ECON chapters 2,3,7,11, and 17-19
In the diagram to the right, point F indicates an
inefficient result. Screen Shot 2020-04-30 at 7.59.12 PM
A perfectly competitive market is a market that meets the conditions o
(1) many buyers and sellers, (2) all firms selling identical products (3) no barriers to a new firm entering the market.
The distinction between a normal and an inferior good is
When income increases, demand for a normal good increase while demand for an inferior good falls.
Consider the market for ethanol in the United States depicted in the figure to the right. Assume the world price of ethanol is $1.001.00 per gallon, and at that price the United States can buy as much ethanol as it wants without causing the world price to rise. Now suppose a quota eliminating tradequota eliminating trade is imposed by the government. What is the dollar amount of the change in consumer surplus as a result of the quotaquota? -4.20 billion. (Enter a numeric response using a real number rounded to two decimal places using the correct sign.) What is the dollar amount of the change in producer surplus as a result of the quotaquota? 3.00 billion. What is the dollar amount of the dead weight loss? 1.20 billion
-4.20, 3.00, 1.20
Consider the market for gasoline, illustrated in the figure to the right. The equilibrium quantity of gasoline is 15.00 million gallons (enter a numeric response using a real number rounded to two decimal places) and the equilibrium price is 2.50 per gallon. If instead the market price were $1.75, then there would be a shortage of 9 million gallons.
15.00, 2.50 1.75,9
Consider the market for gasoline, illustrated in the figure to the right. The equilibrium quantity of gasoline is 17.5 million gallons (enter a numeric response using a real number rounded to two decimal places) and the equilibrium price is $2.5 per gallon. If instead the market price were $3.25, then there would be a surplus of 10.5 million gallons.
17.5 million, 2.5 per gallon surplus, 10.5
he production possibilities frontiers in the figure to the right show how many bananas and coconuts you (Y) and your neighbor (N) can consume without trade. Suppose you are initially consuming 4 bananas and 8 coconuts and your neighbor is initially consuming 10 bananas and 4 coconuts. Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. You give your neighbor half of your production for half of what he produces. (Enter all responses as integers.) If you trade with your neighbor, then you will have 4 additional coconut(s) after the trade and 1111 additionalbanana(s). At the same time, your neighbor will be able to consume 5 additional banana(s) and will be better off as a result of trade.
4,11 5, better off
The production possibilities frontiers in the figure to the right show how many bananas and coconuts you (Y) and your neighbor (N) can consume without trade. Suppose you are initially consuming 1010 bananas and 4 coconuts and your neighbor is initially consuming 6 bananas and 8 coconuts. Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. You give your neighbor half of your production for half of what he produces. (Enter all responses as integers.) If you trade with your neighbor, then you will have 8 additional coconut(s) after the trade and 5 additionalbanana(s). At the same time, your neighbor will be able to consume 9 additional banana(s) and will be better off as a result of trade.
8,5, 9, better off
YourYour consumption point beforebefore trade is illustrated by point Upper A.
A Screen Shot 2020-05-01 at 9.35.41 AM
Which of the following events would cause the supply curve to increase from S1 to S3?
A decrease in the price of inputs
The diagram in panel b is an example of
A demand Curve
The primary difference between absolute and comparative advantage is
Absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost
What is the role of an entrepreneur?
All of the above
Which of the following would cause a shift in the demand curve from point A to point B?
All of the above
Which of the following events would cause the supply curve to decreasedecrease from Upper S 1S1 to Upper S 2S2?
An increase in the price of inputs
Your Neighbors consumption point before trade is illustrated by point
B Screen Shot 2020-05-01 at 9.35.41 AM
From the PPFs shown above it can be determined that the opportunity cost of oil is higherhigher in country B. Given the comparative opportunity costs as revealed by the PPFs shown above, the comparative advantage for country Upper AA lies in oil. After these two countries specialize and trade with each other, country Upper BB will be importing oil.
