Homework quiz #1 on Ch

4. Which of the following is an example of a positive statement?
a. Prices rise when the government prints too much money.

b. If welfare payments increase, the world will be a better place.

c. Inflation is more harmful to the economy than is unemployment.

d. When public policies are evaluated, the benefits to the economy of improved equity should be considered more important than the costs of reduced efficiency.

5. Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines. Which of the following statements is true?

a. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 30.

b. Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry.

c. In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies.

d. The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food.

6. Refer to Figure 2-8. Which of the following combinations can this economy not produce?

a. 30 barrels and 6 bathtubs

b. 25 barrels and 12 bathtubs

c. 20 barrels and 8 bathtubs

d. 10 barrels and 14 bathtubs

7. Refer to Figure 2-4. If the economy moves from point A to point D, the opportunity cost is

a. 10 toasters.

b. 20 toasters.

c. 30 toasters.

d. 30 toothbrushes.

8. Refer to Figure 2-2. The figure represents a circular-flow diagram. If the flow of goods and services is part of what is represented by the inner loop, then

a. the flow of factors of production is also part of what is represented by the inner loop.

b. the flow of income paid to households is also part of what is represented by the inner loop.

c. Box C must represent households and Box D must represent firms.

d. households must be sellers of output.