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Unit 1 Review
Unit 1 Review
Unit 1 Review
Which of the following best explains why individuals and societies must make choices when
presented with alternatives?
A) People possess limited knowledge.
B) Resources are scarce.
C) People cannot agree on societal goals.
D) Resources are not fully employed.
E) People are more interested in their own well-being than in society’s well-being.
2. Which of the following is an example of a scarce factor of production?
A) Money
B) Food
C) Flour
D) Airplanes
E) Established knowledge
3. Which of the following is an example of a nonrival resource?
4. A power company decides to use wind turbines to provide electricity instead of coal. Which basic
economic question does this decision answer in a free market economy?
A) What goods or services will be produced?
B) How will goods or services be produced?
C) Who will consume the goods or services?
D) What economic system should be adopted?
E) Who gets to decide?
6. Which of the following economic systems primarily relies on prices for allocating resources and
goods?
A) Free-market
B) Traditional
C) Command
D) Mixed
E) Socialism
7. Because of conflict and political instability in Country Y , millions of its citizens emigrate to Country
X. Which of the following best explains what will happen to Country X's production possibilities curve
?
8)
10. If Nation X produces coffee at a higher opportunity cost than Nation Y, which of the following is
true?
A Nation X must have an absolute advantage in producing coffee.
B Nation X must have a comparative advantage in producing coffee.
C Nation Y must have an absolute advantage in producing coffee.
D Nation Y must have a comparative advantage in producing coffee.
E There is insufficient information to determine both absolute and comparative advantage.
11. Nation Alpha can produce either 3 units of good X or 1 unit of good Y The one hour of labor,
whereas nation Beta can produce either 4 units of good X or 2 units of good Y with one hour of
labor. Assuming that labor is the only input, which of the following is true?
A Beta has an absolute advantage in the production of good X.
B Alpha has an absolute advantage in the production of good Y.
C Beta has a comparative advantage in the production of good X.
D Alpha has a comparative advantage in the production of good Y.
E Alpha has both an absolute and comparative advantage in the production of good Y
13. Oren’s father tells Oren he can have one dessert after dinner. He can choose from a scoop of ice
cream, a slice of apple pie, a cup of chocolate pudding, or a piece of fruit. Oren prefers chocolate
pudding to a piece of fruit; he prefers apple pie to chocolate pudding; and he prefers ice cream to
apple pie. If Oren chooses a scoop of ice cream, what is his opportunity cost?
A A piece of fruit.
B A cup of chocolate pudding.
C A slice of apple pie.
D A scoop of ice cream.
E A piece of fruit, a cup of pudding and a slice of apple pie.
14.
A6
B5
C4
D3
E2
15. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly
labeled diagram must have all axes and curves clearly labeled and must show directional changes. If
the question prompts you to “Calculate,” you must show how you arrived at your final answer.
Two countries, Marland and Teckana, can produce either clothing or food using all their available
resources at constant opportunity cost. The table below shows the daily production of clothing or
food in Marland and Teckana.
Clothing Food
(a) Which country has the absolute advantage in producing food? Explain.
(b) Which country has the comparative advantage in producing food? Explain.
(c) Assume the two countries specialize based on their comparative advantage. If the two countries
engage in trade and one unit of food is exchanged for 5 units of clothing, will these terms of trade be
mutually beneficial? Explain.
(d) Suppose Teckana invented new equipment to only increase the production of clothing.
(i) Draw a correctly labeled graph of Teckana’s initial production possibilities curve, with clothing on
the horizontal axis and food on the vertical axis. Plot the numerical values above on the graph.
(ii) Show the effect of the new equipment on Teckana’s production possibilities curve.