B,oil,oil Screen Shot 2020-05-01 at 9.35.41 AM
Consider the market for Hewlett-Packard (HP) printers, depicted in the figure to the right, where the supply of HP printers has increased from Upper S 1S1 to Upper S 2S2. What would cause the supply curve for HP printers to shift to the right?
Both A and B
The diagram on the right represents a tariff imposed on an individual market. The total deadweight loss (loss in economic surplus) from this tariff is illustrated by areas
C and D
Choco Dream is a firm that produces both dark chocolates as well as liquor chocolates. During a given month, the firm uses its resources to produce both varieties. Initially, the firm produced 5,000 bars of dark chocolates and 4,000 bars of liquor chocolates in a month. In order to increase production of the latter to 4,500, they had to reduce production of dark chocolates by 800 bars. When demand for liquor chocolates increased further, Choco Dream produced 5,000 bars of liquor chocolates and 3,200 bars of dark chocolates per month. Which of the following inferences can be drawn from the given information?
Choco Dream faces increasing marginal opportunity cost in the production of liquor chocolate.
Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjack boots, as shown in the production possibilities frontiers in the figure to the right. Canada has a comparative advantage in producing lumberjack boots. The United States has a comparative advantage in producing lumberjack shirts. Does either country have an absolute advantage in producing both goods? Suppose initially that the United States is consuming 4 boots and 12 shirts and Canada is consuming 8 boots and 4 shirts, as indicated in the figure. Then, suppose the United States and Canada specialize by each only producing the good for which they have a comparative advantage and then trade. In particular, suppose the United States trades Canada half of its production for half of what Canada produces. The United States will have 6 additional shirt(s) after the trade (enter a numeric response using an integer) and 88 additional boot(s). At the same time, Canada will be able to consume 14 additional shirt(s) as a result of the trade and 4 additional boot(s).
Canada, The United States Neither Country has an absolute advantage in both goods because candy can produce more boots but the United States can produce more shirts 6,8, 14,4
Two neighbors, countries A and B, produce books and blankets, among other goods and services. However, Country A produces more of both goods than country B. A student of economics, Maya, also notes that in both countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B. Which of the following, if true, would weaken Maya's conclusion?
Country A employs more capital per unit of labor in all industries than country B
The market for corn in country A is highly competitive. At the current market price of $5/bushel there is a shortage of100,000 bushels of corn in this country. Media reports claim that the price of corn will rise drastically in the near future. According to these reports, the neighboring country B had witnessed a similar situation recently. At the same price, the shortage in country B was also 100,000 bushels and eventually the equilibrium price in B went up to $10/bushel. Both countries are known to have equal number of corn producers and the market supply of corn is identical at all prices. This, combined with the fact that consumers in the two countries also have similar tastes and preferences, led the media to conclude that the price of corn in country A would soon be as high as $10/bushel. Which of the following is being assumed by the media while concluding that the price in country A will also rise to$10/bushel?
Demand conditions in both countries are identical
Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety. Similarly, using all its resources in the production of liquor chocolates, the firm can produce 8,000 bars per month. However, during a given month, the firm produces both varieties. Which of the following, if true, would suggest that the firm is operating on its PPF?
Even though the demand for both liquor and dark chocolates has increased, the company can increase the production of only one variety
Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is
False: decreases in price affect the quality demanded, not demand.
Assume the table below shows the quantities of wine and cheese that a worker can produce in an hour in France and Italy.
France, Italy France, Italy
If country ABC can produce a unit of good 1 by sacrificing fewer units of good 2 than can country XYZ, it is correct to say that country ABC
Has a comparative advantage in producing good 1
Consider the market for Ping golf clubs. Suppose the price of memberships at local golf courses increases. Use the line drawing tool to show how this affects the demand for Ping golf clubs by drawing a new demand curve. Assume memberships at local golf courses and Ping golf clubs are complements. Properly label this line. Carefully follow the instructions above, and only draw the required objects. Instead, suppose the price of tennis rackets increasesincreases. If tennis rackets and golf clubs are substitutes, then the demand for Ping golf clubs will increase.
