Thinking Like An Economist Ch 4

82. In the circular-flow diagram, a. b. c. d. factors of production flow from government to firms. goods and services flow from households to firms. income paid to the factors of production flows from firms to households. spending on goods and services flows from firms to households. ANS: C 83. In the circular-flow diagram, which of the following items does not flow from households to firms? a. b. c. d. revenue land, labor, and capital factors of production profit ANS: D 84. In the circular-flow diagram, which of the following items does not flow from firms to households? a. b. c. d. goods services capital profit ANS: C 85. In the circular-flow diagram, which of the following items flows from households to firms through the markets for goods and services? a. b. c. d. goods and services dollars paid to land, labor, and capital dollars spent on goods and services wages, rent, and profit ANS: C 86. In the circular-flow diagram, which of the following items flows from firms to households through the markets for goods and services? a. b. c. d. goods and services dollars paid to land, labor, and capital dollars spent on goods and services wages, rent, and profit ANS: A 87. In the circular-flow diagram, which of the following items flows from firms to households through the markets for the factors of production? a. b. c. d. ANS: D goods and services land, labor, and capital dollars spent on goods and services wages, rent, and profit 88. In the circular-flow diagram, which of the following items flows from households to firms through the markets for the factors of production? a. b. c. d. goods and services land, labor, and capital dollars spent on goods and services wages, rent, and profit ANS: B 89. In the circular-flow diagram, which of the following items represents a payment for a factor of production? a. b. c. d. interest capital spending by households on goods spending by households on services ANS: A 90. Among economic models, the circular-flow diagram is unusual in that it a. b. c. d. drastically simplifies the real world. features more than one type of market. features flows of dollars. does not involve mathematics. ANS: D Figure 2-1 91. Refer to Figure 2-1. Which arrow represents the flow of goods and services? a. b. c. d. ANS: B A B C D 92. Refer to Figure 2-1. Which arrow represents the flow of spending by households? a. b. c. d. A B C D ANS: A 93. Refer to Figure 2-1. Which arrow represents the flow of land, labor, and capital? a. b. c. d. A B C D ANS: C 94. Refer to Figure 2-1. Which arrow represents the flow of income payments? a. b. c. d. A B C D ANS: D 95. Refer to Figure 2-1. Julio buys a new pair of shoes at a shoe store. To which of the arrows does this transaction directly contribute? a. b. c. d. A only A and B C only C and D ANS: B 96. Refer to Figure 2-1. Enid completes her first week of employment working as a hairdresser at a salon. On Friday of that week, she receives her first paycheck. To which of the arrows does this transaction directly contribute? a. b. c. d. ANS: D B only A and B C only C and D Figure 2-2 97. Refer to Figure 2-2. Boxes A and B of this circular-flow diagram represent a. b. c. d. firms and households. households and government. the markets for goods and services and the markets for financial assets. the markets for goods and the markets for services. ANS: A 98. Refer to Figure 2-2. Boxes C and D of this circular-flow diagram represent a. b. c. d. households and government. firms and government. the markets for goods and services and the markets for financial assets. the markets for goods and services and the markets for factors of production. ANS: D 99. Refer to Figure 2-2. If Box A of this circular-flow diagram represents firms, then which box represents households? a. b. c. d. Box B Box C Box D Any one of the other boxes (B, C, or D) could represent households. ANS: A 100. Refer to Figure 2-2. If households are sellers in the markets represented by Box D of this circularflow diagram, then a. b. c. d. ANS: D Box D must represent the markets for factors of production. Box C must represent the markets for goods and services. firms are buyers in the markets represented by Box D. All of the above are correct. 101. Refer to Figure 2-2. If households are buyers in the markets represented by Box C of this circularflow diagram, then a. b. c. d. Box C must represent the markets for the factors of production. Box D must represent the markets for goods and services. firms are sellers in the markets represented by Box C. All of the above are correct. ANS: C 102. Refer to Figure 2-2. If the owners of land, labor, and capital are represented by Box B of this circular-flow diagram, then a. b. c. d. households are represented by Box A. firms are represented by Box C. firms are represented by Box A. firms are sellers in Box B. ANS: C 103. Refer to Figure 2-2. If the outer loop of this circular-flow diagram represents flows of dollars, then the inner loop includes a. b. c. d. flows of goods and services from households to firms. flows of inputs from households to firms. flows of rent payments paid to owners of land. flows of wages and salaries paid to workers. ANS: