Econ 252 final Questions with Correct Answers (Grade A+)
Question 1: Recall Chapter 1's opening story about the British sea captains and the convicted felons. In
what way were incentives used to solve the problem of the high mortality rate on board the ships?
Answer: Payment (to ship captains) was made dependent on the survival rate of prisoners.
Question 2: In his book The Wealth of Nations, Adam Smith claimed that individuals:
Answer: are motivated by self-interest.
Question 3: Every day people rely on the work of others to provide us with food, clothing, and shelter.
These people work for our benefit because:
Answer: they benefit by doing so
Question 4: The main incentive for business activity is:
Answer: profit.
Question 5: Suppose the U.S. government wants to encourage individuals to save more of their income.
The easiest way for the government to realize this goal is to:
Answer: develop incentives such as tax breaks on savings in order to encourage more savings.
Question 6: Scarcity:
Answer: is when there isn't enough to satisfy all our wants.
Question 7: The opportunity cost of a choice is:
Answer: the value of the opportunities lost.
Question 8: When the opportunity cost of a choice increases:
Answer: individuals are less likely to choose that same option.
Question 9: What is thinking on the margin?
Answer: making choices by comparing the additional benefits and additional costs from doing a little bit
more of some activity
Question 10: Economists believe people make decisions by:
Answer: comparing marginal costs with marginal benefits.
Page 1
,Question 11: In Zimbabwe, the government ______ the ______ money, which caused the country's
severe inflation.
Answer: increased; supply of
Question 12: A cell phone plan costs $50 per month for 1,000 minutes and $0.30 per minute for each
additional minute after 1,000. What is the marginal fee for the 1,001st minute used?
Answer: Not provided in source document.
Question 13: When two people voluntarily trade with each other:
Answer: both of them will be better off.
Question 14: It makes sense that Martha Stewart hires another person to do her ironing because:
Answer: her opportunity cost of ironing is higher than the opportunity cost of the person she hires.
Question 15: What factor is responsible for ending malaria in the United States?
Answer: wealth
Question 16: Trade creates value because:
Answer: people exchange things they do not want for things they do.
Question 17: One of the outcomes of specialization is that it leads to _____, which _____ the average
cost of production.
Answer: larger-scale production; lowers
Question 18: As trade becomes more widespread, specialization ______, which in turn ______
productivity.
Answer: increases; increases
Question 19: Absolute advantage derives from which of the following?
Answer: the lowest cost of production
Question 20: Which of the following best describes the principle of comparative advantage?
Answer: Someone has the ability to produce the same good for the lowest opportunity cost.
Page 2
, Question 21: Which of the following best explains the term "specialization" with respect to trade?
Answer: Specialization occurs when people concentrate their productive resources on the goods and
services they can produce most efficiently.
Question 22: The ability of one producer to produce one good or service using fewer inputs than
another producer is:
Answer: absolute advantage.
Question 23: According to the theory of comparative advantage, a country should specialize in
producing a good that involves:
Answer: a lower opportunity cost than that of other countries.
Question 24: (Figure: PPF Goods X & Y) Refer to the figure. Point A represents an allocation of
resources that is: (point A is below the PPF line)
Answer: inefficient.
Question 25: (Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of
textiles China can produce?
Answer: 8 tons
Question 26: The production possibilities frontier shows:
Answer: the combinations of outputs a country can produce given its resources and productivity.
Question 27: Two countries that specialize where they have a comparative advantage and then trade
with each other will experience increases in: I. wages in both countries. II. total output in both
countries. III. living standards in both countries.
Answer: I, II, and III
Question 28: When a rich country that has absolute advantages in all products begins trading with a
poor country:
Answer: the wages in both countries will go up.
Question 29: Wage rates are primarily based on the:
Answer: productivity of labor.
Page 3
Question 1: Recall Chapter 1's opening story about the British sea captains and the convicted felons. In
what way were incentives used to solve the problem of the high mortality rate on board the ships?
Answer: Payment (to ship captains) was made dependent on the survival rate of prisoners.
Question 2: In his book The Wealth of Nations, Adam Smith claimed that individuals:
Answer: are motivated by self-interest.
Question 3: Every day people rely on the work of others to provide us with food, clothing, and shelter.
These people work for our benefit because:
Answer: they benefit by doing so
Question 4: The main incentive for business activity is:
Answer: profit.
Question 5: Suppose the U.S. government wants to encourage individuals to save more of their income.
The easiest way for the government to realize this goal is to:
Answer: develop incentives such as tax breaks on savings in order to encourage more savings.
Question 6: Scarcity:
Answer: is when there isn't enough to satisfy all our wants.
Question 7: The opportunity cost of a choice is:
Answer: the value of the opportunities lost.
Question 8: When the opportunity cost of a choice increases:
Answer: individuals are less likely to choose that same option.
Question 9: What is thinking on the margin?
Answer: making choices by comparing the additional benefits and additional costs from doing a little bit
more of some activity
Question 10: Economists believe people make decisions by:
Answer: comparing marginal costs with marginal benefits.
Page 1
,Question 11: In Zimbabwe, the government ______ the ______ money, which caused the country's
severe inflation.
Answer: increased; supply of
Question 12: A cell phone plan costs $50 per month for 1,000 minutes and $0.30 per minute for each
additional minute after 1,000. What is the marginal fee for the 1,001st minute used?
Answer: Not provided in source document.
Question 13: When two people voluntarily trade with each other:
Answer: both of them will be better off.
Question 14: It makes sense that Martha Stewart hires another person to do her ironing because:
Answer: her opportunity cost of ironing is higher than the opportunity cost of the person she hires.
Question 15: What factor is responsible for ending malaria in the United States?
Answer: wealth
Question 16: Trade creates value because:
Answer: people exchange things they do not want for things they do.
Question 17: One of the outcomes of specialization is that it leads to _____, which _____ the average
cost of production.
Answer: larger-scale production; lowers
Question 18: As trade becomes more widespread, specialization ______, which in turn ______
productivity.
Answer: increases; increases
Question 19: Absolute advantage derives from which of the following?
Answer: the lowest cost of production
Question 20: Which of the following best describes the principle of comparative advantage?
Answer: Someone has the ability to produce the same good for the lowest opportunity cost.
Page 2
, Question 21: Which of the following best explains the term "specialization" with respect to trade?
Answer: Specialization occurs when people concentrate their productive resources on the goods and
services they can produce most efficiently.
Question 22: The ability of one producer to produce one good or service using fewer inputs than
another producer is:
Answer: absolute advantage.
Question 23: According to the theory of comparative advantage, a country should specialize in
producing a good that involves:
Answer: a lower opportunity cost than that of other countries.
Question 24: (Figure: PPF Goods X & Y) Refer to the figure. Point A represents an allocation of
resources that is: (point A is below the PPF line)
Answer: inefficient.
Question 25: (Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of
textiles China can produce?
Answer: 8 tons
Question 26: The production possibilities frontier shows:
Answer: the combinations of outputs a country can produce given its resources and productivity.
Question 27: Two countries that specialize where they have a comparative advantage and then trade
with each other will experience increases in: I. wages in both countries. II. total output in both
countries. III. living standards in both countries.
Answer: I, II, and III
Question 28: When a rich country that has absolute advantages in all products begins trading with a
poor country:
Answer: the wages in both countries will go up.
Question 29: Wage rates are primarily based on the:
Answer: productivity of labor.
Page 3