Increase
XYZ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute products, particularly in India, are highly priced. Darren, the operational head, feels that exporting their product to India is a good idea. According to him, their price advantage alone will ensure good sales. However, his colleague, Mark, who is also the head of productdevelopment, feels that Darren is too optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. Which of the following, if true, would support Mark's point of view?
India has high import tariffs.
XYZ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute products, particularly in India, are highly priced. Darren, the operational head, feels that exporting their product to India is a good idea. According to him, their price advantage alone will ensure good sales. However, his colleague, Mark, who is also the head of productdevelopment, feels that Darren is too optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. Which of the following, if true, will strengthen Darren's point of view?
Indian producers do not have access to the technology that XYZ uses for producing leather goods.
XYZ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute products, particularly in India, are highly priced.Darren, the operational head, feels that exporting their product to India is a good idea. According to him, their price advantage alone will ensure good sales. However, his colleague, Mark, who is also the head of product development, feels that Darren is too optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. Which of the following, if true, will strengthen Darren's point of view?
Indian producers do not have access to the technology that XYZ uses for producing leather goods.
Alzuria and Narnia are two open economies that produce goods A and B. The productivity of workers in industry B in Narnia is higher than the productivity of the Alzurian workers producing B. This led industry experts to claim that Narnia should specialize in the production of B and export it to Alzuria in exchange for good A. Which of the following, if true, would strengthen the argument that Narnia should specialize in the production of B and export it?
Industry A in Narnia employs more people than it really needs
In the diagram to the right, point Upper F indicates an
Inefficient Result Screen Shot 2020-05-01 at 9.35.41 AM
Consider the figure to the right and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services overtime?
It increases because demand increased by more than supply
One of the great benefits of trade is
It makes it possible for society to become better off by increasing its consumption.
Sri Lanka is one of the major tea producing nations in the world. A substantial portion of the country's annual tea production gets exported to various countries, including the United Arab Emirates, Russia, and other countries in the Middle East. Given the success in these countries, Sri Lanka decided to foray into the Asian market. Research evidence indicated that people in Myanmar are major consumers of tea and that there is a high demand for tea in that country. This convinced industry experts in Sri Lanka that exporting to Myanmar was a good idea. Even though Sri Lankan tea was priced competitively, sales in Myanmar turned out to be far lower than expected. Which of the following, if true, could explain this outcome?
People in Myanmar are willing to pay more for their domestic tea brands than foreign brands
In the table below, fill in the missing blanks to complete the summary of the effects of changes in demand and supply on equilibrium price and quantity.
Q-increases P-increase Q-indeterminate Q-decreases Screen Shot 2020-05-01 at 9.35.41 AM
Consider the production possibilities frontier (PPFLOADING...) that shows the trade-off between the production of cotton and the production of soybeans depicted in the figure to the right. Use the three-point curved line drawing tool to show the effect that improved fertilizersimproved fertilizers would have on the initial production possibilities frontier by drawing a new production possibilities frontier. Properly label this curve. . Carefully follow the instructions above, and only draw the required objects.
Screen Shot 2020-04-30 at 7.53.48 PM
The figure to the right illustrates the trade-offs facing Ford Motor Company. The line in the graph is Ford's production possibilities frontier. If Ford uses all its resources to produce trucks, how many can it produce? 8 thousand trucks per day. (Enter a numeric response using a real number rounded to one decimalplace.) Suppose Ford is currently building 6 thousand cars per day. To build an additional 1 thousand cars, how many fewer trucks can be built? 11 thousand fewer trucks per day. According to the graph, building 3 thousand cars per day and 4 thousand trucks per day is technically inefficient.
Screen Shot 2020-04-30 at 8.04.23 PM
Consider the production possibilities frontier hat shows the trade-off between the production of cotton and the production of soybeans depicted in the figure to the right. Use the three-point curved line drawing tool to show the effect that a prolonged droughta prolonged drought would have on the initial production possibilities frontier by drawing a new production possibilities frontier. Properly label this curve.
