CHAPTER 2 Exam - Scarcity and the World of Tradeoffs

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) As a st dent of economics! "hen yo s#ea$ of scarcity! yo are referrin% to A the abilit! o" societ! to emplo! all o" its resources. # the abilit! o" societ! to consume all that it pro$uces. C the inabilit! o" societ! to satis"! all human wants because o" limite$ resources. % the abilit! o" societ! to continuall! ma&e technolo'ical brea&throu'hs an$ increase pro$uction. 2) Which of the follo"in% statements is &A'SE( A As societ! increases its wealth( the problem o" scarcit! $isappears. # The "actors o" pro$uction are use$ to pro$uce outputs that help societ! satis"! its wants. C Even thou'h a societ! "aces the problem o" scarcit!( it $oes not necessaril! su""er "rom povert!. % Lan$ an$ labor are both "actors o" pro$uction. )) The #ro*lem of economic scarcity a##lies A onl! in in$ustriall! $evelope$ countries because resources are scarce. # onl! in un$er$evelope$ countries because there are no pro$uctive resources. C onl! in economic s!stems that are )ust be'innin' to $evelop because speciali*e$ resources are scarce. % to all economic s!stems( re'ar$less o" their level o" $evelopment. +) ,n e-ery economic system! choices m st *e made *eca se reso rces A are unlimite$( but human $esires an$ wants are limite$. # are limite$( but human $esires an$ wants are unlimite$. C are unlimite$( an$ so are human $esires an$ wants. % are limite$( an$ so are human $esires an$ wants. .) A # C % /) A # C % The the the the the o##ort nity cost of %oin% to colle%e mi%ht *est *e descri*ed as mone! that must be pai$ in or$er to atten$ colle'e. lowest+value$ alternative use o" the stu$ent,s time. hi'hest+value$ alternative use o" the stu$ent,s time. value that the stu$ent attaches to not wor&in'.

,n the #rod ction of %oods and ser-ices! tradeoffs exist *eca se not all pro$uction is e""icient. societ! has onl! a limite$ amount o" pro$uctive resources. bu!ers an$ sellers o"ten must ne'otiate prices. human wants an$ nee$s are limite$ at a particular point in time.

0) 'oo$ at the follo"in% #rod ction #ossi*ilities ta*le for drill #resses and corn1 The ta*le sho"s the maxim m com*ination of drills and * shels of corn that can *e #rod ced "hen all reso rces are f lly em#loyed1 %rill Presses -. /. 0. 1. 2. Corn 3bushels -2. -1. -/. 4. 2.. 2ased on the a*o-e information! A there is a constant tra$e+o"" between corn an$ $rill presses. # the opportunit! cost o" pro$ucin' 0. $rill presses instea$ o" /. $rills is -/. bushels o" corn. C the opportunit! cost o" pro$ucin' 1. $rill presses instea$ o" 0. $rills is 0. bushels o" corn. % the pro$uction possibilities curve "or $rill presses an$ corn will be a strai'ht line. 3) The #rod ction #ossi*ilities c r-e re#resents A the ma5imum amount o" labor an$ capital available to societ!. # combinations o" 'oo$s an$ services amon' which consumers are in$i""erent. C the ma5imum combination o" 'oo$s an$ services that can be pro$uce$ with "i5e$ resources an$ technolo'!( 'iven e""icient use o" the resources. % the ma5imum rate o" 'rowth o" capital an$ labor in a countr!. 4) Which of the follo"in% "o ld res lt in a mo-ement alon% the #rod ction #ossi*ilities c r-e( A a "all in the unemplo!ment rate # 'rowth in the capital stoc& C population 'rowth % a chan'e in the composition o" two 'oo$s that a societ! chooses to pro$uce 15) 6ne of the ass m#tions nderlyin% the #rod ction #ossi*ilities c r-e is that A at least one o" the "actors o" pro$uction is a "ree 'oo$. # the quantit! o" the resources available "or the pro$uction o" economic 'oo$s is "i5e$ over a 'iven time perio$. C there is at least one "actor o" pro$uction that is emplo!e$ ine""icientl!. % some o" the "actors o" pro$uction are not bein' use$. 11) Which of the follo"in% statements is 76T an ass m#tion nderlyin% the #rod ction #ossi*ilities c r-e( A 6esources are "ull! an$ e""icientl! emplo!e$. # Technolo'! is "i5e$. C Pro$uction occurs over some speci"ie$ time perio$. % The amount o" resources available "or pro$uction can be chan'e$ quic&l!. 12) ,f a #rod ction #ossi*ilities c r-e for *oo$s and ma%a8ines is strai%ht! then A the opportunit! cost o" increasin' boo& pro$uction remains constant re'ar$less o" the total quantit! pro$uce$. # the opportunit! cost o" increasin' boo& pro$uction continues to $ecline as total pro$uction increases.

