Exam 4 ECO
Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds?
California
Resource Pricing
Determines people's incomes
A public good is
nonrival and nonexcludable
Resource demand curves slope downward because
of the diminishing marginal product of the resource.
Distinctive products
provide an export niche for a country.
An example of an external benefit is
safety provided by motion-detector lights.
A quota that results in the same level of imports as a tariff is more detrimental to an economy because
the government loses tax revenue
Spillover costs and spillover benefits are also called negative and positive externalities because
the unintended spillover costs have a negative impact on third parties and the unintended spillover benefits have a positive impact on third parties
Suppose that if Iceland and Japan were both closed economies, the domestic price of fish would be $100 per ton in Iceland and $90 per ton in Japan. If the two countries decided to open up to international trade with each other, which of the following could be the equilibrium international price of fish once they begin trading?
$95.00
A principal is worried that her agent may not do what she wants. As a solution, she should consider:
(All of the above) Commissions, bonuses, and profit sharing are all methods
Which of the following are benefits of international trade? Reducing the threat of war. A higher level of material well-being. A more efficient allocation of resources. Gains from specialization. Deterring monopoly. Promoting competition.
(All of them) Reducing the threat of war. A higher level of material well-being. A more efficient allocation of resources. Gains from specialization. Deterring monopoly. Promoting competition.
Suppose that the opportunity-cost ratio for watches and cheese is 1C ≡ 1W in Switzerland but 1C ≡ 4W in Japan. At which of the following international exchange ratios (terms of trade) will Switzerland and Japan be willing to specialize and engage in trade with each other? 1C ≡ 3W. 1C ≡ ½W. 1C ≡ 5W. ½C ≡ 1W. 2C ≡ 1W.
1C=3W 1/2C=1W
Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, Big Country needs to give up
3/4 units of Y for 1 unit of X and should produce good X. Small Nation needs to give up 1 unit of X for 1 unit Y and should produce good Y
Consider a carbon-tax and a cap-and-trade strategy for reducing carbon dioxide and other so-called greenhouse gases. Which of the following statements is true?
A cap-and-trade system improves efficiency by creating scarcity
Workers are compensated by firms with "benefits" in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $20 per hour and in addition received health benefits at the rate of $4 per hour. Also suppose that by 2010 workers at that plant were paid $21 per hour but received $18 in health insurance benefits. a. By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010? Total compensation increased by____% What was the approximate average annual percentage change in total compensation?____% b. By what percentage did wages change at this plant from 2000 to 2010? Wages increased by____% What was the approximate average annual percentage change in wages?____% c. If workers value a dollar of health benefits as much as they value a dollar of wages, by what total percentage will they feel that their incomes have risen over this time period?___% What if they only consider wages when calculating their incomes? It would go up by ____% d. Is it possible for workers to feel as though their wages are stagnating even if total compensation is rising?
A. 62.5 6.25 B. 5 0.5 C. 62.5 5 D. Yes
Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 2 cans tuna fish Tunata: 1 can baby formula ≡ 4 cans tuna fish a. In what product should each nation specialize? Canswicki should produce __________, and Tunata should produce__________ b. Would the following terms of trade be acceptable to both nations? 1 can baby formula ≡ 2½ cans tuna fish: 1 can baby formula ≡ 1 can tuna fish: 1 can baby formula ≡ 5 cans tuna fish
Baby Formula Tuna Acceptable Not acceptable Not acceptable
Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 3 cans tuna fish Tunata: 1 can baby formula ≡ 5 cans tuna fish a. In what product should each nation specialize? Canswicki should produce _______, and Tunata should produce______ b. Would the following terms of trade be acceptable to both nations? 1 can baby formula ≡ 3.5 cans tuna fish: 1 can baby formula ≡ 2 cans tuna fish: 1 can baby formula ≡ 6 cans tuna fish:
Baby Formula Tuna Yes No No
Consider the following statement: "The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China." Which ideas of Adam Smith and David Ricardo are represented?
China does not need Smith's absolute advantage to specialize in toys, rather it needs Ricardo's comparative advantage.
Which of the below represent land-, labor-, and capital-intensive commodities respectively?
Corn, clothing, and aircraft
In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles?
Country A
In Country A, a worker can make 5 bicycles per hour. In Country B, a worker can make 7 bicycles per hour. Which country has an absolute advantage in making bicycles?
Country B
A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MPC = 8 apps per month while PC = $1,000 per month. If the company wants to maximize its profits, it should:
Decrease labor while increasing capital.