Screen Shot 2020-05-01 at 9.35.41 AM
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, andcomputers, are goods used to produce other goods. Suppose a technological advance occurs that affects the production of capitalcapital goods but not consumptionconsumption goods. Use the three-point curved drawing tool to show the effect of this technological change by drawing a new production possibilities frontier. Properly label this curve.
Screen Shot 2020-05-01 at 9.35.41 AM
Two neighbors, countries A and B, produce books and blankets, among other goods and services. However, Country A produces more of both goods than country B. A student of economics, Maya, also notes that in both countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B. Maya's conclusion is flawed because
She assumes that country A's population is no larger than Country B's
The market for corn in country A is highly competitive. At the current market price of $5/bushel there is a shortage of100,000 bushels of corn in this country. Media reports claim that the price of corn will rise drastically in the near future. According to these reports, the neighboring country B had witnessed a similar situation recently. At the same price, the shortage in country B was also 100,000 bushels and eventually the equilibrium price in B went up to $10/bushel. Both countries are known to have equal number of corn producers and the market supply of corn is identical at all prices. This, combined with the fact that consumers in the two countries also have similar tastes and preferences, led the media to conclude that the price of corn in country A would soon be as high as $10/bushel. This reasoning is flawed because it assumes that
Similar tastes and preferences translate into similar willingness and ability to pay
With an annual production of 100,000 metric tons, SteelWorld Inc., is one of the major producers of steel in its country. When the government of this country recently hiked the minimum wage for labor, the media predicted a considerable decline in national production. As one of the core industries in the economy, steel production was expected to be hit particularly badly. Although the supply of steel by SteelWorld did decline, the fall was much lower than anticipated. Which of the following, if true, would explain this phenomenon?
Steelworld implemented new technology that automated their process and increased production efficency
The distinction between substitutes and complements is
Substitute goods are used for the same purposes while complementary goods are used together.
The production possibilities frontiers depicted in the diagram to the right illustrate
Technological advances in the tank industry. Screen Shot 2020-05-01 at 9.16.49 AM
Suppose the United States and Mexico both produce hamburgers and tacos. The combinations of the two goods that each country can produce in one day are presented in the table below. Which country has an absolute advantage in producing tacos? The United States. Which country has a comparative advantage in producing tacos? Mexico. Suppose the United States is currently producing 160160 tons of hamburgers and 72 tons of tacos and Mexico is currently producing 16 tons of hamburgers and 40 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of 64 additional ton(s) of hamburgers can be produced for the two countries combined (enter a numeric response using an integer) and a total of 8 additional ton(s) of tacos can be produced.
The United States, Mexico 64,8
The market for corn in country A is highly competitive. At the current market price of $5/bushel there is a shortage of100,000 bushels of corn in this country. Media reports claim that the price of corn will rise drastically in the near future. According to these reports, the neighboring country B had witnessed a similar situation recently. At the same price, the shortage in country B was also 100,000 bushels and eventually the equilibrium price in B went up to $10/bushel. Both countries are known to have equal number of corn producers and the market supply of corn is identical at all prices. This, combined with the fact that consumers in the two countries also have similar tastes and preferences, led the media to conclude that the price of corn in country A would soon be as high as $10/bushel. If the new equilibrium price turns out to be below $10/bushel, which of the following inferences can be drawn?
The demand curve for corn must be flatter in country A than country B
Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety. Similarly, using all its resources in the production of liquor chocolates, the firm can produce 8,000 bars per month. However, during a given month, the firm produces both varieties. Which of the following, if true, would suggest that the firm is operating at a point inside its PPF?
The firm believes in maintaining a certain amount of excessive capacity to meet unexpected changes in demand.
A freelance singer-songwriter is planning the restoration of a recently purchased civil war-era farmhouse. While he professes an enjoyment of, and talent in the construction trades, the theory of comparative advantage implies that
The income lost while away from music will likely exceed the savings realized by doing the work itself, thus, he should hire professionals to do the restoration work.
