Question

Question 1

The following are common characteristics of Economic Models, EXCEPT:

a)They represent a simplification of the complex reality.

b)They use concept to convey key ideas

c)They use assumptions that are fully realistic

d)They often use graphical analysis.

Question 2

The following are correct statements about the Production Possibility Frontier model, EXCEPT:

a) Is the graphical representation of the maximum output attainable given certain inputs, for any given economy or entity.

b) Any point on the PPF is Efficient

c) Any point on the PPF is Optimal

d) If a point on the frontier is Optimal, than point must also be Efficient.

Question 3

In the case of a Concave Production Possibility Frontier, the following statements are correct, EXCEPT:

a) The opportunity cost of production for every X and Y unit is always constant.

b) The opportunity cost of production for good X is always increasing as more units of X are produced.

c) The opportunity cost of production for good Y is always increasing as more units of Y are produced.

d) The concave PPF is consistent with the existence of increasing marginal cost of production in the real economy.

Question 4

In the following example analyze the Absolute and Comparative Advantage for each type of agent and production, and select the INCORRECT STATEMENT:

- Super Tuesday can produce in 12 hrs : 40 Apples or 80 Bananas

- Robinson can produce in 12 hrs: 30 Apples and 10 Bananas.

a) Super Tuesday has Absolute Advantage in Apple production

b) Super Tuesday has Absolute Advantage in Banana production

c) Super Tuesday has Comparative Advantage in Apple production

d) Robinson has Comparative Advantage in Apple production.

Question 5

The following are correct statements about Comparative and Absolute Advantage, EXCEPT:

	a) Absolute Advantage means being able to produce more with the same economic resources.
	b) Comparative Advantage means being able to produce with the lowest opportunity cost.
	c) Absolute Advantage does not imply Comparative Advantage.
	d) Efficiency and Optimality can be attained if we specialize and trade according to our Absolute Advantages.

Answer 1

1.
The answer is c.
c)They use assumptions that are fully realistic
Economic models often use assumptions which are unrealistic.
2.
The answer is c
c) Any point on the PPF is Optimal
Points on the PPF are efficient but not all are optimal.
3.
The answer is a
a) The opportunity cost of production for every X and Y unit is always constant.
For a curved PPF the above statement is not true.
4.
The answer is c
c) Super Tuesday has Comparative Advantage in Apple production
Super Tuesday has to give up 80/40=2 bananas for 1 apple
Robinson has to give up 10/30=1/3 banana for 1 apple
So Robinson has a comparative advantage in the production of apples.