1. Unit One Practice Quiz

2. Going to War (U.S.) Going to War (U.S.) When the U.S. entered WWII, we had severe unemployment. We were able to step up production of consumer goods and war materials simply by getting to full production. We went from 14.6% unemployment in 1940 to 1.2% in 1944. Over 7 million people went to work that were not working in 1940. Going to War(Russia) Going to War(Russia). Russia, on the other hand, entered WWII at full capacity. So their preparedness entailed a shifting of resources from civilian goods and a drop in their standard of living. The U.S. position was similar as we entered the Viet Nam War at full employment. We increased both military spending and domestic spending on the “War on Poverty.” Our attempt to achieve more “guns and butter” in a FE economy was doomed. We were trying to spend beyond capacity and ended up with double digit inflation in the 1970s. Civilian Goods F C United States [Beginning of WWII] War Goods Civilian Goods War Goods D C Russia [Beginning of WWII]

3. unemploymentrecession 1. At what letter is there unemployment [recession]? 2. What letters represent resources being used in their most productive manner most productive manner? [full employment, full production, and best available technology] improvement in technology 3. What letter represents an improvement in technology, new PPC therefore a new PPC frontier line? “line of increasing cost”? 4. The (straight line/curve) illustrates the “line of increasing cost”? “law of constant cost.” 5. The (straight line/curve) illustrates the “law of constant cost.” most economic growth in 6. At what letter would there be the most economic growth in the future the future if a country were producing there now? opportunity cost“C” to “D”; 7. What is the opportunity cost when moving from “C” to “D”; E to BF to D E to B; & do we have to give anything up when moving from F to D? F A,B,C,D,E G A Capital Consumer no A B C G D E CAPITALGOODS Consumer Goods F

4. PPC Practice Questions 8. An economy that is fully employing all its productive resources but allocating less to investment than to consumption will be at which of the following positions on the PPC to the right? a. A b. B c. C d. D e. E 9. Which of the following best explains the shape of the PPC for the two-commodity economy shown right? a. Opportunity cost of producing another unit of each stays the same. b. Opportunity cost of producing another unit of each decreases. c. Opportunity cost of producing another unit of each increases. 10. Which of the following is true of the PPC on the right? a. Point Q is attainable but undesirable. b. Point R is unattainable but undesirable. c. A technological improvement of watches would move the economy from T to P. d. There is underemployment at point T. e. The opportunity cost of moving from S to T is the # of watches given up.

5. PPC P ractice Q uestions [continued] 11. Which of the following would cause the PPC shown (right) to shift outward? a. Reopening steel plants that had been closed b. Rehiring laid-off workers c. Using machinery for missile production instead of steel production d. Using machinery for steel production instead of missile production e. Developing a more efficient steelmaking process 12. Base on the graph (right), which statements are true? I. The opportunity cost of moving from P to R is 10 units of Y. II. The opportunity cost of moving from R to P is 8 units of X. III. The opportunity cost of moving from Q to R is 0 units. a. I only b. III only c. I & II only d. I, II, & III Steel Missiles X

6. Economic Terms 13. Which expression is another way of saying “marginal cost”? a.Total cost b.Additional cost c.Rational behavior d.Scarcity e.Economic cost 14. When producers maximize their profits from the production of a good or service, they are; a.Testing a hypothesis b.Exhibiting rational behavior c.Assuming that all other things are equal d.Making a tradeoff between economic efficiency and economic freedom e.Setting economic policy

7. Economic Terms (continued) 15. The ceteris paribus assumption is employed in economic analysis to: a.State economic goals b.Simplify the complex world c.Evaluate an economic system d.Approximate real-world conditions e.Evaluate all variations of economic conditions 16. What pitfall to objective thinking is reflected in a person’s view that oil companies are price-gouging the consumer? a.Definition b.Post hoc fallacy c.Loaded terminology d.Confusing correlation with causation e.Subjectivity

8. Economic Terms (continued) 17. If an economy is being “allocatively efficient,” then that means the economy is; a.Using the least costly production techniques b.Producing the products most wanted by society c.Fully employing all economic resources d.Maximizing the returns to factors of production e.Increasing it technological base 18. The production of more goods and services to increase a nation’s standard of living would be associated with what economic goal? a.Economic efficiency b.Economic security c.Economic growth d.Balance of trade e.Post hoc fallacy

9. Really Hard Topics 19. All of the following would affect the position of a country’s production possibilities curve except; a.The quantity of labor b.The level of unemployment c.The amount of capital stock d.Technological progress e.An increase in investment relative to consumption 20. The circular flow model shows that the goods and services produced by business firms are sold through; a.Product markets b.Stock markets c.Money markets d.Resource markets e.National markets

10. Really Hard Topics (continued) 21. To say that two economic goals are conflicting means that; a.It is impossible to quantify both goals b.The two goals are not fully accepted as important economic goals c.The attainment of one goal also results in the attainment of the other goal d.Both economic goals are equally negative to one another e.There is a tradeoff in the achievement of the two goals 22. Sean states that “there is a high correlation between the level of people’s education and the level of their income. Patrick replies that the correlation occurs because “more education is the best way to earn income in this country.” a.Both Sean’s and Patrick’s statements are positive b.Both Sean’s and Patrick’s statements are normative c.Sean’s statement is normative and Patrick’s statement is positive d.Sean’s statement is positive and Patrick’s statement is normative e.None of the above is correct

11. Really Hard Topics (continued) 23. There are two sets of x,y points on a straight line in a two-variable graph with y on the vertical axis and x on the horizontal axis. If one set of points was (0,15) and the other set (5,10), the linear equation for the line would be; a.Y = 15 + 1XNot on test!!!! b.Y = 5 + 1X c.Y = 15 – 25X d.Y = 15 – 1X e.Y = 15 + 25X 24. Sean makes $150 a day as a short-order cook. He takes off two days of work without pay to fly to another city and attend the concert of his favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Sean’s trip is; a.$300 b.$350 c.$450 d.$500 e.$600

12. Last question!!! Production possibilities (alternatives) ABCDEF Capital goods543210 Consumer goods059121415 25. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be; a.2 units of capital goods b.3 units of capital goods c.1/3 of a unit of capital goods d.1/2 of a unit of capital goods e.1/6 of a unit of capital goods