ECON 2105 Exam 1 Study Guide- Georgia Institute Of Technology

1. Alexander has a straight-line, or linear, production possibility frontier when he produces soybeans and corn. If he uses all of his resources to grow soybeans, he can produce 200 bushels of soybeans; if he uses all of his resources for corn production, he can produce 400 bushels of corn. Which of the following combinations of corn and soybeans are not possible for him to produce? A) 200 bushels of soybeans and zero bushels of corn X B) 600 bushels of corn and 200 bushels of soybeans C) 400 bushels of corn and zero bushels of soybeans X D) 100 bushels of soybeans and 200 bushels of corn X Use the following to answer questions 2-3: Figure: Wine and Wheat 2. (Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is producing on the production possibility frontier, what would allow it to produce at point C? A) an improvement in technology B) a decrease in resources X C) a decrease in production X D) the elimination of unemployment X 3. (Figure: Wine and Wheat) Look at the figure Wine and Wheat. What is the opportunity cost of moving from only producing wheat to producing at point D? A) 3 tons of wheat B) 6 tons of wheat C) 9 tons of wheat D) 15 tons of wheat Use the following to answer question 4: Figure: Bicycles and Radishes I 4. (Figure: Bicycles and Radishes I) Look at the figure Bicycles and Radishes I. It shows production possibility frontiers for two countries that produce only radishes and bicycles. The axes of both graphs are measured in equivalent units. Country A is now operating at point M, and country B is now operating at point N. Suppose country A discovered a new technology that greatly increased its ability to produce bicycles. This would: A) lower the opportunity cost of producing radishes in country A. B) increase the opportunity cost of producing radishes in country A. C) have no effect on the opportunity cost of producing radishes in country A. D) increase the opportunity cost of producing radishes in country B. Use the following to answer question 5: Figure: Strawberries and Submarines II 5. (Figure: Strawberries and Submarines II) Look at the figure Strawberries and Submarines II. Assume that the economy is now operating at point A. The opportunity cost of moving to point C is equal to million tons of strawberries: A) 800 B) 200 C) 2 D) 50 Use the following to answer question 6: Scenario: Countries A and B Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear production possibility frontier in both goods. If country A spends all of its available resources to produce wheat, it can produce 500 tons of wheat and zero tons of steel. If it uses all of its resources to produce steel, it can produce 250 tons of steel and zero tons of wheat. If country B spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it spends all of its resources on the production of steel, it can produce 400 tons of steel. 6. (Scenario: Countries A and B) Look at the scenario Countries A and B. Given this information, country has a comparative advantage in the production of wheat and country has a comparative advantage in the production of steel. A) A; A B) A; B C) B; B X D) B; A X Use the following to answer question 7: 7. (Table: Production Possibilities Schedule I) Look at the table Production Possibilities Schedule I. If the economy produces 10 units of capital goods per period, it also can produce at most units of consumer goods per period. A) 5 B) 4 C) 3 D) 2 Use the following to answer question 8: Scenario: Countries A and B Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear production possibility frontier in both goods. If country A spends all of its available resources to produce wheat, it can produce 500 tons of wheat and zero tons of steel. If it uses all of its resources to produce steel, it can produce 250 tons of steel and zero tons of wheat. If country B spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it spends all of its resources on the production of steel, it can produce 400 tons of steel. 8. (Scenario: Countries A and B) Look at the scenario Countries A and B. Given this information, the country that has the absolute advantage in wheat is , and the country that has the absolute advantage in steel is . A) A; A B) A; B C) B; B X D) B; A X Use the following to answer question 9: Figure: Production Possibility Frontier 9. (Figure: Production Possibility Frontier) Look at the figure Production Possibilities Frontier. If the economy is operating at point B, producing 16 cars and 12 computers per period, a decision to move to point E and produce 18 computers: A) indicates you can have more computers and cars simultaneously. B) makes it clear that this economy has decreasing opportunity costs. C) involves a loss of 8 cars per period. D) involves a loss of 4 cars per period. Use the following to answer question 10: 10. (Table: Production Possibilities Schedule I) Look at the table Production Possibilities Schedule I. If the economy produces 4 units of consumer goods per period, it also can produce at most units of capital goods per period. A) 30 B) 28 C) 10 D) 18