A tax can correct for a negative externality and a subsidy to producers can correct for a positive externality because the tax shifts the cost onto the firms, producing the product and__________output, and the subsidy________ and ________ output.
Decreasing Increases the supply Increases
FreshLeaf is a commercial salad maker that produces "salad in a bag" that is sold at many local supermarkets. Its customers like lettuce but don't care so much what type of lettuce is included in each bag of salad, so you would expect FreshLeaf's demand for iceberg lettuce to be:
Elastic
Which of the following are valid arguments for tariff protection?
Ensuring adequate production levels in sectors deemed to be essential in the event of war correct
True or False: If Country B has an absolute advantage over Country A in producing bicycles, it must also have a comparative advantage over Country A in producing bicycles.
False
True or False: If a country is open to international trade, the domestic price for a homogeneous good can differ from the international price for the same good
False
True or false. When a labor market consists of a single monopsony buyer of labor interacting with a single monopoly seller of labor (such as a trade union), the resulting quantity of labor that is hired will always be inefficiently low
False
In each of the following four cases, MRP L and MRP C refer to the marginal revenue products of labor and capital, respectively, and P L and P C refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the firm. If not, state which resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts. a. MRPL = $8; PL = $4; MRPC = $8; PC = $4 These conditions are consistent with maximum profits for the firm. _________(t/f) Which resource should be used in larger and/or smaller amounts? b. MRPL = $10; PL = $12; MRPC = $14; PC = $9 These conditions are consistent with maximum profits for the firm. ______(t/f) Which resource should be used in larger and/or smaller amounts? c. MRPL = $6; PL = $6; MRPC = $12; PC = $12 These conditions are consistent with maximum profits for the firm. _____(t/f) Which resource should be used in larger and/or smaller amounts? d. MRPL = $22; PL = $26; MRPC = $16; PC = $19 These conditions are consistent with maximum profits for the firm. _____(t/f) Which resource should be used in larger and/or smaller amounts?
False Use more of both False Use less labor and more capital true Conditions are already constant False Use less of both
In each of the following four cases, MRPL and MRPC refer to the marginal revenue products of labor and capital, respectively, and PL and PC refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the firm. If not, state which resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts. a. MRPL = $8; PL = $4; MRPC = $8; PC = $4. These conditions are consistent with maximum profits for the firm. __________ Which resource should be used in larger and/or smaller amounts? ___________. b. MRPL = $10; PL = $12; MRPC = $14; PC = $9. These conditions are consistent with maximum profits for the firm. False correct. Which resource should be used in larger and/or smaller amounts? ___________ c. MRPL = $6; PL = $6; MRPC = $12; PC = $12. These conditions are consistent with maximum profits for the firm. ________ Which resource should be used in larger and/or smaller amounts? ___________ d. MRPL = $22; PL = $26; MRPC = $16; PC = $19. These conditions are consistent with maximum profits for the firm. False correct. Which resource should be used in larger and/or smaller amounts?
False Use more of both False Use less labor and more capital True Conditions are already constant False Use less of both
Because a perfectly competitive employer's MRC curve is ______________, it will hire ____________ workers than would a monoposony employer with the same MRP curve
Flat; more
The Lojack car recovery system allows the police to track stolen cars. As a result, they not only recover 90% of Lojack-equipped cars that are stolen but also arrest many auto thieves and shut down many "chop shops" that take apart stolen vehicles to get at their used parts. Thus, Lojack provides both private benefits and positive externalities. If the government were to subsidize Lojack purchases, this would
Have both private and social benefits
Suppose that the opportunity-cost ratio for fish and lumber is 1F ≡ 1L in Canada but 2F ≡ 1L in Iceland. Then ____________ should specialize in producing fish while ___________ should specialize in producing lumber.
Iceland; Canada
The domestic supply-and-demand diagram below represents a product in which the United States does not have a comparative advantage. a. What impact do foreign imports have on domestic price and quantity?
Imports reduce the domestic price, increasing consumption and decreasing domestic production.
We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don't we see full specialization—for instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in China? Choose the best answer from among the following choices:
Increasing opportunity costs.
Suppose that the current international price of wheat is $6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in the United States end up higher or lower than $6?
