. Which of the following is not a basic question that each economy must answer? A) Which resources are scarce? B) For whom shall the goods be produced? C) How shall goods be produced? D) What goods shall be produced? 2. If Kim can either wash 10 cars or wax 2 cars during a day, and Vince can either wash 17 cars or wax 2 cars during a day, then according to the law of comparative advantage, A) Vince’s opportunity cost of waxing a car is less than Kim’s. B) their total output can be expanded if Kim specializes in waxing and Vince in washing. C) their total output can be expanded if Kim specializes in washing and Vince in waxing. D) it would be impossible for Vince and Kim to increase their total output through specialization and mutual exchange. 3. The following question(s) relate(s) to the material in the addendum to Chapter 2. Use the production possibilities data for Lebos and Slavia below to answer the question(s). Table 2-4 Lebos Slavia Food Clothing Food Clothing 0 8 0 8 2 6 1 6 4 4 2 4 6 2 3 2 8 0 4 0 Refer to Table 2-4. Which of the following is correct? A) In Lebos, the opportunity cost of producing one unit of food is equal to one unit of clothing. B) In Slavia, the opportunity cost of producing one unit of food is equal to two units of clothing. C) The opportunity cost of producing food in Lebos is less than the opportunity cost of producing food in Slavia. D) All of the above are correct. 4. Which of the following is NOT true of opportunity cost? A) Opportunity costs are subjective because they depend upon how the decision-maker values his or her options. B) Opportunity costs are only the monetary costs of lost options. C) Opportunity costs are the highest-valued alternative sacrificed in order to choose an option. D) Only the decision-maker can determine his or her opportunity costs for any particular action. 5. Assume the demand curve for cookies is downward sloping. If the price of cookies falls from $1.50 to $1.25 per dozen, A) the demand for cookies will fall. B) the demand for cookies will rise. C) a larger quantity of cookies will be demanded. D) a smaller quantity of cookies will be demanded. 6. The price of a good will tend to rise when A) there is excess demand for the good. B) there is excess supply of the good. C) demand for the good decreases. D) the supply of the good increases. 7. If we observe an increase in the price of a good and a decrease in the amount of the good bought and sold, this could be explained by A) an increase in the supply of the good. B) an increase in the demand for the good. C) a decrease in the demand for the good. D) a decrease in the supply of the good. 8. Suppose demand increases and supply increases. Which of the following will happen? A) Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. B) Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. C) Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. D) Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. E) The change in equilibrium price and quantity cannot be determined. 9. The invisible hand principle, as developed by Adam Smith inThe Wealth of Nations, states that A) government control over economic activity is essential for the talents of individuals to be directed toward their highest valued use. B) the economic wealth of a nation is determined by a nation’s holdings of precious metals, such as gold and silver. C) public policy should prohibit domestic producers from selling their goods to foreigners. D) competitive markets will bring individual self-interest and the public interest into harmony.
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