Econ 101 - Review Questions for Midterm 1 Professor Korinna K. Hansen Use the graph below to answer the following question. 1) In the above Figure, which of the following is true? a) Point A is the most efficient b) Point B is the most efficient. c) Point C is unattainable. d) b) and c) are true Use this graph for the next question. 2) If an economy operates at point A on the production possibilities curve shown in Figure above. a) it cannot increase its output of food without having to give up some clothing. b) it cannot increase its output of clothing without having to give up some food. c) it is using its resources efficiently. d) all of the above are true.Use this graph for the next question: 3) Points A, B, and C in the above Figure indicate consumption and investment for three economies. Other things constant, which of the economies is likely to grow more rapidly in the future? a) economy A b) economy B c) economy C d) They would all be expected to grow at the same rate. Haircuts T-shirts 4) The picture above gives you the production possibility frontier (PPF) for t-shirts and haircuts in an economy. What is the explanation for the over time shift in the PPF? a) Higher demand for t-shirts in the economy. b) Technological advances in the t-shirt industry. c) Technological advances in the haircut industry. d) Unemployment and Inefficiencies in the haircut industry.5) In a simple two-person (person A and B), two-good economy (good 1 and 2), determine whether each of the following statements is ALWAYS TRUE. Statement 1: If A has the absolute advantage in the production of a good 1 and B has the absolute advantage in the production of a good 2, then A also has the comparative advantage in the production of good 1. Statement 2: If A has the comparative advantage in the production of a good 1 and B has the comparative advantage in the production of a good 2, then A also has the absolute advantage in the production of good 1. a) Both Statement 1 and Statement 2 are always true. b) Statement1 is not always true but Statement2 is always true. c) Statement 1 is always true but Statement 2 is not always true. d) Neither Statement1 nor Statement2 are always true. 6) Patricia is calculating her opportunity cost of attending college. She pays $30,000 per year in tuition and forgoes a salary of $25,000 per year. After graduating from college, she expects a startup salary of $60,000 per year. Patricia is considering a 4-year time horizon for her calculations. What is Patricia’s opportunity cost of attending college, given this information only? a) $115,000 per year, thus $460,000 in total b) $30,000 per year, thus $120,000 in total c) $55,000 per year, thus $220,000 in total d) $5,000 per year, thus $20,000 in total 7) Assume it takes Monica 2 hours to solve 20 Economics questions and it takes Monica 3 hours to solve 24 Mathematics questions. She has a total of 12 hours available. At which of the following combinations is Monica producing solutions efficiently? a) 20 Economics solutions and 24 Mathematics solutions b) 80 Economics solutions and no Mathematics solutions c) 75 Economics solutions and 36 Mathematics solutions d) 80 Economics solutions and 24 Mathematics solutions 8) John won a free ticket to see Jay-Z and Kanye West perform in Chicago. The ticket has a market-value of $150 if he decides to sell it. He values seeing the concert at $400. The cost of gas and wear and tear on John’s car to get to and from Chicago is $50. He is working at the tutoring center and he was scheduled to work 4 hours at $30/hour the night of the concert (He cannot work at all if he goes to the concert). He is required to find someone to take his place if he cannot make it to work. The only person he can find who will take his place at work is Matthew, who demands John pay him $15 total for all 4 hours. What is the opportunity cost of going to the concert? a) $135 b) $185 c) $250 d) $3359) When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage, a) they both obtain consumption outside their production possibilities frontier b) they both obtain consumption inside their production possibilities frontier c) one individual consumes inside the production possibilities frontier, while the other consumes outside hers, d) each individual consumes a point on her own production possibilities frontier. 10) Bill 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? a) Mark should do more of the cooking based on his comparative advantage. b) Mark should do more of the laundry based on his comparative advantage. c) Mark should do more of the laundry based on his absolute advantage. d) There are no gains from trade in this situation Use the following information to answer the next two questions: 11) England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour. a) England has the absolute advantage in scones and sweaters and should produce sweaters. b) Scotland has the comparative advantage in scones and in sweaters and should produce sweaters. c) Scotland has the absolute and comparative advantage in sweaters and should produce sweaters. d) England has the comparative advantage in scones and sweaters and should produce scones. 12) If a Scottish worker could only produce 1 sweater per hour, a) Scotland should still produce sweaters and both countries will benefit from trade. b) England should still produce sweaters and both countries will benefit from trade. c) The gains from trade will be larger now for these two countries. d) No gains from trade are possible now.Use the following information for the next two questions: A German worker takes 400 hours to produce a car and 2 hours to produce a case of wine. A French worker takes 600 hours to produce a car and X hours to produce a case of wine. 13) If X is ____________ Germany will export cars and import wine. a) larger than 1/3 b) smaller than 3 c) larger than 3 d) smaller than 1/3 14) If X is _______ no gains from trade are possible. a) 1/3 b) 2 c) 600 d) 3 Use the following information to answer the next two questions: Lisa can
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