7-10

Deadweight loss:

(Economic surplus at the efficient outcome) - (actual economic surplus)

Economic surplus:

(Marginal benefit) - (marginal cost)

Which is true about the solutions to externality problems?

A corrective tax raises the direct financial cost of creating externalities. Regulations can often blunt the forces of competition. A cap-and-trade system raises the opportunity cost of creating externalities.

Which is a part of the three-step recipe to analyze externalities? Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

Assess what externalities are involved Figure out the outcome that is in society's best interests Predict the equilibrium outcome

As a manager, you assign one task to each member of your team based on each member's comparative advantage. Logan, one of your teammates, argues that he is best at everything and wants to do multitasking. How would you explain to Logan the benefits of reallocating tasks?

If he focuses on the task for which he has a comparative advantage, the whole group will produce more.

Which is NOT an argument for limiting international trade?

Increasing minimum wage

Lakisha and Zara are partners in a small suburban law office. They want to determine who should deal with employment contracts. Lakisha can write a will in 3 hours, or an employment contract in 4 hours. Zara is slower, and it takes her 4 hours to write a will, and 8 hours to write an employment contract. Who has a comparative advantage in writing an employment contract, and what is their opportunity cost?

Lakisha; 4/3

Trade costs occur as a result of buying or selling your goods overseas. Which one of these is considered as a trade cost?

Paying taxes to a foreign government Dealing with foreign laws The hassle of working across different time zones

What would happen after a rapid decline in trade costs?

People would be more closely integrated with the rest of the globe

Trading allows people to reallocate tasks. Which of the following is NOT an outcome of trade?

Reallocating tasks allows people to forgo the task they are least bad at

What will happen if the world price of T-shirts is above a country's domestic price?

The country will export T-shirts.

Why is there almost no international trade in medical services, and no international trade in houses?

Their trade costs are prohibitively expensive, and it is nearly impossible to transport a house.

Quinoa has been popular in the Western market, but quinoa originates from the plains of the Andes mountains in Peru and Bolivia. How do buyers in the West communicate their want for quinoa to the Andean farmers?

They communicate through price.

Which is considered a goal of the government in setting a quota instead of imposing a corrective tax?

To have the maximum quantity of good close to the socially optimal quantity To reduce the negative externalities that each firm creates To limit the maximum quantity of a good or service that can be sold

Shrewd managers use comparative advantage to figure out how to assign their workers to different jobs. Assess this statement

True, the manager should allocate each task to the person with the lowest opportunity cost.

Which of the following is true of the opportunity cost principle?

You have a comparative advantage in the task that you're least bad at. The task that you are least bad at is the task that you can do at the lowest opportunity cost. Everyone has a comparative advantage in something, even if they lack an absolute advantage in anything.

a positive extranality causes the marginal social benefit curve to lie

above the demand curve

Society's interests include:

all costs and benefits to everyone, including you.

An example of a public good would be

an interstate highway.

Total consumer surplus:

area under the demand curve and above the price, out to the quantity sold

The price is a signal to potential suppliers about what's happening on the demand side of the market because it reveals the:

buyer's marginal benefit.

The forces of demand and supply often yield the best possible outcome for society. However, when externalities are involved, _____ must be accounted for as well as _____.

bystanders; buyers and sellers

what is the source of the gains from trade

comparative advantage

All of these conditions can explain why people are more integrated with the rest of the world than at any time in human history EXCEPT:

countries have agreed to increase tariffs on imports.

International trade has been a growing share of the U.S. economy throughout the entire postwar period. This trend has transformed the economy largely due to:

declining trade costs.

the result of south korea adopting a market economy is that the country:

experiences gains from trade

Foreign governments can manipulate their exchange rate to be artificially low. As a result, U.S.:

exporting firms and import-competing firms both lose business.

reallocation generate __ because we reallocate tasks to the __ producer

gains from trade; lowest cost

a manager of an advertising company just receives a new project to create a website and produce a video presentation. She must assign these tasks to her team. Alexis can write content in 4 hours and edit a video presentation in 3 hours. Hoshi can do the content writing in 3 hours and the video editing in 1 hour. Who should do the video editing and why?

hoshi, because he has a comparative in video editing

when a good becomes more popular, its price rises. this refers to ____ for this good

increase in market demand

The five arguments for limiting international trade that are the discussed in the chapter all argue whether or not international trade:

is good for Americans.

