1. Google has started a project to scan all books and make those that are not copyrighted available to people free of charge. Why is it important that only books without a copyright are available? The answer is B.

If all books were scanned and available free of charge, copyright holders would face a negative incentive to continue writing and publishing books.

2. In the area of many college campuses, parking spaces are often scarce. If these parking spaces have parking meters, which population described below would pay for parking? The correct answer is E.

A population that is unwilling to take risks, believes there is a high chance that they will be caught if they don’t pay their share, and places a high value on doing the “right” thing

3. Kelly is an architect, and she is trying to decide whether to hire Mike, a draftsman, to assist with her work. Kelly could hire Mike at $20 per hour, but it would take him three times as long to complete a task as it takes Kelly. Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true? The correct answer is C.

Mike should be hired at the $20 per hour wage rate.

4. In 2009, the federal government created a program called Cash for Clunkers whereby consumers could trade in a less efficient car for a more efficient car and receive a higher value than they would have otherwise. How would an economist understand the decision that consumers faced? The correct answer is A

Consumers would compare the marginal benefits to the marginal costs of replacing their car, and this program made sure that marginal benefits would exceed marginal costs.

5. What is the most preferred consumption point for a pie-appreciating society?

The correct answer is B.

Point B

6. You can see that the opportunity cost of moving from point B to point D is different from the opportunity cost of moving from point D to point C because: The correct answer is B.

The slope of the production possibilities frontier (PPF) is different in each of the two segments.

7. Opportunity cost is evident on the production possibilities frontier (PPF) graph: The correct answer is A.

As you move from one point on the frontier to another point on the frontier.

8. Suppose you find a production possibilities frontier (PPF) that is shaped like a straight line. What can you determine about the production of the two goods? The correct answer is C.

Production of the two goods is subject to constant opportunity cost anywhere along the PPF.

9. As you move from points N to M to L, the opportunity cost of additional apple pie: Correct answer is A.

Decreases due to the law of increasing relative cost.

10. According to the figure, a new technology that makes it easier to peel, core, and prepare apples will cause: The correct answer is A.

The entire production possibilities frontier (PPF) to shift outward.

11. An increase in general resources that affects the production of both goods on a production possibilities frontier (PPF) would cause an: The correct answer is B.

Outward shift of the PPF.

12. A town on the Gulf Coast is battered by a massive hurricane that destroys most of its productive resources. The community’s production possibilities frontier (PPF) would show an: The correct answer is A.

Inward shift of the PPF.

13. Suppose a great plague wipes out half of the society’s population. Which of the following graphs best depicts how this would affect the PPF? The correct answer is D

Graph D

14. 14. Suppose the plow is invented and agricultural productivity greatly increases. Which of the following graphs best depicts how this would affect the PPF? Correct answer is C.

Graph C

15. Suppose the printing press is invented. Which graph best depicts how this would affect the PPF? Correct answer is B.

Graph B

16. 16. Suppose a new generation of baby boomers is entering the workforce. Which graph best depicts how this would affect the PPF? Correct answer is A.

Graph A

17. Consider the following scenario. Two friends, Rachel and Joey, enjoy baking bread and making apple pies. Rachel takes two hours to bake one loaf of bread and one hour to make one pie. Joey takes four hours to bake one loaf of bread and four hours to make one pie. If Rachel and Joey decide to specialize in order to maximize their combined output, who should produce what? Correct answer is B.

 

 

 

Rachel should specialize in making pies and Joey should specialize in making bread.

18. Suppose Jim is a brilliant attorney who can draft especially persuasive legal briefs. He also happens to possess some excellent administrative skills such as typing, filing, assembling binders and notes, and making reservations. Which best describes whether Jim should hire an administrative assistant to help him? The correct answer is D.

Jim should hire an administrative assistant because the assistant would likely have a comparative advantage in performing administrative functions.

19. Suppose that Dwight and Jim can either make salads or grill steaks. Their maximum output per hour is listed in the following table. Given the same quantity of resources, at what terms of trade (relative price ratio) could they specialize and trade so that both consume outside their own production possibilities frontier (PPF)? The correct answer is C.

2.5 salads per 1 steak

20. Suppose that, on a particular Saturday, Mark Zuckerberg and Bill Gates can either plant trees or spread mulch in their gardens. Their maximum output per day is listed in the following table, along with blanks where you can calculate the opportunity cost. At what terms of trade (relative price ratio) could they specialize and trade with one another so that both have more trees planted and mulch spread than they could accomplish on their own? The correct answer is D.

7 trees planted per 12 cubic yards of mulch spread

21. The accompanying figures depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. If Jim and Pam were to specialize and trade, at what exchange rate would they find some quantity of trade to be mutually beneficial? The correct answer is B.

1 pizza for 1 stromboli

22. The accompanying figures depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Which statement about comparative advantage is true? The correct answer is A.

Jim has a comparative advantage in the production of stromboli because his opportunity cost is lower.

