Macroeconomics Chapter 10 Aplia

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Facts:

1. An invisible hand leads buyers and sellers to an equillibrium that maximizes total surplus 2. Market power can cause markets to be inefficient 3. Extranalities can cause markets to be inneficient

What percent of total world trade is accounted for by countries that belong to the world trade organization?

97%

Gov. imposes price ceiling on phones.What could transform the price ceiling from one that is binding to on that is not binding?

A technological advance makes cellular phone production less expensive

Economists view the fact that florida grows oranges, texas pumps oil, and california makes wine as

Confirmation of the virtues of free trade

Filling out a survey. What would you do if price of fav. brand of toothpaste increased? Buy a different toothpaste. What if price of all toothpastes increased? Adjust spending somehwere else to be able to afford toothpaste.

Definition of a market in determining the price elasticity of demand

Supposed England exports cars to australia and imports cheese from mexico. This suggests that

England has a comparative advantage relative to Austraia in producing cars, and Mexico has a comparative advantage relative to England in producing cheese.

Haiti has absolute advantage in producing oranges but other countries have comparative advantage in producing oranges. When trading oranges,

Haiti will import oranges

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price

The country will be an exporter of the good

Elasticity is

a measure of how much buuyers and sellers respond to changes in market conditions

What cuases no hcange in producer surplus?

a nonbinding price ceiling in the market

When the gov. attempts to improve equality in an economy, the result is often

a reduction in efficiency

Person A grows flowers and makes vases, as does person B. But person A is better at poducing both goods. In this case, trade could

benefit both person A and B

Specialization and trade are closely linked to

comparative advantage

On a graph, the area below a demand curve and above the price measures

comsumer surplus

Justin builds fences for a living. His out of pocket expenses + value that he places on his own time amount to his

cost of building fences

Consumption of water that includes pesticide runoff from local farmers in an

extranality

Countries that restrict foreign trade

have more domestic market power firms

A country has a comparative advantage in a product if the world price is

higher than that country's domestic price without trade

An increase in prices causes and increase in total revenue when demand is

inelastic

The deadweight loss from a tax of $8 per unit will be smallest in a market with

inestalstic demand and inelastic supply

Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run

infant-industry argument

Total revenue

is unchanged as price increases when demand is unit elastic

The signals that guide the allocation of resources in a market economy are

prices

The income of a typical worker in a country is most closely linked to

productivity

When a tax is levied on a good, the buys and sellers of the good share the burden

regardless of how the tax is levied

Economics deals primarily with the concept of

scarcity

One result of tax, regardless of wether the tax is placed on buyers or sellers, is that the

tax reduces the welfare of both buys and sellers

Welfare economics is the study of how

the allocation of recources affects economic well-being

If a country allows trade and, for a certain good, the domestic price w/out trade is higher than the world price

the country will be an importer of the good

The bowed shape of the production possibilities frontier can be explained by the fact that

the opportunity cost of one god in terms of the other depends on how much of each good the exonomy is producing

A logical starting point from which the study of international trade begins is

the principle of comparative advantage

A supply curve can be used to measure producer surplus because it reflects

the seller's cost

Key determinant of the price elasticity of supply is

time horizon

Economists typically measure efficiency using

total surplus

Total surplus in a market is equal to

value to buyers - cost of sellers

An economy's production possibilities frontier is also its consumption possibilities frontier

when the economy is self sufficient

Maximum amount someone will pay for something

willingness to pay


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