A number of political leaders have expressed concern about the nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production. These individuals would see their position weakened most by the knowledge that
The substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value
Recent medical research revealed that the presence of gluten in oats can cause celiac disease in the elderly. Since the elderly are an important consumer segment in this market, industry experts predicted a fall in the price ofcommercially-available oats. However, after the publication of the research, the price of oats actually increased. Which of the following, if true, would explain this outcome?
The supply of oats came down drastically, with some major participants exiting the market
Recent medical research revealed that the presence of gluten in oats can cause celiac disease in the elderly. Since the elderly are an important consumer segment in this market, industry experts predicted a fall in the price ofcommercially-available oats. However, after the publication of the research, the price of oats actually increased. Which of the following, if true, would explain this outcome?
The supply of oats came down drastically, with some major participants exiting the market.
XYZ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute products, particularly in India, are highly priced. Darren, the operational head, feels that exporting their product to India is a good idea. According to him, their price advantage alone will ensure good sales. However, his colleague, Mark, who is also the head of productdevelopment, feels that Darren is too optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. Darren's view is based on which of the following assumptions?
XYZ's product is a close substitute for the locally available goods.
The law of demand holds in the market for three goods, X, Y, and Z. An increase in the price of X causes an increase in the price of Y. A decrease in the price of X causes a decrease in the demand for Z. Which of the following conclusions is most strongly supported by the information given above?
Z is a substitute for input X In the production of Y
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
In the diagram to the right, when supply decreases, a shortage develops at the original price. Equilibrium price will rise and equilibrium quantity will fall as a new equilibrium is established.
a shortage, rise, fall
In the diagram to the right, when demand increases, a shortage develops at the original price. Equilibrium price will rise and equilibrium quantity will rise as a new equilibrium is established.
a shortage, rise, rise
In the diagram to the right, when demand increases, a shortage develops at the original price. Equilibrium price will rise and equilibrium quantity will rise as a new equilibrium is established.
a shortage, rise, rise
a. What do economists mean by scarcity? b.Which of the following is not scarce according to the economic definition?
a. Economists mean that unlimited wants exceed limited resources. b.None of the above.
Suppose that France and Germany both produce wine and schnitzel. The table below shows combinations of the goods that each country can produce in a day. a.Who has the comparative advantage in producing wine and who has the comparative advantage in producingschnitzel? b.Suppose that France is currently producing 1 bottle of wine and 6 pounds of schnitzel and Germany is currently producing 3 bottles of wine and 10 pounds of schnitzel. Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 7 pounds of schnitzel. after specialization and trade, France gains by consuming the same amount of wine and 1 additional pound(s) of schnitzel (enter a numeric response using an integer) and Germany gains by consuming the same amount of wine and 8 additional pound(s) of schnitzel.
a. France has a comparative advantage producing wine and Germany has a comparative advantage producing schnitzel b. 1 and 8
Suppose the United States and Mexico both produce hamburgers and tacos. The combinations of the two goods that each country can produce in one day are presented in the table below a.Which country has an absolute advantage in producing tacos? The United States b.Which country has a comparative advantage in producing tacos? Mexico. c.Suppose the United States is currently producing 180 tons of hamburgers and 81 tons of tacos and Mexico is currently producing 18 tons of hamburgers and 45 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of 72 additional ton(s) of hamburgers can be produced for the two countries combined (enter a numeric response using an integer) and a total of 9 additional ton(s) of tacos can be produced.
a. The United States B. Mexico C. 72 and 9
a.What do economists mean by scarcity? b.Which of the following is not scarce according to the economic definition?
a.Economists mean that unlimited wants exceed limited resources. b.None of the above.
