Macro Chap 2

(Figure: Wine and Wheat) Use Figure: Wine and Wheat. The opportunity cost of moving from producing ONLY wheat to producing ONLY wine is _____ tons of wheat.

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Transactions of a circular flow diagram

barter- one party directly trades without using money circular flow diagram- represents the transactions that take place in an economy by two kinds of flows around a circle,flows of physical things such as goods, services, labor or raw materials in one direction

factor markets

firms buy the resources they need to produce goods and services. land, labor and physical capital and human capital

The concept of comparative advantage is based on:

relative opportunity costs.

real world example distinctions

Is a family run buisness a firm or household many of sales firms are not to households but to other firms ex steel to automobiles government taxes

Which statement is TRUE?

It is possible to have an absolute disadvantage but a comparative advantage in something.

Table: Production Possibilities Schedule I) Use Table: Production Possibilities Schedule I. The opportunity cost of producing the third unit of consumer goods is _____ units of capital goods. The image shown in the table is titled "Production Possibilities Schedule I." The first row head of the table depicts "Alternative" presenting the values A, B, C, D, E, and F, from left to right. The second row head of the table depicts "Consumed goods per period" presenting the values 0, 1, 2, 3, 4, and 5. The third row head of the table depicts "Capital goods per period" presenting the values 30, 28, 24, 18, 10, and 0."

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income distribution

The way the national income is divided into "shares" ranging from the poor to the rich.

economic growth

expansion of the economy to produce more goods, jobs, and wealth. expansion of the economies production possibilities, the economy can produce more of everything. two ways of economic growth 1) increase in the economy factors of production- resources used to produce goods and services- generally refer to a resource that is not used up in production -land -labor -physical capital -human capital 2)Technology- using composite materials. therefore the planes are stronger and last longer, it is a way to do more with the resources, pushing out production possibility fronteir. because jet technology increased, it has made it possible for the economy to produce more of everything

3. Increases in a nation's standard of living are largely driven by decreases in federal government spending higher interest rates lower rates of inflation increases in labor productivity

increases in labor productivity

(Table: Wheat and Aluminum) Use Table: Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table:

the United States has a comparative advantage in wheat and an absolute advantage in wheat.

Solviet Union

the solviet union is considered inefficient in allocation because people could not get what they needed

Model

A simplified version of something complex used, for example, to analyze and solve problems or make predictions.

In Kessy's old kitchen, he could bake 10 cookies or mix 15 glasses of lemonade in one day. Now Kessy has a larger oven and refrigerator. How does this affect his production possibility frontier? It shifts his production possibility frontier in. He will be less efficient. It shifts his production possibility frontier out. He will not be able to produce as much as before.

It shifts his production possibility frontier out.

Peter Pundit, an economics reporter in the United States, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the United States will no longer benefit from trade with the EU. Do you think Peter Pundit is correct or not? If not, what do you think is the source of his mistake? Peter Pundit is correct. The United States will lose any absolute advantage it may have. Peter Pundit is not correct. He confuses absolute and comparative advantage. Correct! Peter Pundit is not correct. He confuses absolute and comparative advantage. Even if the EU had an absolute advantage over the United States in every product it produced, the United States would still have a comparative advantage in some products. And the United States should continue to produce those products: trade will still make both the EU and the United States better off. For more help, see Models in Economics: Some Important Examples. Peter Pundit is not correct. The United States will still have an absolute advantage in producing some products. Peter Pundit is correct. The United States will lose any comparative advantage it may have.

Peter Pundit is not correct. He confuses absolute and comparative advantage.

normative economics

The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics. prescription

18. Suppose Indiana produces only steel and corn, with fixed amounts of land, labor, and capital resources. Which scenario BEST sets the stage for economic growth? The unemployment rate in Indiana rises from 5% to 6%. The percentage of Indiana residents with a college degree rises from 25% to 30%. The United States imports more and more low-cost steel from Asian countries. The Midwest has a devastating drought.

The percentage of Indiana residents with a college degree rises from 25% to 30%.