Lower
A delivery company is considering adding another vehicle to its delivery fleet; each vehicle is rented for $200 per day. Assume that the additional vehicle would be capable of delivering 1750 packages per day and that each package that is delivered brings in $0.20 in revenue. Also assume that adding the delivery vehicle would not affect any other costs. a. What are the MRP and MRC? Should the firm add this delivery vehicle? b. Now suppose that the cost of renting a vehicle doubles to $400 per day. What are the MRP and MRC? Should the firm add a delivery vehicle under these circumstances? c. Next suppose that the cost of renting a vehicle falls back down to $200 per day but, due to extremely congested freeways, an additional vehicle would only be able to deliver 750 packages per day. What are the MRP and MRC in this situation? Would adding a vehicle under these circumstances increase the firm's profits?
MRP = $350 MRC = $200 YES MRP = $350 MRC = $400 NO MRP = $150 MRC = $200 NO
Alice runs a shoemaking factory that utilizes both labor and capital to make shoes. Which of the following would shift the factory's demand for capital?
Many consumers decide to walk barefoot all the time. New shoemaking machines are twice as efficient as older machines. The wages that the factory has to pay its workers rise due to an economy-wide labor shortage.
On average, 50-year-old workers are paid several times more than workers in their teens and twenties. Which of the following options is the most likely explanation for that huge difference in average earnings?
Older workers have more human capital and higher MRPs
Manny owns a local fast-food franchise. Angel runs it for him. So in this situation, Manny is the_______and Angel is the _________.
Principal Agent
Which of the following statements is true?
Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces the consumer surplus
American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer?
Quota
A subsidy to consumers differs from a subsidy to producers in correcting for a positive externality in that the subsidy to consumers_______________but the subsidy to producers______________ .
Raises the price lowers the price
The market equilibrium wage is currently $12 per hour among hairdressers. At that wage,17,323 hairdressers are currently employed in the state. The state legislature then sets a minimum wage of $11.50 per hour for hairdressers. If there are no changes to either the demand or supply for hairdressers when that minimum wage is imposed, the number of hairdressers employed in the state will be:
Still 17,323.
Is the U.S. border patrol a public or private good? How about satellite TV?
The U.S. border patrol is a public good, but satellite TV is a private good
"The potentially valid arguments for tariff protection—military self-sufficiency, infant industry protection, and diversification for stability—are also the most easily abused." Which of the following illustrates the potential for abuse of tariff protection?
There is a tendency for trade barriers to remain in place even after a so-called infant industry becomes established.
Cindy is a baker and runs a large cupcake shop. She has already hired 11 employees and is thinking of hiring a 12th. Cindy estimates that a 12th worker would cost her $100 per day in wages and benefits while increasing her total revenue from $2,600 per day to $2,750 per day. Should Cindy hire a 12th worker?
YES
Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm's capacity. If he adds one more worker, the firm's total monthly revenue will increase from $52,000 to $60,000. If he adds one more tractor, monthly revenue will increase from $52,000 to $64,000. Each additional worker costs $4,000 per month, while an additional tractor would also cost $4,000 per month. a. What is the marginal revenue product of labor? The marginal revenue product of capital? b. What is the ratio of the marginal revenue product of labor to the price of labor (MRPL/PL)? What is the ratio of the marginal product of capital to the price of capital (MRPK/PK)? c. Is the firm using the least-costly combination of inputs? d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?
a. 8000 ab. 12000 b. 2 bb. 3 c. Yes d. Adding an additional tractor
What factors determine the elasticity of resource demand? The ease of resource substitutability, elasticity of product demand, and ratio of resource cost to total cost correct What effect will each of the following have on the elasticity or location of the demand for resource C, which is being used to produce commodity X? a. An increase in the demand for product X. b. An increase in the price of substitute resource D. c. An increase in the number of resources substitutable for C in producing X. d. A technological improvement in the capital equipment with which resource C is combined e. A fall in the price of complementary resource E f. A decline in the elasticity of demand for product X due to a decline in the competitiveness of product market X.
a.Increase in demand b.Uncertainty as to the outcome c.Increase in elasticity d.Increase in demand e.Increase in demand f.Decrease in elasticity
Zoning laws might be justified in dealing with a problem of negative externalities because they can___________In the case of positive externalities, tax breaks for businesses that set up in areas of high unemployment might be justified because_________________Excise taxes on beer would____________
affect business location decisions additional employment will increase the income tax base. discourage the consumption of beer and reduce the external costs of such things as drunk driving and domestic violence.
Distinctions between land-, labor-, and capital-intensive commodities are important because
an abundant supply of one type of resource gives the country a comparative cost advantage in products using that resource
Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. The limits of the terms of trade between these two countries will be
between 1 unit of good X for a unit of good Y and 4/3 a unit of X for a unit of good Y.