Suppose the United Kingdom and Norway both produce oil and fish oil, which are sold for the same prices in both countries. The following table shows combinations of both goods that each country can produce in a day, measured in thousands of barrels, using the same amounts of capital and labor: a.Who has the comparative advantage in producing oil? b.Can these two countries gain from trading oil and fish oil?
a.Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal b. These countries cannot gain from trade because neither has a comparative advantage producing either good.
a.What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy? b.Refer to the graph to the right. What is the opportunity cost of moving from point B to point C?
a.The country is operating on it's production possibilities frontier b.20 sedans Screen Shot 2020-05-01 at 9.35.41 AM
a.What happens if a country produces a combination of goods that efficiently uses all of the resources available in theeconomy? b.Refer to the graph to the right. What is the opportunity cost of moving from point B to point C?
a.The country is operating on its production possibilities frontier. b.20 sedans Screen Shot 2020-05-01 at 9.16.49 AM
a.Which of the following are the two key groups of participants in the circular flow of income? b.In a simple circular-flow model, there are flows of _________ and flows of _________.
a.households and firms b.Both (a) and (b) are correct.
In general, the term "ceteris paribus" means
all else equal
On the diagram to the right, a movement from A to B represents a
change in quantity demand
Market price is determined by
both supply and demand
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing. Screen Shot 2020-04-30 at 7.53.48 PM
On the diagram to the right, a movement from Upper A to Upper B A to B represents a
change in quality demand
On the diagram to the right, a movement from A to B represents a
change in quality supplied
In the diagram to the right, point Upper C indicates an
efficient result Screen Shot 2020-05-01 at 9.35.41 AM
A(n) entrepreneur is someone who operates a business, bringing together the factors of productionlong dash—labor, capital, and natural resourceslong dash—to produce goods and services.
entrepreneur
In the diagram to the right, point A provides the _____, point B the _____, and point C the _____.
equilibrium price; market equilibrium; equilibrium quantity
A free market is a market with ________ government restrictions on how a good or service can be produced or sold and with ________ government restrictions on how a factor of production can be employed.
few; few
Two key groups participate in markets. A household consists of all the individuals in a home. Firms are suppliers of goods and services. We can use a simple economic model called the circular-flow diagram to see how participants in markets are linked.
household, firms, circular flow diagram
In the circular-flow diagram showing how a market system works,
income flows to firms through product markets
Consider the market for the Nissan Xterra. Suppose the price of metal, which is an input in automobile production, decreases. Use the line drawing tool to show how this affects the supply of Nissan Xterras by drawing a new supply curve. Properly label this line. Carefully follow the instructions above, and only draw the required objects. According to the graph, when the price of metaldecreases, the quantity of Nissan Xterras supplied at any particular Xterra price increases.Instead, consider the future price of Xterras. If Nissan believes the future price of Xterras will be lowerbe lower, then Nissan may increase supply today.
increases increase
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs. Screen Shot 2020-04-30 at 8.02.50 PM
The Scottish philosopher Adam Smith argued in 1776 that
prices would do a better job of coordinating the activities of buyers and sellers than guilds could.
Dumping
is selling a product for a price bellow its cost of consumption
Comparative advantage
is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
Goods X and Y are perfect substitutes. When the market price of good X is $5/unit, firm F produces 500 units of X. When the price of Y rises, 100 consumers of Y shift to the consumption of good X. This causes industry analysts to think that firm F will increase quantity supplied of X to match this increased demand. This conclusion is flawed because
it assumes that firm F is the only producer of good X
Consider the market for MP3 players, illustrated in the figure to the right. The market is initially in equilibrium at a price of $70 and at a quantity of 250 (thousand) players. Suppose there is a positive change in technologythere is a positive change in technology. Use the line drawing tool to show how this affects the MP3 market by adding either a new supply curve or a new demand curve. Carefully follow the instructions above, and only draw the required objects. As a result of the positive change in technologythe positive change in technology, the new equilibrium price will be lower, and the new equilibrium quantity will be higher.Suppose instead that the demand curve shifts to the right. Then, relative to the initial market equilibrium,
lower, higher the new equilibrium price would be higher and the new equilibrium quantity would be higher Screen Shot 2020-05-01 at 9.35.41 AM
Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjack boots, as shown in the production possibilities frontiers in the figure to the right. The United States has a comparative advantage in producing lumberjack boots. Canada has a comparative advantage in producing lumberjack shirts. Does either country have an absolute advantage in producing both goods? Suppose initially that the United States is consuming 1212 boots and 22 shirts and Canada is consuming 44 boots and 88 shirts, as indicated in the figure. Then, suppose the United States and Canada specialize by each only producing the good for which they have a comparative advantage and then trade. In particular, suppose the United States trades Canada half of its production for half of what Canada produces. The United States will have 10 additional shirt(s) after the trade (enter a numeric response using an integer) and 0 additional boot(s). At the same time, Canada will be able to consume 4 additional shirt(s) as a result of the trade and 8 additionalboot(s).