China imported some airplanes from the United States. In turn, the United States also imported shirts produced in China. Even though American and Chinese laborers don't directly compete with each other, their labor does compete because:

labor is embodied in the goods that are traded between countries.

markets allow you to trade tasks because each task should be done at the:

lowest possible opportunity cost

The lesson from the Korean peninsula seems to be that if you're going to choose the economic system of a country, operating like South Korea under a(n)_____ will yield higher annual incomes and gains from trade than operating like North Korea under a(n) _____.

market economy; centrally planned economy

the market economy in south Korea uses_____ to direct its economic activities

market forces

When _____ are involved in bargaining, finding a solution that removes externalities is more difficult.

more parties

Any solution to the externality problem involves getting _____ to consider _____ effects.

participants; external

Economists explain that trade is not war; it's millions of people cooperating with strangers to get a better deal. Economists believe that:

people trade; countries don't.

Externalities create tension between _____ and _____.

personal interests; society's interests

Cleaning up a roadside creates a _____ externality because your appreciation of the trash-free road _____ someone else's enjoyment of the clean roadside.

positive; does not reduce

Potential buyers and potential suppliers communicate through:

price.

International trade makes countries more reliant on one another. Many suggest that we should domestically make strategically important goods like those in high-tech fields. This argument is about _____.

protecting national security

The government policy of restricting the number of foreigners immigrating to the United States is used to:

shield domestic workers from foreign competition.

Economists believe that trade increases the size of the pie in the long run. However, they should also pay more attention to the short-run disruption to:

smooth out reassigning people to different pie-making roles.

Private bargaining involves all of these options

strategic investments. side payments. mergers.

"Tea is now more valuable— make more tea!" This is a clear message to:

tea farmers.

what is not a reason that prediction markets precisely produce useful forecasts?

the forecasts are made by experts

The import quota is different from the tariff in that:

the government does not gain tax revenue from the import quota.

the price of a shirt in the united states is $18. The world price for a shirt is $12. What happens of the government imposes a $4 tariff on shirts in the U.S. market?

the price of shirts rises to $16.

One of the three factors that shape comparative advantage is abundant inputs, which refer to:

the relative abundance of the necessary inputs compared to your trading partners.

Feeding America has 210 regional food banks to handle food donations. The food bank in Houston knows how many vegetables it needs, while the food bank in New York knows the amount they need as well. However, this still creates a problem to the executives at the headquarters of Feeding America because:

they do not have the complete information to make a decision.

An example of a rival good would be

tickets to a concert. (one for which your use of it comes at someone else's expense)

the opportunity cost principle reminds you that the true cost of something is:

what you must give up to get it

Imagine that you work for Boeing, building airplanes. Each plane from your production line embodies some of your labor, so every time one of these planes is exported to China, this means that _____.

you are selling some of your labor to China

Consumer surplus

(marginal benefit)-(price)

Producer surplus:

(price)-(marginal cost)

suppose that desktop computers become more popular due to fear of radiation sickness being caused by laptops. the resulting rise in price is a signal that:

creates a line of communication between buyers and sellers

When Sweden refuses to buy lobsters exported from Maine, this causes the domestic price of lobster in the United States to _____. The domestic buyers _____ whereas the domestic sellers _____.

decrease; win; lose

All the following have positive externalities,

discovering a new scientific breakthrough. preparing before a study group meeting. planting trees.

The positive externalities enjoyed by free-riders using nonrival goods:

do not hurt others.

A solution to the free-rider problem is the government's power to _____, which is something businesses and individuals _____ have the power to do.

force people to pay for the goods they benefit from; do not

The history of the Korean peninsula suggests that it is far better to use _____ to _____, as in South Korea, than to follow the economic model of North Korea.

market forces; allocate scarce resources

Both North Korea and South Korea were equally poor in the immediate aftermath of the Korean War. Nowadays, the average annual income in market-oriented South Korea is greater than that in the centrally planned North Korea because _____ lead to _____, which make people better off.

market forces; gains from trade

America's voters have agreed, through the laws passed by their elected officials, that businesses must meet certain _____.

minimum standards

The argument about _____ has a broader interpretation that suggests that we also need to protect domestic sources of food, so that we can eat if today's trading partners become tomorrow's enemies.

protecting national security

An economist mentions that "if we can import apples more cheaply, we can bake a bigger apple pie; this is the beauty of international trade." This economist believes that:

trade reallocates tasks so that they're done more efficiently.

All the following have negative externalities

driving an SUV in the suburbs. being disruptive during an economics class. trolling on social media sites.

Diamonds have been mined around the world, but primarily in Africa, Russia, and Canada. In the 1940s, systematic research began in the United States and other countries to produce synthetic diamonds. Now, synthetic diamonds can be made for a fraction of the cost of mining diamonds. In this example, the high price of diamonds is an incentive that _____. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

stimulates innovation