C the opportunit! cost o" increasin' boo& pro$uction continues to increase as total pro$uction increases. % the opportunit! cost o" increasin' boo& pro$uction is in$epen$ent o" the shape o" the curve.

1)) A C 1+) A # C % 1.) #oint A # C % 1/) A # C %

,n the fi% re a*o-e! #oint 9 is less e""icient than point C. is less e""icient than point #.

# %

is more e""icient than point A. is more e""icient than point #.

,n the fi% re a*o-e! #oint E co ld *e o*tained if resources were shi"te$ "rom e$ucation to healthcare. resources were use$ more e""icientl!. there was an increase in societ!,s resources. resources were shi"te$ "rom healthcare to e$ucation. ,n C is is is is the fi% re a*o-e! the o##ort nity cost of mo-in% from #oint 2 to the loss in pro$uction in the healthcare sector. the increase in pro$uction in the e$ucation sector. *ero. the loss in pro$uction in the e$ucation sector.

,n the fi% re a*o-e! Point A is ndesira*le *eca se there is an ine""icient use o" resources. too much healthcare is bein' pro$uce$. the opportunit! costs o" health care are too hi'h. point E is a more realistic option in this econom!.

Table ./.-A Possibilit!

7oo$ Television Personal computers

A /.

# /. -

C -9 /

% -2 0

E -1

8 : 2

7 . :

10) When the economy mo-es from #oint 9 to E in Ta*le 5251A! the o##ort nity cost of the com# ter in terms of tele-isions is A 0. # 1. C /. % 2. 13) Accordin% to Ta*le 5251A! the o##ort nity cost of each additional com# ter in terms of tele-isions A remains constant. # "alls as more computers are pro$uce$. C increases as more computers are pro$uce$. % is meanin'less because the cost o" computers cannot be e5presse$ in terms o" televisions. 14) :i-en the #rod ction #ossi*ilities sched le in Ta*le 5251A! a com*ination of nine tele-isions and fo r #ersonal com# ters A is attainable but involves an ine""icient use o" societies resources. # woul$ be attainable onl! i" a new technolo'! o" pro$ucin' televisions or computers were intro$uce$. C is not attainable because it is not liste$ in the sche$ule. % is not attainable because societ! $oes not have enou'h resources to pro$uce this combination. 25) :i-en the #rod ction #ossi*ilities sched le in Ta*le 5251A! a com*ination of 2) tele-isions and / #ersonal com# ters A is attainable but involves the unemplo!ment o" some o" societies resources. # clearl! illustrates the tra$e+o"" between televisions an$ computers. C cannot be pro$uce$ b! societ!( 'iven its current level o" resources an$ pro$uction technolo'!. % can be pro$uce$ onl! i" societ! is willin' to have some o" its resources use$ ine""icientl!. 21) ,f an economy is o#eratin% at a #oint inside the #rod ction #ossi*ilities c r-e! then A societ!,s resources are bein' ine""icientl! utili*e$. # the curve will move to the le"t. C societ!,s resources are bein' use$ to pro$uce too man! consumer 'oo$s. % economic polic! must retar$ "urther 'rowth o" the econom!. 22) A # C % 2)) #oint A # C % A mo-ement alon% the #rod ction #ossi*ilities c r-e "o ld im#ly that the labor "orce has 'rown. pro$uctivit! has increase$. societ! has chosen a $i""erent set o" outputs. pro$uctivit! has $ecline$ because wor&ers are $eman$in' more leisure. Which of the follo"in% "o ld ca se an economy to *e #rod cin% at a inside its #rod ction #ossi*ilities c r-e( the e""icient allocation o" all "actors o" pro$uction population 'rowth unemplo!ment an$ an ine""icient use o" available resources capital accumulation

2+) A # C %

A strai%ht line #rod the opportunit! cost the opportunit! cost resources are better resources are "i5e$.

ction #ossi*ilities c r-e ta$es this sha#e *eca se o" pro$ucin' a 'oo$ is constant. o" pro$ucin' more o" a 'oo$ is $ecreasin'. suite$ "or pro$ucin' one output than another.

