Krugman Microeconomic Text- Chapter 2 Test– Trade Offs and Trade

1. Modelsa. are an exact replica of reality.b. bear no resemblance to real life.c. are a simplification of the real world.d. are made more complicated by the assumptions that underlie the model.

2. There are a limited number of possible economic models.a. True b. False

3. The other-things-equal assumption means thata. all economic models hold the same variables constant.b. all economic models vary only one variable at a time, and that variable is always the same for all economic models.c. only one variable is allowed to change in a model at a time so that the analyst using the model can focus on the effect of that change on the model.d. lots of variables are allowed to change in a model at one time so that the analyst using the model can focus on the effect of all these changes on a single variable of interest.

4. Suppose Mike has a linear production possibility frontier in the production of potatoes and tomatoes. If Mike devotes all his time to the production of potatoes, he can produce 1,000 pounds of potatoes a year; if he devotes all his time to the production of tomatoes, he can produce 2,000 pounds of tomatoes a year. Which of the following combinations of potatoes and tomatoes are not feasible for Mike?a. 1,000 pounds of potatoes and 2,000 pounds of tomatoes per yearb. 1,000 pounds of potatoes and 0 pounds of tomatoes per year c. 0 pounds of potatoes and 2,000 pounds of tomatoes per yeard. 500 pounds of potatoes and 1,000 pounds of tomatoes per year

5. Suppose Mike has a linear production possibility frontier in the production of potatoes and tomatoes. If Mike devotes all his time to the production of potatoes, he can produce 1,000 pounds of potatoes a year; if he devotes all his time to the production of tomatoes, he can produce 2,000 pounds of tomatoes a year. Which of the following combinations of potatoes and tomatoes are not efficient for Mike?a. 500 pounds of potatoes and 500 pounds of tomatoes per yearb. 500 pounds of potatoes and 1,000 pounds of tomatoes per yearc. 750 pounds of potatoes and 500 pounds of tomatoes per yeard. 250 pounds of potatoes and 1,500 pounds of tomatoes per year

6. Utopia has a linear production possibility frontier in the production of widgets and gadgets. It can produce three gadgets per hour of labor time or four widgets per hour of labortime. What is the opportunity cost of producing one widget in Utopia?a. 3 gadgets c. 0.75 gadgetb. 4 widgets d. 1.33 gadgets

7. Jonesville produces widgets and gadgets and its production possibility frontier is linear. The following table provides the number of units of labor necessary to produce I gadget or I widget in Jonesville.

Suppose that Jonesville has 100 hours of labor. What is the maximum number of widgets it can produce?a. 10 widgets c. Ti widgetb. 20 widgets d. 100 widgets

8. Jonesville produces widgets and gadgets and its production possibility frontier is linear. The following table provides the number of units of labor necessary to produce 1 gadget or 1 widget in Jonesville.

Suppose that Jonesville has 100 hours of labor. What is the maximum number of widgets and gadgets it can produce if it devotes half of its labor time to the production of widgets and half of its labor time to the production of gadgets?a. 20 gadgets and 5 widgets c. 5 gadgets and 20 widgetsb. 10 gadgets and 5 widgets d. 5 gadgets and 10 widgets

9. Jonesville produces widgets and gadgets and its production possibility frontier is linear. The following table provides the number of units of labor necessary to produce I gadget or I widget in Jonesville.

Suppose that Jonesville initially has 100 hours of labor. What happens to the opportunity cost of producing a widget if Jonesville’s labor resource increases to 200 hours of labor?a. The opportunity cost of producing a widget decreases.b. The opportunity cost of producing a widget increases.c. The opportunity cost of producing a widget does not change.d. The opportunity cost of producing a widget may increase, decrease, or remain unchanged depending on the number of gadgets that are produced in Jonesville.

10. Jonesville produces widgets and gadgets and its production possibility frontier is linear. The following table provides the number of units of labor necessary to produce I gadget or I widget in Jonesville.

Suppose that Jonesville has 100 hours of labor. Which of the following combinations of widgets and gadgets is not feasible for Jonesville to produce?a. 4 gadgets and 8 widgets c. 8 gadgets and 6 widgetsb. 7 gadgets and 7 widgets d. 0 gadgets and 10 widgets

11. Utopia has a linear production possibility frontier in the production of widgets and gadgets. It can produce 3 gadgets per hour of labor time or 4 widgets per hour of labor time. Suppose that Utopia has 120 hours of labor time and that it chooses to divide its labor time equally between the production of widgets and gadgets. What is the maximum number of widgets Utopia can produce given this decision?a. 480 widgets c. 60 widgetsb. 240 widgets d. 15 widgets

12. Suburbia has a production possibility frontier bowed out from the origin for the two goods, guns and butter, that Suburbia produces from its available resources and technology. The following table describes six points that lie on Suburbia’s production possibility frontier.

