Econ Chapter 3

output per hour of work olive oil pasta Greece 6 3 Italy 6 12 the opportunity cost of producing one more quart of olive oil is

.5 points of pasta

output per hour of work olive oil pasta Greece 6 3 Italy 6 12 the opportunity cost of producing on more pound of pasta in italy is

1.5 quarts of olive oil

output per hour of work olive oil pasta Greece 6 3 Italy 6 12 the opportunity cost of producing one more quart of olive oil in Italy is

2 pounds of pasta

output per hour of work olive oil pasta Greece 6 3 Italy 6 12 the opportunity cost of producing one more pound of pasta in Greece is

2 quarts of olive oil

how can a country gain from specialization and trade?

a country can specialize in producing that for which it has comparative advantage and then trade for other needed goods & services

which of the following events would cause the supply curve to decrease from S1 to S2? S1 is up S2 is down

an increase in the price of inputs

with respect to consumption, individuals and countries

can, through trade, consume beyond their production possiblities frontiers

demand curve point a is higher on the curve point b is lower on the curve on the diagram to the right, a movement from A to B represents a

change in quantity demanded

what is the basis for trade?

comparative advantage

supply curve intersect with demand curve square thing-point a intersects with price point c intersects with quantity point a provides the __________ point B provides the __________ point c provides the __________

equilibrium price market equilibrium equilibrium quantity

in the 1950's economist Bela Balassa compared 28 manufacturing industries in the US and Britain. In every one of the 28 industries, she found that the US had an absolute advantage. In these circumstances, would there have been any gain to the US from importing these products from Britain?

even with absolute advantage, the US would have benefited from importing those products for which britain had a comparative advantage

____ are goods and services produced domestically but sold to other countries.

exports

consider the following statement "an increase in supply decreases the equilibrium price. The decrease in price increases demand" this statement is

false: decreases in price affect the quantity demanded, not demand.

briefly explain whether you agree with the following statement "unfortunately, Bolivia does not have a comparative advantage with respect to the US in the production of any good or service"

if the US trades at all with Bolivia, then the argument above is false. There would be no trade unless both countries were made better off, and this would imply Bolivia has the comparative advantage in the production of at least one good or service

____ are goods & services bought domestically but produced in other countries

imports

which of the following describes the importance of international trade around the world?

imports and exports remain a smaller fraction of GDP in the US than in most other countries

whether carried out by an individual or a country, production beyond the production possibilities frontier

is not physically possible

A world trade organization publication calls comparative advantage "arguably the single most powerful insight in economics" referring to your answer above, what makes it such a powerful insight?

it explains why if individuals, firms, and countries specialize and trade they will be better off

"well look, people don't want a cheaper t shirt if they're losing a job in the process" what does "losing a job in the process" mean? obama was suggesting that a job would be lost if the t shirt were cheaper because

it would be produced in another country

^^ do you agree with obama's statement?

producers in industries in which the US has a comparative advantage would likely not agree with obama

the us and south korea produce cell phones an music players, each country uses only labor to produce each good and that the cell phones and digital music players made in the US and SK exactly alike. Output per Hour of Labor cell phones music players US 5 7 Korea 19 16 according to the table, ______ has the absolute advantage in producing cell phones and _______ has an absolute advantage in producing digital music players

south korea south korea

Output per Hour of Labor cell phones music players US 5 7 Korea 19 16 at the same time, _____ has a comparative advantage in producing cell phones, and ______ has a comparative advantage in producing digital music players

south korea US

^^^ the US should produce all of the t shirts purchased in the US if the US could produce

t shirts at a lower opportunity cost than other countries

_____ are taxes imposed by a government on imports of a good into a country

tarrifs

what is comparative advantage?

the ability to produce a good or service at a lower opportunity cost than other producers

what is absolute advantage?

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

Graph: supply curve: point C is on the line further down point A is on the line further up according to the law of supply:

there is a positive relationship between price and quantity supplied as the price of a product increases, firms will supply more of it to the market

according to the law of demand,

there is an inverse relationship between price and quantity demanded

the distinction between a normal and an inferior good is

when income increases, demand for a normal good increases while demand for an inferior good falls

is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good

will have a comparative advantage if it has a lower opportunity cost of producing that good

"no you shouldn't always unload the dishwasher because you're better at it" even if you are better at unloading the dishwasher than your spouse, you shouldn't be the one to unload it because

you may be even better at some other task and must consider the opportunity cost