Macro- Chapter 6
Do internal markets work the same way as regular markets do?
Yes, both of them efficiently allocate scarce resources to the best uses.
A price can help people make better decisions because it:
aggregates information
We have more stuff when we use _____ to reallocate tasks to their lowest-cost producer.
comparative advantage
Synthetic diamond makers find that it is expensive to produce more diamonds. This means that the marginal _____ of producing more diamond is _____.
cost; high
Suppose that puzzles become more popular. The resulting _____ will lead the price of puzzles to rise.
increase in demand
Potential buyers and potential suppliers communicate through:
price
_____ is effectively a bet on the future price of a commodity such as wheat or natural gas.
the price of future contracts
The beauty of markets is that they allow us to trade tasks. When people follow their comparative advantage, it creates _____.
gains from trade
Reallocation generates _____ because we reallocate tasks to the _____ producer.
gains from trade; lowest cost
What is a lesson learned for the management of individual companies from the Korean peninsula?
They should harness the power of market forces.
South American chicken farmers no longer feed their livestock quinoa, and substitute quinoa with cheaper grains instead. These farmers conserve quinoa because the high price is an incentive for:
buyers to decrease the quantity demanded.
A rising price is an incentive for producers to _____.
increase the quantity they supply
The history of the Korean peninsula suggests that it is far better to use _____ to _____, as in South Korea, than to follow the economic model of North Korea.
market forces; allocate scarce resources
Prediction markets are different from other markets in that:
prices are based on the future
A manager of an advertising company just receives a new project to create a website and produce a video presentation. She must assign these tasks to her team. Alexis can write the content in 4 hours and edit a video presentation in 3 hours. Hoshi can do the content writing in 3 hours and the video editing in 2 hours. What are the opportunity costs for Alexis and Hoshi to write content?
Alexis: 4/3; Hoshi: 3/2
Quinoa has been popular in the Western market, but quinoa originates from the plains of the Andes mountains in Peru and Bolivia. How do buyers in the West communicate their want for quinoa to the Andean farmers?
They communicate through price.
Ofira and Firuze want to find out who has a comparative advantage in cooking a meal. Ofira spends 2 hours cooking a meal and 1 hour cleaning the kitchen. Firuze spends 2 hours cooking a meal and 2 hours cleaning the kitchen. Who has a comparative advantage in cooking a meal, and what is the opportunity cost?
Firuze; one round of cleaning
As a manager, you assign one task to each member of your team based on each member's comparative advantage. Logan, one of your teammates, argues that he is best at everything and wants to do multitasking. How would you explain to Logan the benefits of reallocating tasks?
If he focuses on the task for which he has a comparative advantage, the whole group will produce more.
Which role do both regular markets and internal markets have in common?
They efficiently allocate scarce resources to the best uses.
Many buyers use futures contracts to agree to purchase a commodity at a specific time in the future. What is one benefit of looking at the prices of such futures contracts to businesses that produce these commodities?
Businesses can obtain useful information about possible future disruptions to input costs.
As two housemates divide chores between them, they have to decide who should sweep the floor and who should mow the lawn. In this case, the opportunity cost of sweeping the floor is the _____.
amount of lawn that could have otherwise been mowed
Many Peruvian and Bolivian families eat less quinoa, and they have switched to alternative grains like wheat, which are now relatively more affordable. These families in Peru and Bolivia conserve quinoa because the _____ is an incentive to _____ the demand for quinoa.
high price; reduce
_____ are markets within a company that allows different divisions to buy and sell its scarce resources.
internal markets
The lesson from the Korean peninsula seems to be that if you're going to choose the economic system of a country, operating like South Korea under a(n)_____ will yield higher annual incomes and gains from trade than operating like North Korea under a(n) _____.
market economy; centrally planned economy
Both North Korea and South Korea were equally poor in the immediate aftermath of the Korean War. Nowadays, the average annual income in market-oriented South Korea is greater than that in the centrally planned North Korea because _____ lead to _____, which make people better off.
market forces; gains from trade
When Ford set up a prediction market and allowed its employees to bet on the outcome, their forecasts were _____ accurate.
more
An increase in the demand for tomatoes raises the price and sends a signal to tomato farmers to:
produce more tomatos
The opportunity cost principle reminds you that the true cost of something is:
what you must give up to get it