2.) ,n the fi% re a*o-e! the com*ination of com# ters and tele-isions sho"n *y #oint ; A is not attainable at the point in time "or which the 'raph is $rawn. # can be attaine$ onl! i" some o" societies resources are unemplo!e$. C su''ests that the law o" increasin' relative costs $oes not hol$. % results onl! because societ! allocates its resources ine""icientl!. 2/) The com*ination of #ersonal com# ters and tele-isions sho"n in the fi% re a*o-e *y #oint W A is an e""icient use o" societ!,s resources because it is below the pro$uction possibilities curve. # is more $esirable than point ; because pro$ucin' at point < $oes not put a strain on societ!,s resources. C is attainable but involves the ine""icient use o" some o" societ!,s resources. % is be!on$ the capacit! o" societ! to pro$uce. 20) Which of the follo"in% statements a*o t mo-ement alon% the #rod ction #ossi*ilities curve in the "i'ure above is 8AL=E> A An a$$itional computer can be pro$uce$ onl! i" "ewer televisions are pro$uce$. # The tra$e+o"" between computers an$ televisions is not constant. C =ociet! cannot have more o" both 'oo$s at the same time. % There are no opportunit! costs involve$ in choosin' one point on the curve over all other points. 23) A ,n the fi% re a*o-e! #oints <! =1 >! and ? sho" an ine""icient allocation o" societies scarce resources.

# C %

possible combinations o" televisions an$ personal computers. a constant tra$e+o"" between televisions an$ personal computers. societ! pre"ers more televisions than computers.

24) A President of the <nited States #romises to sim ltaneo sly #rod ce more defense %oods "itho t any decreases in the #rod ction of other %oods1 <nder "hich of the follo"in% conditions co ld s ch a #romise *e -alid( A i" the U.=. were pro$ucin' at a point on its pro$uction possibilities curve # i" the U.=. were pro$ucin' insi$e its pro$uction possibilities curve C i" the U.=. were pro$ucin' to the ri'ht o" its pro$uction possibilities curve % none o" the above? the pro$uction possibilities curve must shi"t to the ri'ht )5) A # C % )1) A # C % ,f o##ort nity costs are constant! then the pro$uction possibilities curve $oes the pro$uction possibilities curve bows the pro$uction possibilities curve is a "actors o" pro$uction must not be "ull!

not e5ist. outwar$. strai'ht line. emplo!e$.

The #rod ction #ossi*ilities c r-e *o"s o t"ard *eca se opportunit! costs are $ecreasin' as the pro$uction o" a 'oo$ increases. opportunit! costs are increasin' as the pro$uction o" a 'oo$ increases. opportunit! costs are "i5e$ as the pro$uction o" a 'oo$ increases. resources are o" uni"orm qualit!.

)2) 6ne ty#e of factor of #rod ction is #hysical ca#ital1 All of the follo"in% are exam#les of #hysical ca#ital E;CEPT A buil$in's # machiner! C AM@8M ra$ios % a h!$roelectric power plant ))) A co ntry that m st red ce c rrent cons m#tion to increase f t re cons m#tion #ossi*ilities A must be allocatin' resources ine""icientl!. # must be pro$ucin' alon' the pro$uction possibilities curve. C must be pro$ucin' outsi$e the pro$uction possibilities curve. % must not have private ownership o" propert!. )+) Which of the follo"in% statements a*o t economic scarcity is &A'SE( A =carcit! occurs amon' the poor an$ the rich. # =carcit! onl! occurs i" there are shorta'es an$ people waitin' in line to bu! thin's. C =carcit! results "rom not havin' enou'h resources to pro$uce all the thin's we want. % =carcit! results in the necessit! to ma&e choices.