Suppose Suburbia is initially producing at point D. What is the opportunity cost of moving to point E?a. 10 gunsb. 40 gunsc. 20 pounds of butterd. 30 pounds of butter

13. Suburbia has a production possibility frontier bowed out from the origin for the two goods, guns and butter, that Suburbia produces from its available resources and technology. The following table describes six points that lie on Suburbia’s production possibility frontier,

Suppose Suburbia is initially producing at point D. What is the opportunity cost of moving to point B?a. 25 pounds of butterb. 20 gunsc. 10 gunsd. 75 pounds of butter

14. Suburbia has a production possibility frontier bowed out from the origin for the two goods, guns and butter, that Suburbia produces from its available resources and technology. The following table describes six points that lie on Suburbia’s production possibility frontier.

Suburbia is currently producing 50 pounds of butter and 20 guns. This combination isa. allocatively efficient, since butter is tastier than guns.b. productively efficient, since it is a feasible point for Suburbia to produce.c. infeasible, because Suburbia cannot produce this combination given its resources and technology.d. feasible but inefficient, since it is a combination that lies inside the production possibility frontier.

15. Which of the following statements is true?I. Points that lie on the production possibility frontier are allocatively efficient.II. Points that lie on the production possibility frontier are productively efficient.a. Statement I is true.b. Statement Ills true.c. Statements I and II are true.d. Statements I and II are false.

16. An economy is allocatively efficient provided thata. it produces at any point along its production possibility frontier.b. it produces the right mix of goods from its available resources.c. no resources are wasted.d. all of the above statements are true about allocative efficiency.

17. Suppose there are two countries, Texia and Urbania, that produce food and clothing and currently do not trade. Both countries have linear production possibility frontiers. Texia, if it devotes all of its resources to food production, can produce 1,000 units of food this year and 0 units of clothing. If Texia devotes of all of its resources to clothing production this year, it can produce 500 units of clothing and 0 units of food. Urbania can either produce 500 units of food this year and 0 units of clothing, or it can produce 200 units of clothing this year and 0 units of food._______ has the absolute advantage in the production of clothing and _______ has the absolute advantage in the production of food.a. Texia; Texia c. Urbania; Texiab. Texia; Urbania d. Urbania; Urbanja

18. Suppose there are two countries, Texia and Urbania, that produce food and clothing and currently do not trade. Both countries have linear production possibility frontiers. Texia, if it devotes all of its resources to food production can produce 1,000 units of food this year and 0 units of clothing. If Texia devotes of all of its resources to clothing production this year, it can produce 500 units of clothing and 0 units of food. Urbania can either produce 500 units of food this year and 0 units of clothing, or it can produce 200 units of clothingthis year and 0 units of food._______ has the comparative advantage in the production of clothing and _________ has the comparative advantage in the production of food.a. Texia; Texia c. Urbania; Texiab. Texia; Urbania d. Urbania; Urbanja

19. Suppose there are two countries, Texia and Urbania, that produce food and clothing and currently do not trade. Both countries have linear production possibility frontiers. Texia, if it devotes all of its resources to food production can produce 1,000 units of food this year and 0 units of clothing. If Texia devotes of all of its resources to clothing production this year, it can produce 500 units of clothing and 0 units of food. Urbania can either produce 500 units of food this year and 0 units of clothing, or it can produce 200 units of clothing this year and 0 units of food. Each country devotes half of its resources to the production of food and half of its resources to the production of clothing. Total clothing production is equal to _______ and total food production is equal to _________a. 600; 500 c. 100; 250b. 250; 500 d. 350; 750

20. Suppose there are two countries, Texia and Urbania, that produce food and clothing and initially do not trade. Both countries have linear production possibility frontiers. Texia, if it devotes all of its resources to food production can produce 1,000 units of food this year, and 0 units of clothing. If Texia devotes of all of its resources to clothing production this year, it can produce 500 units of clothing and 0 units of food. Urbania can either produce 500 units of food this year and 0 units of clothing or it can produce 200 units of clothing this year and 0 units of food. Suppose that Texia and Urbania decide to specialize and trade. If Texia increases its clothing production to a total of 400 units, how many units of food will Texia be able to produce if it is productively efficient?a. 100 units c. 300 unitsb. 200 units d. 400 units

21. Specialization and trade benefitsa. usually only one of the trading partners.b. the wealthier country more than the poorer country.c. the poorer country more than the wealthier country.d. both countries if they specialize according to their comparative advantage.

22. Which of the following statements is true about positive economics?I. Positive economics is about how the world should work.II. Positive economics is about how the world works.III. Positive economics is descriptive.a. Statements I, II, and III are all true.b. Statements I and III are true.c. Statements II and III are true.d. Statement II is true.

23. Which of the following statements is an example of normative economics?I. The United States should pass a value-added tax, since this is a tax that will work best for the country.II. A value-added tax will add $10 billion to the administrative costs of the U.S. tax system.

III. A value-added tax will increase the economic burden of taxes on poor people by15%.a. Statements I, II, and III are all examples of normative economics.b. Statements I and III are examples of normative economics.c. Statements I and II are examples of normative economics.d. Statement I is an example of normative economics.