Economists say competitive markets are efficient because
by producing up to the point where MB = MC, profits are maximized and the maximum potential consumer surplus and producer surplus is generated
The use of artificial trade barriers, such as tariffs and import quotas,
can increase domestic output and employment in the short term, but that is not likely to last for the long term
In the United States trade adjustment assistance takes the form of
cash assistance for up to 78 weeks and relocation allowances.
The euro is the
common currency used by 12 of the original 15 EU countries.
Trade assistance promotes political support for free trade agreements by
creating an incentive to reduce trade barriers and export subsidies
Florida citrus growers say that the recent crackdown on illegal immigration is increasing the market wage rates necessary to get their oranges picked. Some are turning to $100,000 to $300,000 mechanical harvesters known as "trunk, shake, and catch" pickers, which vigorously shake oranges from trees. If widely adopted, this will
decrease the demand for human orange pickers, implying the substitution effect is greater than the output effect
The factors determining resource demand differ from those determining product demand because the demand for products
depends on income and tastes, but the demand for resources is a derived demand
The export supply curve for a particular country is the
difference between quantity supplied and quantity demanded in the domestic market for a price above the domestic equilibrium price
The import demand curve for a particular country is the
difference between quantity supplied and quantity demanded in the domestic market for a price below the domestic equilibrium price.
Brenda owns a construction company that employs bricklayers and other skilled tradesmen. Her firm's MRP for bricklayers is $22.25 per hour for each of the first seven bricklayers, $18.50 for an eighth bricklayer, and $17.75 for a ninth bricklayer. Given that she is a price taker when hiring bricklayers, how many bricklayers will she hire if the market equilibrium wage for bricklayers is $18.00 per hour?
eight
When negative externalities exist at a market
equilibrium output will be greater than the efficient output
The point Bastiat is trying to make in his imaginary petition of the candlemakers is that
forces create competitive challenges for firms and industries, but these do not justify the imposition of protectionist measures
Tariffs and import quotas can reduce unemployment in an import U.S. industry but
foreign countries could impose non-tariff barriers on U.S. goods, reducing jobs in an export industry
The WTO is a
group that oversees trade agreements reached by member nations and arbitrates trade disputes among them
The demand for a resource is a derived demand. This is because
if there were no demand for output, there would be no demand for input
Over the past few decades offshoring has
increased to countries with an educated labor force such as India.
The equilibrium world price for a tradable good is determined by the
intersection of the world supply and demand schedules
In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)? GM didn't reduce employment by more than 21,000 workers because
it wanted to set the labor level where MRC equaled MRP to maximize profit.
In net, tariffs or quotas are
negative, since the costs to consumers substantially exceed the gains to producers and government
All manufacturing is not done in Mexico and other low-wage countries because
of trade barriers
Protective tariffs can reduce both the imports and the exports of the nation that levies tariffs because
other countries may follow with their own import tariffs.
The free-rider problem occurs when
people benefit from the public good without contributing to the cost
The substitution of ATMs for human tellers is an effort to Some banks are beginning to assess transaction fees when customers use human tellers rather than ATMs. This will
produce using the least-cost combination of resources. discourage the use of human tellers and raise their MP/P.
Import competition can lead to
quality improvements and cost reductions by American firms
Offshoring of white-collar service jobs
refers to jobs relating to data entry, book composition, and software coding
When foreign firms "dump" their products onto the U.S. market they
sell the product below cost and provide bargains to American consumers.
In percentage terms, our exports of goods and services are
small when compared to other industrialized countries.
The government could correct the difference between the equilibrium output level and the efficient output level by
taxing users so that less is used.
In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)? This decision indicates that for those 21,000 workers
the MRC was greater than the MRP.
Consider the following statement: "The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China." We import these toys from China because
the U.S. has an absolute advantage in producing toys, but China has a comparative advantage in producing toys
In 2012, manufacturing workers in the United States earned average compensation of $35.67 per hour. That same year, manufacturing workers in Mexico earned average compensation of $6.36 per hour. U.S. manufacturers can compete if
the workers are more productive
NAFTA is a
trade bloc made up of the United Sates, Canada, and Mexico whose purpose is to reduce tariffs and other trade barriers among the three countries.
The EU is a
trading bloc of 25 European countries who have agreed to abolish tariffs and import quotas on most products and have liberalized the movement of labor and capital
Public goods are not privately provided because
when goods are nonrival, those people purchasing the good could simply allow others use without requiring compensation