).) A

Which of the follo"in% statements is &A'SE( Economic 'oo$s are available in $esire$ quantities at a *ero price.

# A 'oo$ is an!thin' that 'ives satis"action or happiness to in$ivi$uals. C =ervices are intan'ible 'oo$s such as $r! cleanin'( hospital care( an$ restaurant meal preparation. % <ants are unlimite$ an$ inclu$e all material an$ nonmaterial $esires. )/) it is A C ,n economic terminolo%y! "hen a reso rce is referred to as an intan'ible. # a "actor o" pro$uction. a service. % a "i"th element. sed to #rod ce o t# t

)0) 6##ort nity cost is defined as A the value o" the ne5t+best alternative that must be sacri"ice$ to attain a want. # the least+cost means to pro$uce output. C the value o" the output currentl! receive$ b! an in$ivi$ual or a corporation. % the return "rom a 'iven unit o" labor. )3) 6ne o##ort nity cost associated "ith %oin% to colle%e is A purchasin' te5t boo&s. # pa!in' tuition. C 'ivin' up emplo!ment possibilities while in colle'e. % pa!in' "or room( boar$( an$ other livin' e5penses. )4)A #rod ction #ossi*ilities c r-e "ith clothin% and food on the axes sho"s that ,1 A society can not ha-e an nlimited amo nt of each %ood ,,1 &or an efficient society! an increase in clothin% #rod ction "ill necessitate a decrease in food #rod ction ,,,1 A society "ill al"ays #rod ce the maxim m amo nt of *oth clothin% and food A I onl! # II onl! C III onl! % #oth I an$ II

+5) A # C % +1) is A # C % +2) A # C %

A strai%htline #rod ction #ossi*ilities c r-e has an increasin' opportunit! cost between the two 'oo$s. a $ecreasin' opportunit! cost between the two 'oo$s. a constant opportunit! cost between the two 'oo$s. no opportunit! cost between the two 'oo$s. A #oint o tside a society@s #rod ction #ossi*ilities c r-e is one "hich unattainable 'iven the resources o" the societ!. technolo'icall! ine""icient. un$esirable 'iven the implie$ un$eremplo!ment o" resources. $esirable since it satis"ies the $esires o" the population. A #oint inside a society@s #rod ction #ossi*ilities c r-e re#resents an unattainable combination o" outputs. an output combination which satis"ies the nee$s o" the population. an un$erutili*ation o" pro$uctive resources. a technicall! superior output combination.

+)) ,t is correct to state that a society "hich is on its #rod ction #ossi*ilities c r-e is A un$erutili*in' is resources. # technolo'icall! ine""icient. C consumin' too much output. % "ull! utili*in' its pro$uctive resources. ++) Technolo%y is defined as A the ma5imum output which can be attaine$ "rom a stoc& o" ph!sical capital. # societ!,s pool o" applie$ &nowle$'e concernin' the pro$uction o" 'oo$s an$ services. C output be!on$ the pro$uction possibilities boun$ar!. % the utili*ation o" the most a$vance$ machiner!. +.) Efficiency can correctly *e defined as A pro$ucin' outsi$e the pro$uction possibilities boun$ar!. # minimi*in' opportunit! cost. C pro$ucin' the ma5imum output with 'iven technolo'! an$ resources. % provi$in' "or the imme$iate nee$s o" the 'reatest proportion o" the population. +/) The la" of increasin% o##ort nity cost im#lies that A pro$ucin' a$$itional units o" one 'oo$ results in proportionatel! smaller re$uctions in output o" the other 'oo$. # pro$ucin' a$$itional units o" one 'oo$ results in increasin' amounts o" lost output o" the other 'oo$. C the pro$uction possibilities curve will be a strai'ht line. % the societ! will be pro$ucin' on its pro$uction possibilities curve. +0) A # C % +3) A # C % +4) A # C % A *o"ed #rod ction #ossi*ilities c r-e is consistent "ith an unchan'e$ opportunit! cost. a technolo'icall! ine""icient societ!. the un$erutili*ation o" pro$uctive resources. hi'hl! speciali*e$ resources. A *o"ed o t"ard #rod ction #ossi*ilities c r-e occ rs "hen opportunit! costs are constant. resources are not scarce. a$$itional units o" output o" one 'oo$ necessitate increase$ re$uctions in the other 'oo$. the societ! is operatin' on the pro$uction possibilities curve. Com#arati-e ad-anta%e im#lies choosin% that acti-ity "hich has a hi'h opportunit! cost. is insi$e the pro$uction possibilities "rontier. has the lowest opportunit! cost. $oes not $eman$ an! speciali*ation.

