Chapter 2 - Model Building

* What is a possible problem with use of faulty assumptions when building an economic model?

A. The model could become too popular.

B. It could lead to wrong economic decisions.

C. It means we never have to rebuild the model.

D. It could cause too much wealth.

* Which of the following topics will most likely be taught in a microeconomics course?

A. the effect of a tax on a specific good

B. inflation in the past decade

C. unemployment for low-skilled workers

D. interest rates during the financial crisis

With regard to the production possibilities frontier (PPF), an efficient point is a point that is do you conduct surveys?

A. impossible to reach.

B. inside the PPF.

C. outside the PPF.

D. on the PPF.

If we move down and to the right along a PPF, the opportunity cost of this movement can be measured in terms of

A. how much of the x-axis good we gain.

B. how much of the y -axis good we gain.

C. how much of the x-axis good we give up.

D. how much of the y-axis good we give up.

Suppose there is high unemployment. With respect to the PPF, what will happen?

A. The PPF will shift inward.

B. The PPF will shift outward.

C. We will produce at a point inside the PPF.

D. We will produce at a point outside the PPF.

Which of the following would NOT lead to an outward shift of a future production possibilities frontier (PPF)?

a. population growth

b. increased investment today

c. an increase in technology

d. the discovery of new resources

e. a decline in life expectancy

Which of the following is a normative statement?

a. The current exchange rate is 0.7 British pounds per U.S. dollar.

b. In January, the average temperature in Fargo, North Dakota, is 56 degrees.

c. Winters in Arkansas are too cold.

d. On average, people save 15% when they switch to GEICO.

e. University of Virginia graduates earn more than Duke University graduates.

What is the opportunity cost of producing capital goods instead of consumer goods?

A. We give up consumption today.

B. We give up consumption tomorrow.

C. We have less employment today.

D. We have a lower standard of living tomorrow.