11. Which of the following is a positive statement? A. Individuals ought to make
ID: 1141527 • Letter: 1
Question
11. Which of the following is a positive statement? A. Individuals ought to make good long-term decisions B. Corporations should maximize shareholder value. C. The most important effects of policy happen in the short run. D. Government should reduce taxes E. The unemployment rate is 42%. 12. Which of the following may cause the demand curve for cigarettes to shift to the right? A. A public education campaign on the risks of smoking. B. The price of cigarettes decreases. C. The price of cigarettes increases D. The price of electronic (vapor) cigarettes increases E. A reduction in government subsidies paid to tobacco farmers. 13. The Reach, ruled by House Tyrell and Dorne, ruled by House Martell, are two kingdoms in Westeros. The following table describes their maximum output per year, in Wine and Bread, respectively. Put it differently, the numbers reported represent the end points (intercepts) of their individual, linear PPF. Which of the following statement is TRUE? Wine 10 6 Bread 5 2 Reach Dorne A. Dorne has absolute advantage in both Wine and Bread. B. Reach has comparative and absolute advantage in Wine. C. Dorne has comparative advantage, but NOT absolute advantage in Wine. D. Reach has comparative advantage, but NOT absolute advantage in Wine. E. Reach has absolute advantage, but NOT comparative advantage in Bread. 14. The specialization and international trade was: economist who proposed the theory of comparative advantage, as a basis for A. David Ricardo B. John Maynard Keynes C. George Akerlof D. Milton Friedman E. Adam SmithExplanation / Answer
(11) (E)
A positive statement is a factual statement, which subjects itself to validation and is objective in nature.
(12) (D)
E-cigarette is a substitute to cigarettes. Higher price of e-cigarette will decrease its quantity demanded and increase the demand for cigarettes, shifting the demand curve for cigarettes rightward.
(13) (C)
Since Reach can make more bread and more wine compared to Dorne (10 > 6 and 5 > 2), Reach has absolute advantage in both bread and wine.
Let us compute Opportunity Cost (OC) as follows.
For Reach,
OC of bread = 10/5 = 2 wine
OC of wine = 5/10 = 0.5 bread
For Dorne,
OC of bread = 6/2 = 3 wine
OC of wine = 2/6 = 0.33 bread
Since Reach can produce bread at a lower OC than Dorne can (2 < 3), Reach has comparative advantage in bread. Accordingly, Dorne has comparative advantage in wine.
(14) (A)
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