.5) ,f indi-id al ; has com#arati-e ad-anta%e in #aintin% and indi-id al > has com#arati-e ad-anta%e in car#entry! then

A in$ivi$ual ; must use "ewer hours to paint a "ence than in$ivi$ual A. # in$ivi$ual A will speciali*e in paintin'. C there is a lower opportunit! cost 3e5presse$ in units o" carpentr! "or in$ivi$ual ; to paint than "or in$ivi$ual A to paint. % speciali*ation will not occur( since each $oes not have a clear absolute a$vanta'e. .1) Which of the follo"in% statements a*o t scarcity is TR<E( A =carcit! is no lon'er a problem "or in$ustriali*e$ countries. # =carcit! e5ists in all societies. C =carcit! is a problem onl! "or 'ree$! people. % =carcit! is a problem onl! in countries that $o not use mar&ets to or'ani*e economic activit!. .2) ,n 1442 h rricanes dama%ed #arts of &lorida! 'o isiana! and Ha"aii! destroyin% homes! * sinesses! schools! and infrastr ct re1 ,n strictly economic terminolo%y! these h rricanes are said to ha-e ca sed A scarcit!( because the $ama'es ma$e "oo$ an$ shelter scarce. # scarcit!( because some 'oo$s were $i""icult to 'et. C shorta'es( because supplies were cut o"" an$ 'oo$s were $estro!e$. % absolute a$vanta'es( because some areas o" the countr! were $ama'e$ when others were not. .)) The difference *et"een scarcity and a shorta%e is A scarcit! is cause$ b! povert! an$ shorta'es are cause$ b! natural $isasters. # shorta'es are a t!pe o" scarcit! cause$ b! natural $isasters while scarcit! is cause$ b! human errors. C scarcit! alwa!s is a part o" human li"e while shorta'es usuall! are temporar!. % shorta'es are alwa!s part o" human li"e while scarcit! is usuall! temporar!. .+) H man reso rces that #erform the f nctions of or%ani8in%! mana%in%! and assem*lin% the other factors of #rod ction are called A ph!sical capital. # venture capital. C entrepreneurship. % pro$uctive capital. ..) A C ./) A .0) A # C % Ser-ices can *e tho %ht of as unvalue$ 'oo$s. # unwante$ 'oo$s. "ree 'oo$s. % intan'ible 'oo$s. Scarcity im#lies that #eo#le m st be miserable. # be sel"ish.

ma&e choices.

not be sel"ish.

6##ort nity cost is the intrinsic value o" an economic 'oo$. the total value o" all the alternatives "orsa&en when a choice is ma$e. the value o" the opportunit! selecte$ when a nee$ is satis"ie$. the value o" the ne5t hi'hest+ran&e$ alternative that must be sacri"ice$ to obtain a want.

.3) S ##ose yo ha-e tele-ision! or %o to a cost of the mo-ie is A the value o" the # the value o" the C the value o" the % the value o" the 'one to the movie.

fo r choices--%o to a mo-ie! read a *oo$! "atch concert1 >o choose to %o to a mo-ie1 The o##ort nity boo& not rea$. television pro'ram not watche$. concert that !ou $i$n,t atten$. activit! that !ou woul$ have selecte$ i" !ou ha$n,t

.4) &red and Ann *oth decide to see the same mo-ie "hen they are %i-en free tic$ets to the mo-ie1 We $no" that A both bear an opportunit! cost since the! coul$ have $one other thin's instea$ o" see the movie. # both bear the same opportunit! cost since the! are $oin' the same thin'. C the cost o" 'oin' to the movie is 'reater "or the one who ha$ more choices to $o other thin's. % neither bear an opportunit! cost because the tic&ets were "ree. /5) 6##ort nity costs are A ob)ective because the! can alwa!s be put in monetar! terms. # ob)ective because speci"ic thin's are 'iven up when ma&in' a choice. C sub)ective because each person $eci$es the value o" the "ore'one alternative. % sub)ective because it is impossible to put a monetar! value on "ore'one alternatives. /1) 2ill 2onecr sher %rad ates from colle%e "ith a choice of #layin% #rofessional foot*all at A2 million a year or coachin% for A.5!555 a year1 He decides to #lay foot*all! * t ei%ht years later he B its foot*all to ma$e mo-ies for A) million a year1 His o##ort nity cost at %rad ation "as and ei%ht years later "as A C B2.(...? B/ million B/ million? B0 million # % B/ million? B/ million B2.(...? B2.(...

