Abeka Economics Chapter 7

How does the absence of trade restrictions within a nation contribute to the economic well-being of a nation?

The presence of free trade helps to increase producer efficiency and to keep consumer prices low. Regions can concentrate on those goods that they can produce efficiently, knowing that they can export goods to other areas without limitations or restrictions.

What is the ability of one entity to produce goods or provide services more efficiently than his competitor when given the same resources?

Absolute advantage

How could the standardization of goods be considered a disadvantage? Why is there a tendency for people to become bored when doing certain kinds of work that are highly specialized?

Although the standardization of machine parts and various other articles is usually an economic advantage, it can also result in less variety of design or materials being made available in the market. Boredom can result from highly specialized work if people are doing the exact same thing and following the exact same pattern day after day.

If tomatoes can be grown more cheaply in a greenhouse or in a large farm than they can be in a small garden, why do people bother to grow their own tomatoes? What costs may people diminish or eliminate by growing some of their own food? Might people grow tomatoes and other things for reasons that are not wholly economic?

Although tomatoes can be produced most efficiently on a farm or in a greenhouse, by the time these tomatoes are marked up for the costs of cleaning, packaging, transporting, displaying, and selling them, they may cost consumers more than ones grown in consumer's back yards. People may also grow their own tomato plants because they enjoy gardening, need the fresh air and exercise, wish to have certain varieties of tomatoes, etc.

Can you think of some advantages or disadvantages of specialization that are not mentioned in the "Division of Labor" box?

Answer will vary. Other advantages include standard and interchangeable parts, lower prices, and simpler job training. Another disadvantage would be the decline of quality and craftsmanship in some goods.

The text says that the American economy "was created and established by unusually far-sighted and motivated people." In what ways did the Founding Fathers prepare for the economic greatness of America as seen in the 20th century?

Answers will vary but should include ideas such as the establishment of a free market economy, freedom of choice, free trade among states, and limited governmental intervention.

"Think big" is the motto of some businesses, while others believe that "small is beautiful." Would you prefer to be involved in a small economic enterprise or a large one? Give several reasons for your preference.

Answers will vary. Among reasons for preferring the small scale may be the desire for the independence, the inclination to remain in the neighborhood or city, the desire to be close to all one's coworkers, and family tradition. Reasons for preferring the large scale may be the greater opportunity for advancement, love of adventure, and desire to travel or move about the world.

List three consequences that might result if Florida were to place a tariff on the wheat imported from Nebraska. What policies might Nebraska adopt in retaliation? Would the producers of either state be likely to benefit?

Answers will vary. Floridians would have to pay more for wheat and might start buying foods containing less wheat. Nebraska's wheat farmers would sell less in Florida. The state of Nebraska might retaliate by placing tariffs on goods Florida exported to Nebraska. Any of these actions and their results would ultimately be harmful to the producers and consumers of both states.

The United States is one of the most efficient countries in the history of the world. Name some of the things that have turned the nation into a productive powerhouse and explain how they work together to result in high efficiency.

Answers will vary. Students might suggest such things as the Protestant work ethic, Judeo-Christian morals, an abundance of land and natural resources, scientific and technological research, free market principles, etc.

Americans import their coffee from Brazil, Colombia, and other distant lands. It is possible to grow large quantities of chicory, a substitute for coffee, in the southern United States. Why do not Americans drink chicory instead of coffee, and stop sending their money abroad? Or why do not Americans grow coffee plants in American greenhouses so that they would not have to import coffee and pay transportation costs? Explain whether it would be economically efficient to stop importing coffee into the United States.

Being accustomed to the flavor of the coffee bean, millions of American would be discontented if they were unable to obtain their daily amount of the beverage; they would much prefer to pay more for a cup of real coffee than to switch to a substitute like chicory. This attitude is a powerful force in economic decision; chicory growers would never be able to replace the satisfaction people receive from coffee no matter how inexpensively they could offer their substitute product.

What is the ability of an entity to produce a good or provide a service at an opportunity cost that is lower than that of another producer?

Comparative advantage

Suppose that neither Henry Ford nor any other entrepreneur had moved into the mass production of automobiles, and that the production of cars had remained so small and costly that only a minority of American families were ever able to possess their own passenger automobile. In what ways would the United States be different if the "transportation revolution" of the gasoline engine had occurred only on a much smaller scale?

If the mass production of automobiles had never occurred, people would be more confined to the areas in which they were born. The middle part of the country and the Far West would be less developed since people would still be concentrated on the East Coast. People would be more confined to cities an regions that had industrial jobs.

Why is it essential that Christians make efficient use of their time? Can you think of any areas of your life that would profit by being more efficient?

The world is constantly watching and critiquing the way that Christians live, and the Bible specifically commands Christians live, and the Bible specifically commands Christians to make good use of their time (Eph. 5:16; Col. 4:5). Students' answers regarding their personal lives will vary.

Might it be efficient to build orangeries (greenhouses for orange trees) in the north, thereby avoiding the costs of transporting oranges from California or Florida? Why or why not?

The cost of building and heating orangeries in a northern climate makes them economically impractical because it is cheaper to transport oranges from the southern states.

No matter what type of business they are in, manufacturers have found that there are only two methods they can employ to increase their efficiency and reduce their total costs of production. Can you explain why there are only two of those methods?

The only ways a producer can improve his efficiency is by increasing the amount of goods he produces without increasing the amount of input he uses or by producing the same amount of finished goods while decreasing the required input.

what is the sum cost of all the factors of production used in producing one unit of a good?

average cost

Upon what three elements is mass production based on?

division of labor (specialization), standardized parts, and automatic conveyance

What is the quality of producing effectively with a minimum of waste?

efficiency

Whenever there are no restrictions or penalties placed upon the exchange of goods the result is?

free trade

what is the total amount invested in the production of a good?

input

what is the total amount of a good that is produced?

output

When specialization is carried beyond the point of maximum efficiency, it becomes what?

overspecialization

what is a tariff?

taxes that must be paid on imported goods before they are allowed to enter an area

Geographic Specialization

the production of goods in which a country or region has absolute or comparative advantage

protectionism

the theory that domestic manufacturers need government protection against foreign competition

What is the sum of all the factors of production used in making goods?

total cost