B 104. Refer to Figure 2-2. If the flow of goods and services is part of what is represented by the inner loop of this circular-flow diagram, then a. b. c. d. the flow of factors of production is also part of what is represented by the inner loop. the flow of income paid to households is also part of what is represented by the inner loop. the flow of revenue to firms is also part of what is represented by the inner loop. households must be sellers of output. ANS: A 105. Refer to Figure 2-2. Malika works as an attorney for a corporation and is paid a salary in exchange for the legal services she performs. Jarel owns office buildings and rents his buildings to companies in exchange for rent payments. If Malika’s income is represented by a flow of dollars from Box D to Box B of this circular-flow diagram, then Jarel’s income is represented by a flow of dollars a. b. c. d. ANS: D from Box A to Box C. from Box C to Box A. from Box B to Box D. from Box D to Box B. 106. Refer to Figure 2-2. Alisha regularly buys fruits and vegetables at a grocery store. Santo regularly pays a lawn-care company to mow his lawn. If the flow of fruits and vegetables from the grocery store to Alisha is represented by an arrow from Box C to Box B of this circular-flow diagram, then the money paid by Santo to the lawn-care company is represented by an arrow a. b. c. d. from Box A to Box D. from Box B to Box C. from Box C to Box B. from Box D to Box A. ANS: B 107. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and a. b. c. d. society’s preferences. the available production technology. a fair distribution of the output. the available demand for the output. ANS: B 108. The production possibilities frontier is a graph that shows the various combinations of output that an economy a. b. c. d. should produce. wants to produce. can produce. demands. ANS: C 109. When constructing a production possibilities frontier, which of the following assumptions is not made? a. b. c. d. The economy produces only two goods or two types of goods. Firms produce goods using factors of production. The technology available to firms is given. The quantities of the factors of production that are available are increasing over the relevant time period. ANS: D 110. Any point on a country's production possibilities frontier represents a combination of two goods that an economy a. b. c. d. ANS: B will never be able to produce. can produce using all available resources and technology. can produce using some portion, but not all, of its resources and technology. may be able to produce in the future with more resources and/or superior technology. 111. Which of the following is a correct statement about production possibilities frontiers? a. b. c. d. An economy can produce only on the production possibilities frontier. An economy can produce at any point inside or outside a production possibilities frontier. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier. ANS: C 112. Where can an economy not produce? a. b. c. d. inside its production possibilities frontier on its production possibilities frontier outside its production possibilities frontier at the endpoints of its production possibilities frontier ANS: C 113. An economic outcome is said to be efficient if the economy is a. b. c. d. using all of the scarce resources it has available. conserving on resources, rather than using all available resources. getting all it can get from the scarce resources it has available. able to produce more than what is currently being produced without additional resources. ANS: C 114. Production is efficient if the economy is producing at a point a. b. c. d. on the production possibilities frontier. outside the production possibilities frontier. on or inside the production possibilities frontier. inside the production possibilities frontier. ANS: A 115. If an economy is producing efficiently, then a. b. c. d. there is no way to produce more of one good without producing less of another good. it is possible to produce more of both goods without increasing the quantities of inputs that are being used. it is possible to produce more of one good without producing less of another good. it is not possible to produce more of any good at any cost. ANS: A 116. An economy’s production of two goods is efficient if a. b. c. d. ANS: C all members of society consume equal portions of the goods. the goods are produced using only some of society’s available resources. it is impossible to produce more of one good without producing less of the other. the opportunity cost of producing more of one good is zero. 117. When an economy is operating at a point on its production possibilities frontier, then a. b. c. d. consumers are content with the mix of goods and services that is being produced. there is no way to produce more of one good without producing less of the other. equal amounts of the two goods are being produced. All of the above are correct. ANS: B 118. Efficiency is illustrated by a. b. c. d. both the production possibilities frontier and the circular-flow diagram. neither the production possibilities frontier nor the circular-flow diagram. the production possibilities frontier only. the circular-flow diagram only. ANS: C 119. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. b. c. d. the nation is producing beyond its capacity, so inflation will occur. the nation is not using all available resources or is using inferior technology or both. the nation is producing an efficient combination of goods. there will be a large opportunity cost if the nation tries to increase production of any good. ANS: B 120. When an economy is operating inside its production possibilities frontier, we know that a. b. c. d. there are unused resources or inefficiencies in the economy. all of the economy’s resources are fully employed. economic growth would have to occur in order for the economy to move to a point on the frontier. in order to produce more of one good, the economy would have to give up some of the other good. ANS: A 121. It is possible for an economy to increase its production of both goods if the economy a. b. c. d. moves downward and to the right along its production possibilities frontier and the frontier is bowed outward. moves upward and to the left along its production possibilities frontier and the frontier is bowed outward. moves in either direction along its production possibilities frontier and the frontier is a straight line. moves from a situation of inefficient production to a situation of efficient production. ANS: D 122. Unemployment would cause an economy to a. b. c. d. ANS: A produce inside its production possibilities frontier. produce on its production possibilities frontier. produce outside its production possibilities frontier. experience an inward shift of its production possibilities frontier. 123. The production possibilities frontier provides an illustration of the principle that a. b. c. d. trade can make everyone better off. governments can sometimes improve market outcomes. people face trade-offs. people respond to incentives. ANS: C 124. The production possibilities frontier illustrates a. b. c. d. the trade-off between efficiency and equality. the combination of output that an economy should produce. the combination of output that each member of society should consume. None of the above is correct. ANS: D 125. Which of the following trade-offs does the production possibilities frontier illustrate? a. b. c. d. if an economy wants to increase efficiency in production, then it must sacrifice equality in consumption once an economy has reached the efficient points on its production possibilities frontier, the only way of getting more of one good is to get less of the other for an economy to consume more of one good, it must stop consuming the other good entirely for an economy to produce and consume goods, it must sacrifice environmental quality ANS: B 126. Which of the following concepts cannot be illustrated by the production possibilities frontier? a. b. c. d. efficiency opportunity cost equality trade-offs ANS: C 127. The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the a. b. c. d. amount of the other good that must be given up. market price of the additional amount produced. amount of resources that must be devoted to its production. number of dollars that must be spent to produce it. ANS: A 128. The bowed shape of the production possibilities frontier can be explained by the fact that a. b. c. d. ANS: C all resources are scarce. economic growth is always occurring. the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing. the only way to get more of one good is to get less of the other. 129. When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good a. b. c. d. increases as more of the good is produced. decreases as more of the good is produced. does not change as more of the good is produced. may increase, decrease, or not change as more of the good is produced. ANS: A 130. If a production possibilities frontier is bowed outward, then the opportunity cost of producing more of the first good is highest when a. b. c. d. the economy is producing much of the first good and little of the second good. the economy is producing equal amounts of the first and second goods. the economy is producing little of the first good and much of the second good. None of the above is correct because the opportunity cost of producing more of the first good is constant. ANS: A 131. Production possibilities frontiers are usually bowed outward. This is because a. b. c. d. the more resources a society uses to produce one good, the fewer resources it has available to produce another good. it reflects the fact that the opportunity cost of producing a good decreases as more and more of that good is produced. of the effects of technological change. resources are specialized; that is, some are better at producing particular goods rather than other goods. ANS: D 132. Economists believe that production possibilities frontiers a. b. c. d. never have a bowed shape. rarely have a bowed shape. often have a bowed shape. always have a bowed shape. ANS: C 133. The following table contains some production possibilities for an economy for a given month. Sweaters 4 6 8 Gloves 300 ? 100 If the production possibilities frontier is bowed outward, then “?” could be a. b. c. d. ANS: D 100. 150. 200. 250.