Preview


1	Each of the following rows represents the choice faced by policy makers given the current set of U.S. institutions and technology. What is the opportunity cost of reducing unemployment from 5 percent to 4 percent?
		A)	1 percentage point of unemployment.
		B)	3 percentage points of unemployment.
		C)	3 percentage points of inflation.
		D)	1 percentage point of inflation.


2	Refer to the graph above. The graph indicates that with the resources and technology it has available, Ricardia:
		A)	can produce both 20 units of rye and 10 units of eggs.
		B)	can produce both 40 units of rye and 20 units of eggs.
		C)	cannot produce both 20 units of rye and 10 units of eggs.
		D)	cannot produce both 10 units of rye and 10 units of eggs.


3	The principle of increasing marginal opportunity costs states that initial opportunity costs are __________ and they __________ the more you concentrate on the activity
		A)	high; decrease
		B)	low; increase
		C)	high; increase
		D)	low; decrease


4	Refer to the graph above. We can infer from the graph that this society:
		A)	prefers B to C.
		B)	prefers C to B.
		C)	is indifferent between C and B.
		D)	is not using its resources efficiently.


5	An improvement in technology will:
		A)	imply that the law of increasing costs no longer applies.
		B)	shift the production possibilities curve inward.
		C)	shift the production possibilities curve outward.
		D)	have no effect on the production possibilities curve.


6	Suppose a country has a comparative advantage in the production of bananas and a comparative disadvantage in the production of pears. In this case, which of the following production patterns will produce the greatest benefits from trade for this country?
		A)	160 pounds of bananas and 40 pounds of pears.
		B)	120 pounds of bananas and 80 pounds of pears.
		C)	80 pounds of bananas and 120 pounds of pears.
		D)	40 pounds of bananas and 160 pounds of pears.


7	Mexico has a comparative advantage in producing corn:
		A)	if its opportunity cost of producing corn is higher than the opportunity cost in other countries.
		B)	if its opportunity cost of producing corn is the same as the opportunity cost in other countries.
		C)	if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
		D)	regardless of the opportunity cost in other countries.


8	In general, international trade:
		A)	is more difficult to conduct than domestic trade.
		B)	is as difficult to conduct as domestic trade.
		C)	is less difficult to conduct than domestic trade.
		D)	is no different from domestic trade.


9	Assuming government's goal is to benefit society as much as possible, which of the following statements is true?
		A)	Actions with negative and positive externalities should be encouraged.
		B)	Actions with negative and positive externalities should be restricted.
		C)	Actions with negative externalities should be encouraged and actions with positive externalities should be restricted.
		D)	Actions with negative externalities should be restricted and actions with positive externalities should be encouraged.


10	When taxation is progressive, the tax rate:
		A)	remains constant as income increases.
		B)	increases as income increases.
		C)	falls as income increases.
		D)	does not depend on income.