True/False Questions

1. In his book An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith

argued that a guild system was the most efficient way for a nation to coordinate the

decisions of buyers and sellers.

2. The story about Apple's production of the iPod shows how production requires the

coordinated activities of many people, spread around the world.

3. A nation with an absolute advantage in the production of two goods will usually have a

comparative advantage in only one of the goods.

4. A production possibilities frontier that is bowed outward illustrates increasing marginal

opportunity costs.

5. Technological advances always increase the production of all goods and services equally.

6. It is possible to have an absolute advantage in producing a good without having a

comparative advantage.

7. Households are suppliers of the factors of production that are used by firms to produce

goods and services.

8. The circular-flow diagram is used to explain why the opportunity cost of increasing the

production of one good is the decrease in production of another good.

9. The 5th and 14th amendments to the U.S. Constitution guarantee property rights.

10. Opportunity cost refers to the all of the alternatives that must be given up to engage in an

activity.

11. An individual who has comparative advantage in producing a good must also have absolute

advantage in producing that good.

12. The Congressional Budget Office has estimated that annual federal government spending on

Medicare should remain at a constant level through 2020.

13. Because the governments of Hong Kong, Estonia, and Singapore impose few restrictions on

economic activity, the economies of these countries approximate free market economies.

14. The Bavarian Motor Works Company has always produced its automobiles in Germany to