/2) A farmer has 255 acres of land on "hich he can %ro" soy*eans or corn1 An acre of land yields 255 * shels of soy*eans or 155 * shels of corn1 The fi% re a*o-e refers to the farmer@s A pro$uction possibilities curve. # substitution options curve. C tra$e+o""s curve. % opportunit! cost curve( /)) ,f the farmer is #rod cin% .555 * shels of soy*eans at #oint 2 in the fi% re a*o-e! "e $no" that A the "armer is not usin' his resources e""icientl!. # the "armer is usin' his lan$ to pro$uce a crop other than so!beans or corn. C the "armer must be usin' more lan$ than was use$ in constructin' the pro$uction possibilities curve. % the "armer is usin' his resources e""icientl!. /+) ,n the fi% re a*o-e! ho" many A # C % /.) A # level C % nits of corn are #rod ced at #oint a(

/... /2.. 0... <e can,t tell without more in"ormation

A #oint o tside a #rod ction #ossi*ilities c r-e indicates that resources are not bein' use$ e""icientl!. an output combination that societ! cannot attain 'iven its current o" resources an$ technolo'!. that resources are bein' use$ ver! e""icientl!. that both 'oo$s are characteri*e$ b! increasin' costs.

//) ,n the fi% re a*o-e! "hich of the follo"in% #oints indicates the efficient se of reso rces( A a # " C ' % h /0) The sha#e of the #rod ction #ossi*ilities c r-e in the fi% re a*o-e indicates that A pro$uction o" corn is characteri*e$ b! increasin' costs while the pro$uction o" cloth is characteri*e$ b! $ecreasin' costs. # pro$uction o" both corn an$ cloth is characteri*e$ b! increasin' costs. C pro$uction o" both corn an$ cloth is characteri*e$ b! constant costs. % pro$uction o" corn is characteri*e$ b! constant costs an$ the pro$uction o" cloth is characteri*e$ b! increasin' costs. /3) 2et"een #oints * and c in the fi% re a*o-e! the o##ort nity cost of another * shel of corn is A C - !ar$ o" cloth. -.2 !ar$s o" cloth. # % -./2 !ar$s o" cloth. /.2 !ar$s o" cloth.

/4) Which of the follo"in% "o ld 76T allo" society to mo-e to #oint h in the fi% re a*o-e( A an improvement in technolo'! # more e""icient use o" resources o" current resources C an increase in quantit! o" labor % an increase in quantit! o" capital

05) The la" of increasin% relati-e costs is d e to A ta5es. # scarcit!. C the "act that it is more $i""icult to use resources e""icientl! the more societ! pro$uces.

% the "act that resources not are per"ectl! a$aptable "or alternative uses. 01) time! A # C % ,f a co ntry@s #rod ction #ossi*ilities c r-e %ets more *o"ed o t o-er it is an indication that technolo'ical chan'e has ta&en place. societ! is learnin' to use its resources more e""icientl!. the quantit! o" labor an$ capital have increase$. resources have become more hi'hl! speciali*e$.

02) ,f all reso rces "ere #erfectly ada#ta*le for alternati-e #rod ction #ossi*ilities c r-e "o ld A be bowe$ out. # be bowe$ in. C be a strai'ht line. % not e5ist.

ses! the

0)) Economic %ro"th can *e #ict red in a #rod ction #ossi*ilities c r-e dia%ram *y A ma&in' the pro$uction possibilities curve more bowe$ out. # ma&in' the pro$uction possibilities curve less bowe$ out. C shi"tin' the pro$uction possibilities curve out. % shi"tin' the pro$uction possibilities curve in. 0+) A # C % The o##ort nity cost of more ca#ital %oods today is "ewer capital 'oo$s in the "uture. "ewer consumer 'oo$s in the "uture. "ewer consumer 'oo$s to$a!. more unemplo!e$ resources in the "uture.