Which statement is a positive economic statement? Women should be paid as much as men are for the same work. Government has grown too large and should be reduced. Government should be subject to the same rules as all other institutions. There has been an increase in the rate of inflation.

There has been an increase in the rate of inflation.

forecast

a simple prediction of the future different from a what if question

effiecientcy

an economy is efficient if there are no missed opportunities. efficient in production if the economy could not produce more of any one good without producing less of another product then it is considered efficient in allocation efficiency also requires that it is and production meaning that the products must fit the needs of the public they also must be sure to deliver the right products to the right places

Trade-offs the production possibility frontier

considering a simple economy that produces only two goods, this enables us to show the trade-off graphically 1. efficiency 2. oppertunity cost 3. economic growth

4. Because of trade, a country may: consume outside its production possibility frontier. avoid opportunity costs. consume inside its production possibility frontier. find its production possibility frontier shifting outward.

consume outside its production possibility frontier.

7. Because of international trade, a country may: consume outside its production possibility frontier. avoid opportunity costs. find its production possibility frontier shifting outward. consume inside its production possibility frontier.

consume outside its production possibility frontier.

comparative advantage and international trade, in reality

depending on the industry international trade is liked or not liked economists have a high opinion on trade because international trade benefits both countries. because of comparative advantage. even if one country has absolute advantage there are still gains from trade - how?

when and why economists disagree

disagreement with value added tax because it taxes each stage of development. predictions are based on models so they are up to interpretation economists are mostly in the us -serve on council of economic advisors - advice prez on economic matters -congressional budget office - prepare forecasts for congress -department of commerce- analyze economic issues about american business and department of labor where they analyze econ issues about american workers -federal reserve- controls economys money supply and oversees banks -international monitary foundation- provides advice and loans to countries experiencing economic difficulties -world ban- provides advice and loans to promote econ development -private buisness financial investment firms, buy and sell assets in financial markets and provides analysisof shit

using models positive vs normative economics

economic adviser of state three questions 1. how much revenue will the state turnpike yield next year? 2. how much would revenue increase if the toll were raised from 1 to 1.50 3. should the toll be raised, it could reduce traffic and air pollution near the road but would impose hardship on commuters

The process observed when an economy's production possibility frontier shifts outward is: comparative advantage. specialization. economic growth. full employment.

economic growth.

5. If an economy is producing at a point on its production possibilities frontier, it is: efficient in allocation but not necessarily in production. efficient in production and allocation. efficient in production but not necessarily in allocation. not necessarily efficient in production or allocation.

efficient in production but not necessarily in allocation

When calculating the production possibility

find the slope using the equilibrium and highest number the do reciprocal for the other number 1 large plane= 3/4ths of a small plane

Economic Analysis

focuses on what is the best decision for a company's profits. no judgement almost all economists agree that subsidies are the more efficient policy

Figure: Production Possibility Frontier) Use Figure: Production Possibilities Frontier. A movement from point C producing 12 cars and 16 computers per period to point B means a _____of _____ cars and a _____ of _____ computers per period.

gain; 4; loss; 4

An economy is said to have a comparative advantage if it:

has the lowest cost of producing a particular good, compared with other economies.

4. An economy is said to have a comparative advantage in the production of one good if it: has the lowest opportunity cost of producing a particular good. can produce more of all goods than another economy. has the highest opportunity cost of producing a particular good. can produce fewer of all goods than another economy.

has the lowest opportunity cost of producing a particular good.

production possibility fronteir

helps economics think about tradeoffs every economy faces

circular flow diagram

helps understand how flows of money, goods and services are channeled through the economy

In the markets for goods and services

households buy the goods and services they want from firms, produces a flow of goods and services to households and a return flow of money to the firms (left side)

increasing oppertunity cost

increasing opportunity cost represents the more small jets it produces, the more costly it is to produce yet another small jet in terms of forgone production of a dreamliner its useful to work with the assumption that the production possibility fronteir is a straignt line, but economists belive that in reality the oppertunity costs are typically increasing as more of a good is produced, its opertunity cost typically rises because well suited inputs are used up and less adaptable inputs must be used

