ECONOMICS EXAM QUESTIONS AND
1. Economics is best defined as the study of how society manages
its scarce resources
Your opportunity cost of going to a movie is the total cash expenditure neede
to go to the movies plus the value of your time.
2. A marginal change is one that ANS >>> incrementally alters an existing plan
3. Adam Smith's "invisible hand" refers to ANS >>> the ability of free markets
to reach desirable outcomes, despite the self-interest of market participants.
4. Governments may intervene in a market economy in order to ANS >>>
protect prop- erty rights, correct a market failure due to externalities, and achieve
a more equal distribution of income
5. If a nation has high and persistent inflation, the most likely explanation
is ANS >>> the central bank creating excessive amounts of money.
6. A point inside the production possibilities frontier is ANS >>> feasible, but not
efficient
7. An economy produces hot dogs and hamburgers. If a discovery of the re-
markable health benefits of hot dogs were to change consumers' preferences,
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, it would ANS >>> move the economy along the production possibilities frontier.
8. In an hour, David can wash 2 cars or mow 1 lawn, while Ron can wash 3 cars
or mow 1 lawn. Who has the absolute advantage in car washing, and who has
the absolute advantage in lawn mowing? ANS >>> Ron in washing, neither in
mowing.
9. Once again, in an hour, David can wash 2 cars or mow 1 lawn, while Ron
can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car
washing, and who has the comparative advantage in lawn mowing? ANS >>>
Ron in washing, David in mowing.
10. When two individuals produce efficiently and then make a mutually ben-
eficial trade based on comparative advantage, ANS >>> they both obtain
consumption outside their production possibilities frontier.
11. Which goods will a nation typically import? ANS >>> those goods in
which other nations have a comparative advantage
12. Suppose that in the United States, producing an aircraft takes 10,000 hours
of labor and producing a shirt takes 2 hours of labor. In China, producing an
aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of
labor.
What will these nations trade? ANS >>> China will export shirts, while the United
States will export aircraft.
13. Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes.
His roommate takes half as long to do each task. How should the roommates
allocate the work? ANS >>> There are no gains from trade in this situation.
14. A change in which of the following will NOT shift the demand curve for
hamburgers? ANS >>> the price of hamburgers
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1. Economics is best defined as the study of how society manages
its scarce resources
Your opportunity cost of going to a movie is the total cash expenditure neede
to go to the movies plus the value of your time.
2. A marginal change is one that ANS >>> incrementally alters an existing plan
3. Adam Smith's "invisible hand" refers to ANS >>> the ability of free markets
to reach desirable outcomes, despite the self-interest of market participants.
4. Governments may intervene in a market economy in order to ANS >>>
protect prop- erty rights, correct a market failure due to externalities, and achieve
a more equal distribution of income
5. If a nation has high and persistent inflation, the most likely explanation
is ANS >>> the central bank creating excessive amounts of money.
6. A point inside the production possibilities frontier is ANS >>> feasible, but not
efficient
7. An economy produces hot dogs and hamburgers. If a discovery of the re-
markable health benefits of hot dogs were to change consumers' preferences,
https://www.stuvia.com/user/CULTIVATED 1/5
, it would ANS >>> move the economy along the production possibilities frontier.
8. In an hour, David can wash 2 cars or mow 1 lawn, while Ron can wash 3 cars
or mow 1 lawn. Who has the absolute advantage in car washing, and who has
the absolute advantage in lawn mowing? ANS >>> Ron in washing, neither in
mowing.
9. Once again, in an hour, David can wash 2 cars or mow 1 lawn, while Ron
can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car
washing, and who has the comparative advantage in lawn mowing? ANS >>>
Ron in washing, David in mowing.
10. When two individuals produce efficiently and then make a mutually ben-
eficial trade based on comparative advantage, ANS >>> they both obtain
consumption outside their production possibilities frontier.
11. Which goods will a nation typically import? ANS >>> those goods in
which other nations have a comparative advantage
12. Suppose that in the United States, producing an aircraft takes 10,000 hours
of labor and producing a shirt takes 2 hours of labor. In China, producing an
aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of
labor.
What will these nations trade? ANS >>> China will export shirts, while the United
States will export aircraft.
13. Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes.
His roommate takes half as long to do each task. How should the roommates
allocate the work? ANS >>> There are no gains from trade in this situation.
14. A change in which of the following will NOT shift the demand curve for
hamburgers? ANS >>> the price of hamburgers
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