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Exam 2: Thinking Like an Economist

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Question 201

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An economic theory about international trade that is based on the assumption that there are only two countries trading two goods

A) is useless, since the real world has many countries trading many goods.
B) can be useful only in situations involving two countries and two goods.
C) can be useful in the classroom, but is useless in the real world.
D) can be useful in helping economists understand the complex world of international trade involving many countries and many goods.

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Question 202

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In constructing models, economists

A) leave out equations, since equations and models tend to contradict one another.
B) ignore the long run, since models are useful only for short-run analysis.
C) sometimes make assumptions that are contrary to features of the real world.
D) try to include every feature of the economy.

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Question 203

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In the circular flow diagram, when Daphne purchases a new mobile phone, she participates in the markets for

Figure 2-13 -Refer to Figure 2-13. Which of the following statements is true about point G for this economy?

In the circular-flow diagram, the two types of markets in which households and firms interact are the markets for goods and services and the markets for factors of production.

Which of the following is not correct?

Figure 2-1 -Refer to Figure 2-1. Which arrow represents the flow of land, labor, and capital?

Which of the following is not correct about most economic models?

Normative statements are

Figure 2-3 -Refer to Figure 2-3. What does the arrow going from oval B to rectangle 2 represent in the figure?

"The US should not restrict employers from outsourcing work to foreign countries" is a normative statement.

Figure 2-10 Panel a) Panel b) -Refer to Figure 2-10, Panel a) and Panel b) . A shift of the economy's production possibilities frontier from Panel a) to Panel b) could be caused by

Economists at which administrative department help enforce the nation's antitrust laws?

If an economy is producing efficiently, then

"Ensuring that Social Security is financially sound for future generations is an important use of taxpayer dollars" is an example of a

The first number in any ordered pair is

The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that cattle and horses can step in, and they eat grass necessary for cattle. Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle. Draw a rancher's production possibilities frontier showing increasing opportunity cost of cattle production in terms of prairie dog production. Using a separate graph for each situation, show what would happen to the initial production possibilities frontier in each of the following situations: a. The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and prairie dogs. b. As a protest against the government introducing the gray wolf back into the wild in their state, ranchers decide to withhold 25 percent of the available grassland for grazing. c. The price of prairie dogs increases to $200 each, so ranchers decide to allot additional land for prairie dogs. d. The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing. e. A drought destroys most of the available grass for grazing of cattle, but not for prairie dogs since they also eat plant roots.

Use the following graph to answer the following questions. a. How would point J be represented as an ordered pair? b. What type of curve is this? c. Does this curve show a positive or negative correlation between price and quantity? d. Compute the slope of D1 between points J and L. e. What is the slope of D1 between points L and N? Why would you not have to calculate this answer? f. What is it called if we move from D1 to D2? g. How do you know that the slope of D2 is the same as the slope of D1?

Figure 2-2 -Refer to Figure 2-2. If the outer loop of this circular-flow diagram represents flows of dollars, then the inner loop includes

Economists speaking like scientists make