23. Which of the following would NOT lead to an outward shift of a future production possibilities frontier (PPF)? The correct answer is E.

A decline in life expectancy

24. Which allocation point in the short-run production possibilities frontier (PPF) will lead to NO GROWTH in the long-run PPF? Correct answer is D.

Point D

25. What is DiNozzo’s opportunity cost for solving a crime? The correct answer is D.

1/20 of a boat

26. Which statement best describes the absolute advantage as shown in the graphs? The correct answer is D.

Pam has an absolute advantage in the production of pizzas, and Jim has an absolute advantage in the production of stromboli.

27. Suppose that Sheldon and Leonard can either run errands or wash dishes. Their maximum output per hour is listed in the following table. Given the same quantity of resources, at what terms of trade (relative price ratio) could they specialize and trade so that both consume outside their own production possibilities frontier (PPF)? The correct answer is B.

1 errand run per 30 dishes washed

 

28. If the government wanted to give people a negative direct incentive not to save money, what would be the appropriate policy? The correct answer is D.

Imposing a tax on individuals for saving their money

29. Some public transit systems use an “honor system” whereby patrons have to show that they have paid their fare only when asked for it by an enforcement officer. With what population would such a system be successful? The correct answer is B.

a population that places a high opportunity cost on taking time to purchase a ticket

 

30. Instead of deciding to finish high school, you could have decided to work full-time. How would an economist explain your decision to receive your high school degree? The correct answer is C.

The benefit of going to high school was greater than the benefit of working full-time.

31. Which of the following is a normative statement? The correct answer is A.

You should wear a helmet when cycling.

32. Which of the following is a positive statement? The correct answer is E.

The unemployment rate is 8%.

33. Suppose you are studying a production possibilities frontier (PPF) that has a bowed-out shape relative to the origin. What causes this shape? The correct answer is B.

The law of increasing relative cost

34. The opportunity cost of increasing the production of apple pies from 12 to 14 pies is: The correct answer is D.

4 blueberry pies.

35. The opportunity cost of increasing production of apple pies from 14 to 16 pies is: The correct answer is C.

7 blueberry pies.

36. The opportunity cost of increasing production of blueberry pies from 7 to 11 pies is: The correct answer is E.

2 apple pies.

37. More oranges are grown in Florida than North Dakota because Florida’s warm climate gives it a ________ in growing oranges. The correct answer is A.

Comparative advantage

38. The United States is able to experience economic growth to the extent that: The correct answer is A.

Specialization and trade are encouraged.

39. Refer to the graph below. This society could reach point F when there is a (n): The correct answer is C.

Increase in technology that makes pie bakers more efficient.

40. Economic growth in developed countries has been altered by the increased popularity of the Internet. How has the Internet, in terms of both negative and positive incentives, promoted but also discouraged economic growth?

The use of internet has played critical role in encouraging economic growth. Creative and innovative individuals face a positive incentive and have found a new way to sell their products over the internet. The internet has helped them reach to a large set of customers. Similarly, the use of internet has made it convenient to buy things and consumers have been allowed to consume more. On the other hand, the internets has resulted to negative incentives hence discouraging economic growth. The use of internet has led to theft of digital music, ideas and movies. This discourages the emergence of creative individuals.

41. You are planning to add new mulch to all the landscaping beds around your house. You have determined the quantity of mulch you will need and have identified these two options for getting the mulch to your house:
42. You can have all the mulch delivered to your yard in one dump truck for $450.
43. You can make four trips to the garden center with your pickup truck and haul it yourself. It will cost you $75 per load for the mulch, plus $25 in fuel and truck wear per load. You estimate it will take about five hours to haul and unload all four loads.

What is the full cost of each method? Which method is cheaper? How is opportunity cost relevant?

The full cost for the first method is $450. While for the second method, the cost is as follows. ($75 × 4) + ($25 ×4) = $300 +$100 = $400.

From the results the second method is cheaper.

The opportunity cost of the first method to the second method is $450=$400. Therefore, the opportunity cost of the first method to the second one is 1 to 8/9.

42. The table below shows the maximum number of burgers or hot dogs that Vinny and The Situation can cook in 1 hour.
43. Fill in the rest of the table with the opportunity cost of burgers and hot dogs for each person. Be sure to include the units.
44. Identify who has a comparative advantage in producing each good.

 

 

 

 

	Maximum Burger	Maximum Hot Dogs	Opportunity cost of 1 Burger	Opportunity cost of 1 Hot Dog
Vinny	30	60	1	2
The Solution	50	75	1	1.5

 

The Solution has the comparative advantage of producing both goods at a lower opportunity cost.

43. In the movie A Knight’s Tale, three peasants win a jousting tournament and must decide whether they should enjoy most of their winnings now or use most of it for training to improve their future jousting performance. Use appropriate production possibilities frontiers (PPFs) and words to describe the investment trade-off they face.

The vertical axis represents the capital goods while the horizontal axis represents the consumer goods.

 

 

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