13. The effect of a natural disaster can be shown by a(n) _____ the production possibility frontier.

inward shift of

In movement along a production possibility frontier, the opportunity cost to society of getting more of one good: usually decreases. is measured by the amount of the other good that must be given up. is measured in dollar terms. is always constant.

is measured by the amount of the other good that must be given up

Main factors of production

land, labor, physical capital, human capital

tax models

large mathematical computer programs in order to predict the results

comparative advantage

model that clarifies the princpal of gains from trade- trade between individuals and countries

Economists usually assume that production is subject to increasing opportunity costs because: if production is efficient, it is not possible to increase the production of all goods simultaneously. individuals desire constantly increasing opportunities to make themselves better off. not all resources are equally suited to producing every good. higher production usually results in more inflation.

not all resources are equally suited to producing every good

5. As long as people have different _____, everyone has a comparative advantage in something. opportunity costs benefits direct costs utility

opportunity costs

3. The effect of an increase in productive inputs such as labor and capital can be shown by a(n): point inside of the production possibility frontier. outward shift of the production possibility frontier. movement from one point to another along the production possibility frontier. inward shift of the production possibility frontier.

outward shift of the production possibility frontier.

gains from trade

people can get more of what they want through trade than they could if they tried to be self-sufficient. Us production possibility frontier is -3/4 =slope, meaning that the opportunity cost of one small jet is 3/4th of a large jet. Brazil production possibility frontier has a constant slope of -1/3. it is better at producing small jets than large jets. the opportunity cost of producing one small jet is only 1/3 of a large jet if the united states and Brazil have different opportunity costs than they should take advantage of that. therefore if the us made 30 large jets and gave 10 to Brazil and Brazil made 30 small jets and gave 20 to us that there is a gain from trade opportunity cost of large jets with us compared to Brazil 4/3 < 3 small jets is higher opportunity cost in us 1/3 < 3/4

three different types of simple but important economic models

production possibility frontier comparative advantage circular-flow diagram

14. The concept of comparative advantage is based on: relative opportunity costs. relative labor costs. dollar prices of labor. absolute labor productivity.

relative opportunity costs.

10. The article entitled "Strong Economy Drove Wages Higher in August as Hiring Heats Up" best reflects that over the recent past (quarters) the United States' overall labor force participation rate has increased rapidly the United States' unemployment rate has increased as the wage increases have reduced the demand for labor the United States' production possibility curve (and its productive capacity) has expanded or increased the the United States is now more efficiently using its resources and has moved from producing within its production possbility frontier (and less than its productive capacity) to on the production possibility frontier or curve

the United States' production possibility curve (and its productive capacity) has expanded or increased

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer despite the number of resources that it takes to make a jet, the comparison of opportunity costs is most important.

other things equal assumption

the assumption that factors other than those being considered do not change.

positive economics

the branch of economic analysis that describes the way the economy actually works description

8. (Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. Suppose the economy is operating at point G. This implies that:

the economy has unemployment and/or inefficiently allocates resources.

opportunity cost

the most desirable alternative given up as the result of a decision if Boeing decides to change production from point a to point bit will produce 8 more jets but 6 fewer dream liners, meaning that each small jet has the opportunity cost of 6/8ths or 3/4ths of a Dreamliner the slope of a straight-lined production possibility frontier is equal to the opportunity cost whenever we assume that the opportunity cost of an additional unit of a good doesn't change regardless of the output mix, the production possibility frontier is a straight line

understanding why trade deals differ

the us oppertunity cost of a small jet is 3/4th of a large jet, so the us won't agree to a deal that would require them to give up more than 3/4ths of a large jet for a small jet. ex) trading 10 large jets in return for 12 small jets would require that the us pays 5/6ths of a large jet for a small jet, this aint fair

Bangladesh

united states has an advantage in everything except for clothing production us and Bangladesh are able to consume more because they specialize in producing different things

. Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study, rather than tutor. Marla's choice indicates that she: doesn't need the money. values an hour of studying less than the $10 she would earn tutoring. values an additional hour of studying more than the $10 she would earn tutoring. does not understand that there is no benefit from studying.

values an additional hour of studying more than the $10 she would earn tutoring.