Ch.2 Trade-offs, Comparative Adv, and the Market System

What did Adam Smith write in the Wealth of Nations?

The division of labor and specialization - also discussed the *invisble hand* where people pursue their own self-interest in free trade

In the previous circular flow diagram, which arrow shows the flow of goods and services?

B

In the circular flow model, which of the following refers to markets where goods such as computers or services such as medical treatments are offered?

Product Markets

What are copyrights designed to accomplish?

Protect intellectual property rights

Which of the following is critical to the success of the market system

To allow individuals or firms to have exclusive use of their property

an outward shift in production possibilities frontier from Point A to point B in the graph would most likely be caused by

a technological advance that affects both the production of automobiles and aircraft carriers

Absolute advantage is the ability of an individual, firm, or country to:

produce more of a good or service than competitors using the same amount of resources

Using the information in the previous table, what is country A's opportunity cost of producing 1 unit of clothing

Country A (6 food and 3 clothing) Country B (1 food, 2 clothing) *2 unit of food*

In the graphs shown, which country has a comparative advantage in the production of shirts?

Country B

In the above graph, which of the following combinations of pies and cakes is unnatainable given the existing resources

Four cakes and seven pies because when the point is above the demand, it is unattainable while if its below the demand curve, it is inefficient

Contracts, insurance, patents and accounting rules are:

Inventions that make a market work better

Refer to the previous graph. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and hybrids

Moving from point B to C

According to the theory of comparative advantage, specialization and free trade will beneft

all trading partners who specialize in goods where they have CA

Ms. Boulware is the best lawyer and the best secretary in town. She has:

an absolute advantage in both jobs

A product produced in a foreign country and purchased by residents of the home country is called:

an import

If a country has a comparative advantage in the production of a good, then that country

has a lower opportunity cost in the production of that good

The principle of increasing marginal OPC states that the more resources devoted to any activity, the ___ the payoff to devoting additional resources to that activity

smaller -simply means that the more resources you devote to a separate activity, the payoff will begin to decline

The role of the entrepreneur always involves

taking risks

When nations specialize in their comparative advantage and engage in trade

overall standards of living increase