Econ 1015 Section 2 Winter 2008 Practice Exercises for Final Exam 1 Which of the following s is are considered a rational decision 1 Jon spends 200 on designer shoes instead of buying his Economics textbook and Study guide 2 Kerri takes 21 shots to celebrate her 21st birthday despite having an Econ1015 test the following morning 3 Britney Spears the 25 year old pop star with a monthly income of 737 000 is not saving for her retirement 4 Wesley Snipes decides not to pay tax on his 40 million annual income 5 All of the above are rational decisions 2 The Scarcity problem 1 Persists only because countries have failed to achieve continuous full employment 2 Persists because material wants exceed available productive resources 3 Has been solved in ALL industrialized nations 4 Has been eliminated in affluent societies such as the United States and Canada 5 All of the above are possible explanations 3 A physician s knowledge and skills are referred to by economists as 1 intellectual raw materials 2 human capital 3 labor 4 entrepreneurship 5 physical capital 4 High income people will sometimes decide to pay higher prices at convenience stores for goods rather than buying them from a discount store They do this because 1 they like to be seen paying more money 2 they are irrational 3 they do not mind wasting time 4 their opportunity cost of time is low 5 crowded and understaffed discount stores impose higher time costs 5 If a life can be saved for 500 using Method A and 530 using Method B 1 it would be efficient to shift resources from A to B 2 it would be efficient to shift resources from B to A 3 both methods should be pursued to the maximum extent possible 4 both methods are on the economy s production possibilities frontier 5 neither method should be used if methods with higher dollar values are available 6 Mexico s ability to produce better quality Tequila using the same amount of resources than the U S is called 1 Absolute awesomeness 2 An unfair Mexican advantage 3 Comparative advantage 4 Absolute advantage 5 A means of securing higher terms of trade 7 During the summer you made the decision to attend the Study Abroad program in Florence Italy which precludes you from living with your parents for free and from working at your usual summer job in which you normally earn 6 000 for the summer The Study Abroad program cost inclusive of everything including room and board is 4 500 Your opportunity cost of attending the Study Abroad program is 1 8 500 2 9 500 3 10 500 4 11 200 5 11 500 8 Which of the following is the most accurate statement about production possibilities 1 An economy can produce only on the production possibilities frontier 2 An economy can produce at any point inside or outside a production possibilities frontier 3 An economy can produce at any point on or inside the production possibilities frontier but not outside the frontier 4 An economy can produce at any point inside the production possibilities frontier but not on or outside the frontier 5 Without trade a country s production possibilities frontier is also its consumption possibilities frontier 9 Some time ago the government of China required many highly skilled technicians and scientists to engage in unskilled agricultural labor in order to develop proper social attitudes This policy probably caused China to produce 1 At an inappropriate point along its production possibilities frontier 2 Outside its production possibilities frontier with respect to food but inside with respect to high technology goods 3 Inside its production possibilities frontier with respect to food but outside with respect to high technology goods 4 Inside its production possibilities frontier 5 Efficient amount of output Assume PPF1 represents the production possibilities curve for Afghanistan 10 Afghanistan has suffered continuous and brutal civil wars and foreign invasions since the late 1970s In late 2001 the United Nations Security Council authorized the creation of an International Security Assistance Force ISAF composed of NATO troops to assist the Afghan government In 2005 the United States and Afghanistan signed a strategic partnership agreement and multi billions of US dollars have been provided by the international community for the infrastructure reconstruction of the country This international support will most likely result in 1 Expansion of Afghanistan s economy represented by a shift of Afghanistan s PPF out to PPF0 2 No effect on Afghanistan s economy represented by no change in the PPF of Afghanistan at PPF1 3 Afghanistan s economy expanding to PPF0 or shrinking to PPF3 depending upon whether Afghans like it or not 4 Afghanistan s economy shrinking due to the loss of capital resources represented by a shift of Afghanistan s PPF to PPF2 5 Afghanistan s economy shrinking due to the loss of factors of production represented by a shift of Afghanistan s PPF to PPF3 ANSWER THE NEXT FIVE QUESTIONS ON THE BASIS OF THE FOLLOWING PRODUCTION POSSIBILITIES TABLE FOR TWO STATES MONTANA AND MISSOURI Hours needed to make one Birdhouse Basket 2 1 5 Montana 6 Missouri 3 11 Montana has an absolute advantage in Amount produced in 24 hours Baskets 4 8 Birdhouses 12 16 1 Birdhouses and Missouri has an absolute advantage in baskets 2 Baskets and Missouri has an absolute advantage in birdhouses 3 Neither good and Missouri has an absolute advantage in both goods 4 Both goods and Missouri has an absolute advantage in neither good 5 Baskets and Missouri has an absolute advantage in neither good 12 The opportunity cost of 1 basket for Montana is The opportunity cost of 1 basket for Missouri is 1 1 3 birdhouse 1 4 birdhouse 2 1 birdhouse 1 2 birdhouse 3 3 birdhouses 2 birdhouses 4 4 birdhouses 2 2 3 birdhouses 5 1 4 birdhouses 4 birdhouses 13 Montana has a comparative advantage in 1 Baskets and Missouri has a comparative advantage in birdhouses 2 Birdhouses and Missouri has a comparative advantage in baskets 3 Neither good and Missouri has a comparative advantage in both goods 4 Both goods and Missouri has a comparative advantage in neither good 5 Birdhouses and Missouri has a comparative advantage in neither good 14 If Montana and Missouri trade based on the principle of comparative advantage Montana will export 1 Baskets and Missouri will export birdhouses 2 Birdhouses and Missouri will export baskets 3 Neither good and Missouri will export both goods 4 Both goods and Missouri will export neither good 5 All of the above are possible 15 According to