neither country has the absolute advantage in producing goods because the United States can produce more boots but Canada can produce more shirts 10,0 4,8
Tom's lawn service specializes in mowing lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1 hour, he can mow 33 lawns or trim 66 bushes. Use the line drawing tool to graph Tom's production possibilities frontier given he has 4 hours to devote to lawn services. Properly label this line. Carefully follow the instructions above, and only draw the required objects.
om's opportunity cost of mowing lawns in terms of trimming bushes is 2.00 trimmed bushes per mowed lawn Screen Shot 2020-04-30 at 7.59.12 PM
The concept of ________ is that the economic cost of using a factor of production is the alternative use of that factor that is given up.
opportunity cost
Sri Lanka is one of the major tea producing nations in the world. A substantial portion of the country's annual tea production gets exported to various countries, including the United Arab Emirates, Russia, and other countries in the Middle East. Given the success in these countries, Sri Lanka decided to foray into the Asian market. Research evidence indicated that people in Myanmar are major consumers of tea and that there is a high demand for tea in that country. This convinced industry experts in Sri Lanka that exporting to Myanmar was a good idea. The above reasoning is based on the assumption that
people in Myanmar have similar tastes and preferences in tea consumption as the other consumers of Sri Lanken tea.
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of productionlong dash—labor, capital, natural resources, and entrepreneurial ability.
Consider the market for LCD TVs, illustrated in the figure to the right. Use the point drawing tool to identify the market equilibrium. Properly label this point. Carefully follow the instructions above, and only draw the required objects. Suppose instead that the price of LCD TVs is $800.00 This will result in a shortage, which will place upward pressure on the price.
shortage, upward
In the diagram to the right, when the price is $65 per player, the amount of the surplus is 40 million players per month.
surplus, 40
onsider the market for LCD TVs, illustrated in the figure to the right. Use the point drawing tool to identify the market equilibrium. Properly label this point. Carefully follow the instructions above, and only draw the required objects. Suppose instead that the price of LCD TVs is $2000.00This will result in a surplus, which will place downward pressure on the price.
surplus, downward
In a free market, the actions people take are largely determined by
the motivation of financial reward.
Goods X and Y are perfect substitutes. When the market price of good X is $5/unit, firm F produces 500 units of X. When the price of Y rises, 100 consumers of Y shift to the consumption of good X. This causes industry analysts to believe that firm F has increased quantity supplied of X by 100 units to meet the higher demand for it. To arrive at this conclusion, the industry analysts are assuming that
the new buyers of good X will, on average, consume one unit each
According to the law of demand,
there is an inverse relationship between price and quantity demanded
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
To encourage the domestic production of soybean oil, the Indian government imposed a 20% tariff on the import of soybean oil. The world price, when the tariff was imposed, was (in terms of the Indian currency, rupees) Rs.1,000 per ton of oil. The figure to the right shows the domestic supply and the level of imports before and after the imposition of the tariff. Suppose as result of the higher price of soybean oil, new domestic firms enter the market, causing an increase in the demand for Soybeans. Which of the following is the most likely implication of this?
the tariff revenue earned by the Indian government can decline
A free market exists
when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.