1. The correct answer is d. All of the above are correct. A country's consumption possibilities frontier can be outside its production possibilities frontier if the country engages in trade, if the citizens of the country have a greater desire to consume goods and services than citizens of other countries, or if the country's technology is superior to the technologies of other countries.
2. The correct answer is b. Increasing the production of one good by x units entails a constant opportunity cost in terms of the other good. If a production possibilities frontier is a straight line, it means that the opportunity cost of producing one good remains the same as more of the other good is produced.
3. The correct answer is a. Shawn has a comparative advantage in the production of donuts. Comparative advantage is determined by the opportunity cost of producing a good. If Shawn can produce more donuts in one day than Sue, he has a lower opportunity cost of producing donuts and therefore has a comparative advantage.
4. The correct answer is c. A has an absolute advantage in meat and B has a comparative advantage in potatoes. Absolute advantage refers to the ability to produce more of a good using the same amount of resources. A can produce more meat in 40 hours compared to B. Comparative advantage refers to the ability to produce a good at a lower opportunity cost. The opportunity cost of producing 1 pound of potatoes for A is 1.5 pounds of meat, while the opportunity cost of producing 1 pound of meat for B is 2 pounds of potatoes.
6. The correct answer is b. Each person spends more time producing the product in which he or she has a comparative advantage. When individuals specialize in what they are relatively more efficient at, total output in the economy increases because resources are allocated more efficiently.
7. The correct answer is d. The U.S. has a comparative advantage in computers, and France has a comparative advantage in wine. Comparative advantage is determined by the opportunity cost of producing a good. In France, the opportunity cost of producing one computer is 5 gallons of wine, while in the U.S., the opportunity cost of producing one computer is 1/6th of a gallon of wine.
8. The correct answer is d. After specialization and trade, the U.S. will have 120 million gallons of wine and 36 million computers to consume. If the U.S. specializes in the good in which it has a comparative advantage (computers) and trades with France using the terms of trade, it will be able to consume more wine and more computers.
9. The correct answer is b. If a seller charges more than the going price, buyers will go elsewhere to make their purchases. In a competitive market, buyers have many options and can easily switch to other sellers if one seller charges a higher price. As a result, sellers are incentivized to keep their prices competitive.
10. The correct answer is c. Some degree of competition is present in most markets, not just in perfectly competitive markets. While not all markets may exhibit perfect competition, there is usually some level of competition present. Understanding perfect competition can provide insights into how markets generally function.
11. The correct answer is b. Normal goods will increase. When income decreases, people tend to purchase less of normal goods. Normal goods are those for which demand increases as income increases.
12. The correct answer is a. It can affect today's demand. A change in expectations about the future can impact people's buying decisions today. For example, if people expect prices to increase in the future, they may increase their demand for a good now to avoid paying higher prices later.
13. The correct answer is d. When the price of a good falls, buyers respond by purchasing more of the good. The law of demand states that as the price of a good decreases, the quantity demanded of that good increases, ceteris paribus.
14. The correct answer is b. (quantity demanded = 10, price = $1.00). The market demand curve represents the sum of individual demand. In this case, Spencer and Kate are the only two demanders of lemonade, and the market demand at a price of $1.00 is the sum of their individual quantities demanded, which is 10 glasses.
16. The correct answer is a. Firms would increase profit by increasing output. When the price of a good is low, firms can increase their profit by producing and selling more of that good. By increasing output, firms can take advantage of the low price and potentially capture a larger market share.
17. The correct answer is a. The former is depicted by a movement along the supply curve, and the latter is depicted by a shift of the curve. An increase in supply refers to a shift of the entire supply curve, while an increase in quantity supplied refers to a movement along the supply curve in response to a change in price.
18. The correct answer is d. A technological advance pertaining to the production of the good is observed. Technological advances can shift both the demand and supply curves for a good. For example, if a new technology improves the efficiency of production, it can increase the supply of the good and potentially increase demand for it as well.
19. The correct answer is d. All of the above. The equilibrium price and quantity in this market are $6 and 30 units, respectively. If the price were $8, there would be a surplus of 25 units, which would cause the price to fall. If the price were $2, there would be a shortage of 50 units, which would cause the price to rise.
20. The correct answer is c. Demand decreases and supply increases. When demand decreases and supply increases, there is an excess supply in the market and the equilibrium price will fall.
21. The correct answer is b. Price will decrease. When both supply and demand decrease, equilibrium price will decrease. The effect on quantity depends on the magnitude of the changes in supply and demand.
22. The correct answer is c. If the price were $11, a shortage would exist and price would tend to rise. The equilibrium price and quantity in this market are $10 and 400 units, respectively. If the price were $9, there would be a surplus and price would tend to fall.
23. The correct answer is b. The inverse supply equation is Qs = 50 P - 200. Inverse supply equations express price as a function of quantity supplied. The given equation represents the inverse supply relationship for this market.
24. The correct answer is c. The equilibrium price and quantity, respectively, are $8 and 600 units. To find the equilibrium price, set the quantity demanded equal to the quantity supplied and solve for price. In this case, the equilibrium price is $8, and the corresponding equilibrium quantity is 600 units.