absolute advantage in ironing E Neither can gain from specialization and exchange 47 Exhibit 2-1 John and Harry’s Production Possibilities for Ironing Shirts and Typing Papers Exhibit 2-1 shows the production possibilities for ironing shirts and typing papers for John and Harry Each has hours per week to spend on these tasks Which of the following statements is correct? A Harry has a comparative advantage in ironing B Harry has a comparative advantage in typing C Harry has an absolute advantage in typing D Harry has an absolute advantage in ironing E Neither can gain from specialization and exchange 194 Recognizing the incentive power of property rights and markets, some of the most die-hard central planners are now allowing A more influence from custom or religion B family relations to play significant roles C a role for markets D communal ownership of property E inefficient use of resources 195 Exhibit 2-10 Refer to Exhibit 2-10 Which of the graphs best illustrates the impact on the production possibilities frontier of a dramatic increase in the rate of immigration into a country? A a B b C c D d E b and c 196 Exhibit 2-10 Refer to Exhibit 2-10 Which of the graphs best illustrates the impact on the production possibilities frontier of a decrease in unemployment? A a B b C c D d E a, b and c 197 Exhibit 2-10 Refer to Exhibit 2-10 Which of the graphs best illustrates the impact on the production possibilities frontier of a technological improvement that will make the resources used to produce consumer goods more efficient? A a B b C c D d E b and c 198 Exhibit 2-11 Refer to exhibit 2-11 The United States has a comparative advantage in the production of T-shirts A True B False 199 Exhibit 2-11 Refer to exhibit 2-11 Costa Rica has a comparative advantage in the production of T-shirts A True B False 200 Exhibit 2-11 Refer to exhibit 2-11 The United States has an absolute advantage in bothe the production of T-shirts and rice A True B False 201 Exhibit 2-11 Refer to exhibit 2-11 In Costa Rica the opportunity cost of ton of rice is: A 1/2 of a T-shirt B 3/4 of a T-shirt C T-shirt D 11/2 T-shirts E T-shirts 202 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, Hans' opportunity cost of doing a load of laundry is A 12 papers B papers C 1/2 pages D 2/3 of a page E impossible to compute 203 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, Hans' opportunity cost of typing one page is A 12 loads of laundry B loads of laundry C 3/2 of a load of laundry D 2/3 of a load of laundry E impossible to compute 204 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, Maria's opportunity cost of typing a page is A loads of laundry B loads of laundry C 2/3 of a load of laundry D 3/2 of a load of laundry E impossible to compute 205 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, Maria's opportunity cost of doing a load of laundry is A pages B pages C 2/3 of a page D 3/2 of a page E impossible to compute 206 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, if Hans types one fewer page, how many loads of laundry can he in the time saved on typing? A 12 loads B loads C 3/2 of a load D 2/3 of a load E it cannot be determined 207 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, if Hans does one fewer load of laundry, how many pages can he type in the time saved on laundry? A 12 pages B pages C 3/2 of a page D 2/3 of a page E it cannot be determined 208 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, if Maria does one fewer load of laundry, how many pages can she type in the time saved on laundry? A pages B pages C 2/3 of a page D 3/2 of a page E it cannot be determined 209 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, if Maria types one fewer page, how many loads of laundry can she in the time saved on typing? A loads B loads C 2/3 of a load D 3/2 of a load E it cannot be determined 210 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, in any given amount of time, A Maria has an absolute and a comparative advantage in typing B Maria has an absolute and a comparative advantage in doing laundry C Maria has a comparative advantage in both typing and doing laundry D Hans has an absolute and a comparative advantage in typing E Hans has an absolute advantage in doing laundry 211 Exhibit 2-12 Maria and Hans Production Possibilities for Laundry and Typing According to Exhibit 2-12, Hans and Maria would be better off if A Hans specialized in typing and Maria in doing laundry B Hans specialized in doing laundry and Maria in typing C each did their own laundry and typing D Maria did all of the typing and all of the laundry E Hans did all of the typing and all of the laundry ... comparative advantage in shoemaking B Daniel has a comparative advantage in shoemaking C Sarah has an absolute and a comparative advantage in shoemaking D Daniel has an absolute and a comparative... given amount of time, A Maria has an absolute and a comparative advantage in typing B Maria has an absolute and a comparative advantage in doing laundry C Maria has a comparative advantage in... cleaning, then A Jeremy has a comparative advantage in cooking, and Margaret has a comparative advantage in cleaning B Jeremy has a comparative advantage in cleaning, and Margaret has a comparative