Chapter 2 A Some Tools of the Economist Part 2

48. Steve values his Honda Accord at $10,000, and Jennifer values it at $14,000. If Jennifer buys it from Steve for $11,000, which of the following is true? a. Steve gains $1,000 of value, and Jennifer gains $3,000 of value. b. Steve gains $11,000 of value, and Jennifer loses $11,000 of value. c. Steve gains $10,000 of value, and Jennifer loses $14,000 of value. d. Steve and Jennifer both gain $11,000 of value. ANS: A PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Application NAT: BUSPROG: Analytic TOP: Trade Creates Value 49. "Henry Ford made millions of dollars producing and marketing automobiles. Many workers and consumers must have suffered in order for Ford to amass such enormous wealth." The person who made this observation a. has failed to understand the principle of opportunity cost. b. has failed to comprehend the fallacy of composition. c. has failed to understand that specialization and exchange generally result in mutual economic gain. d. has utilized the economic way of thinking by thinking the gains of producers are made primarily at the expense of consumers and workers. ANS: C PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Application NAT: BUSPROG: Analytic TOP: Trade Creates Value 50. Which of the following most accurately states the economic significance of exchange? a. Physical goods have value because they exist; exchange can neither increase nor decrease their value. b. Production of physical goods creates value; exchange merely redistributes this value. c. Exchange creates value by moving goods from parties who value them less to parties who value them more. d. Exchange reduces value since it consumes resources without adding to the physical supply of goods. ANS: C PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 51. Which of the following is true? a. Trade does not produce anything new; therefore, it cannot create value. b. The value of a good is determined by the cost of the material resources required for its production. c. The value of a good generally depends on who uses it and circumstances such as when and where it is used. d. All of the above are true. ANS: C PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 52. In economics, the term that refers to the time, effort, and other resources needed to search out, negotiate, and consummate an exchange is a. transaction costs. b. specialization costs. c. pecuniary costs. d. comparative costs. ANS: A PTS: 1 DIF: Easy STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Trade Creates Value 53. In economics, transaction costs refer to the a. time, effort, and other resources needed to search out and negotiate an exchange. b. dollar cost or price of the item traded. c. cost an economy suffers when it allows specialization according to comparative advantage. d. amount by which the price of an item increases due to the presence of a middleman. ANS: A PTS: 1 DIF: Easy STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Trade Creates Value 54. High transaction costs will tend to a. reduce the number of mutually beneficial exchanges that occur. b. allow easier specialization according to the law of comparative advantage. c. increase the value created by exchanges in an economy. d. increase the number of mutually beneficial exchanges that occur. ANS: A PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 55. Compared to a situation where transaction costs are zero, the existence of transaction costs a. will reduce the volume of trade. b. will reduce the gains from trade. c. may lead some buyers and sellers to employ middlemen. d. All of the above are correct. ANS: D PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 56. Which of the following is true with regard to value and exchange? a. Exchange generally moves a good from a person who values it more to a person who values it less. b. Transaction costs reduce our ability to gain from potentially advantageous trades. c. Middlemen increase transaction costs and, thereby, reduce the potential gains derived from trade. d. Physical goods have an objective value that is unrelated to time and the person of ownership. ANS: B PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 57. A nation with cheap, efficient communications is likely to be a. richer, ceteris paribus, because transaction costs will be lower and trade greater. b. richer only if production of goods is cheaper, too, since trade itself cannot create value. c. poorer since it spends so much on communication instead of true productivity. d. spending too much on communications, which adds nothing to the value of output. ANS: A PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 58. If the Internet makes it easier for sellers to find buyers and makes it easier for buyers to learn about the products that are available for sale, we would expect that a. the volume of trade will decline. b. transaction costs will rise. c. the gains from trade will increase. d. buyers and sellers will be worse off. ANS: C PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 59. Internet sites such as eBay make it easier for sellers and buyers to find one another and, by doing so, a. reduce transactions costs. b. increase transaction costs. c. reduce the number of exchanges that occur. d. lower the value created by the goods and services available. ANS: A PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 60. A middleman is a person who a. specializes in arranging trades and selling, guaranteeing, and servicing items traded. b. acts as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services. c. adds to the seller's expense and the buyer's buying price without providing a service to either. d. levies