CHAPTER 2
The Basic Theory Using Demand and Supply 1. The consumer's problem is to maximize: (A)
a. Utility. b. Profit. c. Trade. d. consumption.
Figure 2.3PabcQ1P1P2deQ2DQ
2. Refer to Figure 2.3. Consumer surplus associated with Q1 units is denoted by _______. Consumer surplus associated with Q2 units is denoted by _______. (C)
a. a+b+d; d+c+e b. a; b+d c. a; a+b+d d. a; d
3. If a 1 percent decrease in the price of a good causes the quantity demanded
of the good to increase by 2 percent, we call that portion of the demand curve: (B)
a. Inelastic. b. Elastic. c. unit elastic. d. perfectly elastic. 4. Price elasticity of demand is: (B)
a. a measure of the responsiveness of consumers to changes in income. b. a measure of the responsiveness of consumers to changes in price. c. the slope of the demand curve.
d. a measure of the amount by which the demand curve shifts as a result of a change in price.
5. If a 1 percent decrease in the price of a good results in a 0.5% increase
in the quantity demanded of the good, we can conclude that the demand for the good is relatively price: (A)
a. Inelastic. b. Elastic. c. unit elastic. d. perfectly elastic. 6. The motive of the firm is to: (C)
a. produce as much as possible. b. maximize the economic well-being of consumers.
c. maximize profit. d. minimize costs.
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7. Price elasticity of supply is: (B)
a. a measure of the responsiveness of producers to changes in income. b. a measure of the responsiveness of producers to changes in price. c. the slope of the supply curve.
d. a measure of the amount by which the supply curve shifts as a result of a change in price.
8. When the price elasticity of supply is less than 1, we call supply _______. (B)
a. perfectly elastic b. Inelastic c. unit elastic d. elastic
Figure 2.6PSab
9. Refer to Figure 2.6. Producer surplus associated with producing and selling
Qx units of the good is the area (A) a.a . b. b. c. a + b. d. b - a.
10. Producer surplus is: (D)
a. found on a graph as the area under the equilibrium price and above the supply curve.
b. the net gain in economic well-being associated with producing and selling the a quantity of a good.
c. used to measure the impact of a change in price on the economic well-being on producers. d. all of the above.
11. Buying something in one market and reselling it in another market to
profit from a price difference is called: (C)
a. consumer surplus. b.producer surplus. c.arbitrage. d.one-dollar, one-vote metric.
12. Which of the following says that any dollar of gain or loss will be equally valued, regardless of who experiences it? (D)
xQQ 3
a. consumer surplus. b. producer surplus. c. Arbitrage. d. one-dollar,one-votemetric.
13. Which of the following is the difference between what consumers and producers either gain or lose from trade? (D)
a. Consumer surplus b. One-dollar, one-vote metric c. Arbitrage d. Net national gains from trade
14. Which of the following statements are true about which country gains more from international trade in a two-country world? (D)
(1) The gains from trade are divided in proportion to the price changes that trade brings to the two countries.
(2) The country with the steeper trade curve gains more.
(3) The country that experiences the larger price change as a result of trade has the larger value of net gains from trade.
a.(1) + (2) b.(1) + (3) c.(2) + (3) d.(1) + (2) + (3）
CHAPTER 3-4
Why Everybody Trades: Comparative Advantage and Factor Proportions
1. When Adam Smith presented his theory of absolute advantage, he thought that all value was measured in terms of the amount of _______ used in the production of the good. （B）
a. Land b. Labor c. Capital d. money 2. Labor productivity is: (A、C)
a. the number of units of output that a worker can produce in one hour. b. the total number of units that all workers in a firm produce in one day.
c. the number of hours it takes a worker to produce one unit of output. d. the total number of hours it takes all the workers in a firm to produce a day’s output.
3. If Britain’s labor productivity in the production of umbrellas is greater than the rest of the world’s labor productivity in umbrellas, we would say that Britain has a(n) _______ in the production of umbrellas. (B)
a. comparative advantage b. absolute advantage c. opportunity cost d. superiority
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4. In the two-country, two-good model, which of the following is true? (C)
(1) As a result of trade, at least one country is better off and that
country’s gain does not reduce the economic welfare of the other country.
(2) Both countries can gain from trade by dividing the benefits of the
enhanced global production.
a. (1) b.(2) c. Both (1) and (2) d. Neither (1) nor (2) 5. Constant cost production possibility curves lead to _______
specialization. Increasing cost production possibility curves lead to _______ specialization. (C)
a. no; partial b. complete; c.noc. complete; partial d. partial; complete
6. Which of the following statements is true about production possibility curves? (A)
(1) Constant cost production possibility curves are straight lines and
lead to complete specialization.
(2) Bowed-out production possibility curves are associated with
partial specialization, but the opportunity cost of producing each good is constant along the curve.
a. (1) b. (2) c. (1) and (2) d. None of the above
7. Assume that Country X produces two goods—sugar and shoes—and that the country’s production possibility curve is ―bowed-out‖. As the country produces more sugar, (A)
a. the opportunity cost of sugar in terms of shoes foregone will increase.
b. the opportunity cost of sugar in terms of shoes foregone will decrease.
c. the opportunity cost of shoes in terms of sugar foregone will increase.
d. the opportunity cost of sugar in terms of shoes foregone will be the same.
8. In the two-country, two-good model with an increasing-cost
production-possibility curve, the amount of both goods that are produced in the economy in autarky is determined by: (C) a.the production-possibility curve. b. the specialization point.
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c. the production-possibility curve and the community indifference curve. d. the terms of trade.
Figure 3.2Wheatl1Wheatl2l1l216S111C1108TS0C16S0Price =0.67 bushelper yard01 bushelper yardPrice =1 bushelper yard30TS1Cloth121620Cloth48122 bushels per yard
9. Refer to Figure 3.2. Before trade opens, the Rest of the World produces _______ yards of cloth and _______ bushels of wheat; while consuming _______ yards of cloth and _______ bushels of wheat. (D)
a. 10; 8; 8; 10 b. 4; 16; 8; 10 c. 8; 10; 12; 8 d. 8; 10; 8; 10 10. Refer to Figure 3.2. After trade, Canada produces _______ yards of
cloth and _______ bushels of wheat and consumes _______ yards of cloth and _______ bushels of wheat. (A)
a. 20; 3; 12; 11 b. 12; 11; 12; 11 c. 20; 3; 20; 3 d. 16; 6; 12; 11
11. Refer to Figure 3.2. In autarky, the Rest of the World produces and
consumes _______ yards of cloth and _______ bushels of wheat. In autarky Canada produces and consumes _______ yards of cloth and _______ bushels of wheat. (B)
a. 8; 10; 20; 3 b. 8; 10; 16; 6 c. 4; 16; 20; 3 d. 12; 8; 12; 11 12. Refer to Figure 3.2. Before trade, the total amount of cloth produced in
the world was _______ yards and the total amount of wheat produced in the world was _______. (B)
a. 24; 19 b. 24; 16 c. 19; 24 d. 16; 24
13. Refer to Figure 3.2. As a result of specialization and trade, cloth
production in the world is increased by _______ yards and wheat production is increased by _______ bushels. (A)
CanadaRest of the World 6