Unit 1: Basic Economic Concepts
Macro · Unit 1 · Paper 3

Basic Economic Concepts unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 42 terms and is the same for everyone, so a teacher can assign “Unit 1, Paper 3” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 34 min 31 points0/17 attempted
1

Why total spending equals total income

2

Gains from trade

3

Output problem vs input problem

4

Movement along vs shift of the PPC

5

Leakages and injections

6

Why the PPC bows outward

7

Physical vs human capital

8

Growth versus efficiency

9

Positive vs normative statements

10

Comparative advantage

11

What shifts the PPC

12

Sunk cost

Short answer 1. Define or explain: Circular flow: product vs resource market

3 pts

Short answer 2. Define or explain: Terms of trade range

3 pts

Short answer 3. Define or explain: Utility maximization rule

3 pts

Short answer 4. Define or explain: Opportunity cost

3 pts

Free response

7 pts

Two countries, Norland and Sudland, each have the same fixed quantity of resources. With all its resources Norland can produce 40 tons of grain or 20 tractors; Sudland can produce 30 tons of grain or 30 tractors. (a) Calculate Norland's opportunity cost of one tractor and identify which country has the comparative advantage in tractors. Show your work. (b) Identify the range of terms of trade, in tons of grain per tractor, that both countries would accept. Explain why terms outside that range would be rejected. (c) Sudland has an absolute advantage in tractors. Explain why absolute advantage does not determine whether trade is mutually beneficial. (d) Norland develops a technology that doubles its grain output per resource but leaves tractor output unchanged. State whether Norland's comparative advantage changes and justify your answer with a calculation.

Calculate Norland's opportunity cost of one tractor and identify the comparative advantage in tractors.

Identify the range of mutually acceptable terms of trade and explain why terms outside it are rejected.

Explain why absolute advantage does not determine whether trade is mutually beneficial.

State whether Norland's comparative advantage changes after the grain technology improvement, with a calculation.