a tax on private sector activity and uses the funds to support government activities. ANS: A PTS: 1 DIF: Easy STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Trade Creates Value 61. Middlemen are individuals who a. add to the buyer's expense without performing a useful function. b. add to the seller's cost without performing a useful function. c. provide services that reduce the cost of transactions and help achieve additional gains from trade. d. act as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services. ANS: C PTS: 1 DIF: Easy STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Trade Creates Value 62. A middleman a. attempts to prevent buyers from finding sellers. b. promotes trade by lowering the transaction costs of buyers and sellers. c. acts as a liaison between top management and the hourly employees. d. adds to the seller's expense and the buyer's price without providing a service to either. ANS: B PTS: 1 DIF: Easy STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Trade Creates Value 63. In economics, the term for a person who reduces transaction costs by arranging trades for buyers and sellers is a. an exchange broker. b. a middleman. c. a transactions specialist. d. an opportunity finder. ANS: B PTS: 1 DIF: Easy STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Trade Creates Value 64. Which of the following most accurately states the function of middlemen? a. Middlemen add to the expense of buyers and sellers without providing any benefit. b. Our economy would work just as well without middlemen since they do not expand the availability of physical goods. c. Middlemen reduce the number of transactions since they increase the buyer's price and reduce the seller's net revenue. d. Middlemen create value by arranging trades and providing information to buyers and sellers. ANS: D PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 65. Which of the following most accurately states the function of middlemen? a. Middlemen reduce transaction costs. b. Middlemen add to the expense of buyers and sellers without providing any benefit. c. Our economy would work just as well without middlemen since they do not expand the availability of physical goods. d. Middlemen reduce the number of transactions since they increase the buyer's price and reduce the seller's net receipts. ANS: A PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 66. Which of the following is true regarding value and exchange? a. Middlemen fail to create value since they do not expand the supply of physical goods. b. A good or service has a given value regardless of who uses it or how it is used. c. If it were not for middlemen, transaction costs would be zero. d. Voluntary exchange creates value by channeling goods into the hands of people who value them most. ANS: D PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 67. Which of the following is true regarding value, transaction costs, and exchange? a. Middlemen can be viewed as agents who create value by reducing transaction costs and, thereby, facilitating gains from exchange. b. Middlemen fail to create value since they do not expand the supply of physical goods. c. A good or service has a given value regardless of who uses it or how it is used. d. Voluntary exchange reduces value by channeling goods into the hands of people who value them least. ANS: A PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 68. Economic thinking suggests that a nation in which middlemen are considered to be unproductive seekers of profit, and where their activities are heavily restricted by law, will a. gain by channeling people's efforts away from unproductive middleman activity toward physical output. b. lose the potential gains from trade that would result from lower transaction costs emanating from middleman activities. c. find that it is richer because the added transaction costs normally imposed by middlemen will be reduced. d. gain because the value of total output will rise. ANS: B PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 69. Richer economies often have more middlemen. Economic thinking indicates that such economies a. suffer losses from these activities. b. gain since the opportunity costs of arranging trades would be higher without middlemen. c. become progressively more wasteful, and middlemen are one sign of the waste. d. are unable to employ middlemen in any other way. ANS: B PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Trade Creates Value 70. Kim has two tickets to a concert tonight. She, however, has a headache and decides not to go. Which of the following would best fit Kim's needs? a. a ticket service that will buy the tickets from her and resell them b. a change in attitude because missing a concert is always irrational c. a general flu epidemic that causes many people to miss the concert d. a poor performance by the band, so Kim does not feel badly about missing the concert ANS: A PTS: 1 DIF: Moderate STA: DISC: Gains from trade, specialization and trade KEY: Bloom's: Application NAT: BUSPROG: Analytic TOP: Trade Creates Value 71. The government enforces property rights by a. requiring property owners to pay property taxes. b. providing police and courts. c. forcing people to own property. d. providing public parks and recreation facilities. ANS: B PTS: 1 STA: DISC: The role of government KEY: Bloom's: Knowledge DIF: Easy NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 72. Private property rights involve a. the right to exclusive use of the property. b. legal protection against those who would seek to use or abuse the property without the owner's permission. c. the right to transfer, sell, exchange, or mortgage the property. d. all of the above. ANS: D PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 73. Which of the following is a private owner prohibited from doing? a. selling the property to another person b. erecting a fence designed to keep others from using the property c. painting the property a color that others do not like d. using the property in a manner that invades or infringes on the property of another ANS: D PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 74. When property rights are clearly defined and enforced, private owners will a. use their property for selfish ends because they have little or no incentive to consider the desires of others. b. develop and direct their property toward uses that others value highly because the market will generally reward them for doing so. c. have little or no incentive to take care of their property or conserve it for the future. d. be unable to derive personal gain if they are sensitive to the desires of others when deciding how to use their property. ANS: B PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 75. Which of the following is true regarding private ownership? a. Relative to common ownership, private ownership generally leads to less conservation of resources. b. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others. c. Private ownership generally gives the owner little incentive to find ways to use the resource wisely. d. With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource. ANS: B PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 76. Because private owners are held responsible for damages their property causes to the property of others, private owners have a. a strong incentive to take steps to reduce the chance that they will harm the property of others. b. a strong incentive to use their property now rather than conserving it for the future. c. little incentive to take good care of the property. d. little incentive to consider the harm their property may do to the property of others. ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic STA: DISC: The role of government KEY: Bloom's: Comprehension TOP: The Importance of Property Rights 77. When private ownership rights are well-defined and enforced, owners of physical assets and resources a. have no incentive to consider the desires of others. b. incur the opportunity cost of ignoring the wishes of others. c. are not responsible if the use of their assets impose harm on others. d. have little incentive to take care of their assets. ANS: B PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 78. Which of the following is true of private ownership? a. Private ownership links responsibility with the right of control. b. Private owners have little incentive to conserve natural resources for the future. c. Private owners have little incentive to develop and use their assets in ways others value. d. Private owners can do anything they want with the things they own regardless of the damage it does to the property of others. ANS: A PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 79. When private ownership of a resource is clearly defined and enforced, the private owner a. has little incentive to consider the wishes of others when deciding how to use the resource. b. has little incentive to take care of the resource. c. has a strong incentive to use the resource wisely and to consider seriously the wishes of others when deciding how to employ the resource. d. has a strong incentive to consume the resource during the period rather than conserving it for future use. ANS: C PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 80. When private ownership of a resource is clearly defined and enforced, the private owner a. has a strong incentive to consider the wishes of others when deciding how to employ the resource. b. has little incentive to use the resource wisely. c. has a strong incentive to consume the resource during the period rather than conserving it for the future. d. has little incentive to consider the wishes of others when deciding how to employ the resource. ANS: A PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 81. When private ownership of a resource is clearly defined and enforced, the private owner a. has little incentive to consider the wishes of others when deciding how to employ the resource. b. has little incentive to use the resource wisely. c. has a strong incentive to consume the resource during the period rather than conserving it for the future. d. has a strong incentive to use the resource wisely. ANS: D PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 82. Which of the following will most likely occur under a system of clearly defined and enforced private property rights? a. Resource owners will tend to abuse resources and use them selfishly. b. Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value. c. Resource owners will ignore the wishes of others, including those who would like to use the resource that is privately owned. d. Resource owners ignore the wishes of others since there is little incentive to employ privately owned resources in ways that are beneficial to others. ANS: B PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 83. Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the truck at $6,000. If these two are allowed to negotiate, which of the following will most likely occur? a. Todd will sell the truck for $1,500. b. Susan will buy the truck for $7,000. c. The truck will be sold at a price greater than $2,000 but less than $6,000, and both parties will benefit. d. Susan will benefit more than Todd if the truck is sold. ANS: C PTS: 1 STA: DISC: The role of government KEY: Bloom's: Application DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 84. Given your knowledge of the incentives created by private ownership, which of the following would you expect to be false? a. People will take better care of their own personal automobile than they will a rental car. b. People will take better care of a home they own than they will of a home they rent. c. Property owned privately will tend to be better conserved and kept than public property or property owned in common. d. People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the side of an interstate highway. ANS: D PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 85. The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that a. students will take better care of these commonly owned bicycles than they do their own bicycles. b. students will take equally as good care of these commonly owned bicycles as they do their own bicycles. c. students will not take as good of care of these commonly owned bicycles as they do their own bicycles. d. because universities have a lot of money, these bikes will be better maintained than the ones owned privately by college students who tend to have little money. ANS: C PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 86. The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughtered every year for their ivory. Despite this, cows can be found everywhere while elephants are on the verge of extinction in some countries. Which of the following best explains this difference? a. Cows can be privately owned while in many countries elephants can not. b. The demand for ivory far exceeds the demand for beef. c. Animals slaughtered for their meat are generally better conserved by humans than animals slaughtered for nonfood uses. d. People tend to protest more every year to prevent cow extinction than they do for elephant extinction. ANS: A PTS: 1 STA: DISC: The role of government KEY: Bloom's: Application DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 87. In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries? a. In Zimbabwe and Botswana, elephants are near the verge of extinction, while in Kenya, the population of elephants is growing rapidly. b. There has been a similar decline in the population of elephants in all of these countries. c. There has been a similar increase in the population of elephants in all of these countries. d. In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level. ANS: D PTS: 1 STA: DISC: The role of government KEY: Bloom's: Analysis DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 88. In Africa, which of the following policies has been most successful at increasing elephant populations? a. Banning the ivory trade by making the buying and selling of ivory illegal. b. Making elephants the common property of the people of the country through government ownership and control and making the killing of elephants illegal c. Allowing private ownership of elephants and making the ivory trade legal d. When used together, the policies in a and b have been more successful than the policy in c. ANS: C PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 89. Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result, a. the population of black rhinos has fallen substantially. b. the population of black rhinos has increased. c. many black rhinos are being poached. d. the incomes of residents in Zimbabwe has fallen substantially. ANS: B PTS: 1 STA: DISC: The role of government KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 90. In the fictitious country of Lebos, the government allows private ownership of pigs but not of cows. If the people of Lebos permanently increase their desire to purchase more pork and beef, in the long run, we would expect a. the population of pigs to rise and the population of cows to fall. b. the population of cows to rise and the population of pigs to fall. c. the populations of both pigs and cows to increase. d. both pigs and cows to become extinct in Lebos unless the government places the animals on the endangered species list. ANS: A PTS: 1 STA: DISC: The role of government KEY: Bloom's: Analysis DIF: Moderate NAT: BUSPROG: Analytic TOP: The Importance of Property Rights 91. Production possibilities curve are usually bowed outward. This is because a. the more resources a society uses to produce one good, the fewer resources it has available to produce another good. b. it reflects the fact that the opportunity cost of producing a good decreases as more and more of that good is produced. c. of the effects of technological change. d. resources are specialized, that is, some are better at producing particular goods rather than other goods. ANS: D PTS: 1 STA: DISC: Costs of production KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Production Possibilities Curve 92. The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight line is that a. it makes it easier to illustrate the concepts of scarcity and prices with a bow-shaped curve than it is with a straight line b. early economists began drawing them in this way and the convention has continued throughout the years c. output eventually reaches a maximum and then declines d. resources are not perfectly adaptable to the production of all goods ANS: D PTS: 1 STA: DISC: Costs of production KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Production Possibilities Curve 93. When the production possibilities curve is bowed out, resources are a. equally well-suited to production of both goods. b. not being used efficiently. c. not equally suited to the production of both goods. d. available in larger and larger quantities as more of one good is produced. ANS: C PTS: 1 STA: DISC: Costs of production KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Production Possibilities Curve