0.) S ##ose an acre of land yields 155 * shels of corn and that one * shel of corn #ro-ides eno %h seed for one-B arter of an acre of land1 The o##ort nity cost of cons min% another * shel of corn today is A C -.. bushels o" corn ne5t !ear. -. bushels o" corn ne5t !ear. # % /2 bushels o" corn ne5t !ear. /.2 bushels o" corn ne5t !ear.

0/) Whene-er a society for%oes c rrent cons m#tion to in-est in ca#ital %oods! A the less the societ! can consume ne5t !ear. # the easier it will be "or the societ! to consume less in the "uture because people will become accustome$ to less. C the more the societ! can consume in the "uture. % the less capital the societ! can pro$uce in the "uture. 00) A # C % :enerally! s#eciali8ation leads to constant opportunit! costs. 'reater pro$uctivit!. the pro$uction o" "ewer capital 'oo$s. 'reater sel"+reliance.

03) A #erson has a com#arati-e ad-anta%e in an acti-ity "hene-er she A has an absolute a$vanta'e in the activit!. # can per"orm the activit! at a lower opportunit! cost than can another person. C can $o the activit! in less time than an!one else. % can $o ever!thin' better than an!one else. 04) A Com#arati-e ad-anta%e is al"ays aCn)conce#t1 absolute # e""icienc! C relative % monetar!

35) ,f yo can ma$e A25!555 a year teachin%! A2.!555 a year ty#in%! A)5!555 a year dri-in% a ca*! and A+5!555 a year as a chef! yo ha-e a com#arati-e ad-anta%e in A teachin'. # $rivin' a cab. C bein' a che". % one o" them but we nee$ more in"ormation to &now which. 31) A these # C % 9i-ision of la*or refers to $ivi$in' tas&s up into several subtas&s an$ havin' one person per"orm subtas&s in a certain or$er. the separation o" hourl! wor&ers "rom salarie$ wor&ers. assi'nin' $i""erent wor&ers to $i""erent tas&s. separatin' union wor&ers "rom nonunion wor&ers.

32) 9i-ision of la*or increases the o t# t of society *y A eliminatin' scarcit!. # re$ucin' the choices people have to ma&e to a more mana'eable number. C ensurin' that people are happier in per"ormin' their wor&. % allowin' resources to speciali*e in the tas&s "or which the! have a comparative a$vanta'e. 3)) I. II. III. IC. A C Which of the follo"in% are considered factors of #rod ction( Lan$ Labor Ph!sical capital Entrepreneurship I an$ II onl! I( II an$ III onl! # % I an$ III onl! I( II( III an$ IC

3+) ,n economic terminolo%y! the acc m lated trainin% and ed cation that "or$ers recei-e that increases their #rod cti-ity is referred to as A entrepreneurship. # human capital. C labor. % ph!sical capital. 3.) The di-ision of #rod cti-e acti-ities amon% #ersons and re%ions so that no one indi-id al or area is totally selfs fficient is $no"n as A C a$vanta'eDta&in'. # speciali*ation. % comparative value. out+sourcin'.

3/) Ass me that Economy A and Economy 2 ha-e the same reso rces! * t that indi-id als in Economy A ha-e s#eciali8ed "hereas indi-id als in Economy 2 ha-e not1 :i-en this information! yo can determine that A Econom! A will have a hi'her output than Econom! #. # Econom! A will have a lower output than Econom! #. C Econom! A an$ Econom! # will have i$entical outputs. % in$ivi$uals in Econom! A will have lower incomes than in$ivi$uals in Econom! 30) When nations s#eciali8e in their areas of com#arati-e ad-anta%e and then trade "ith the rest of the "orld! the res lt is that A the avera'e stan$ar$ o" livin' in the worl$ will 'o $own. # the avera'e stan$ar$ o" livin' in the worl$ will 'o up. C the worl$ will move "rom a point on the pro$uction possibilities curve to a point insi$e the curve. % worl$wi$e economic e""icienc! will $ecrease.