Micro chapter 8

It takes Juan 1 hour to wash a car and 2 hours to wax it. Maria, on the other hand, takes 1 hour to wash a car and half an hour to wax it. If they divide the work, _______ would specialize in washing since his/her opportunity cost is _________ for that activity. a. Maria; lowest b. Juan; highest c. Juan; lowest d. Maria; highest

Juan; lowest

Lakisha and Zara are partners in a small suburban law office. They want to determine who should deal with employment contracts. Lakisha can write a will in 3 hours, or an employment contract in 4 hours. Zara is slower, and it takes her 4 hours to write a will, and 8 hours to write an employment contract. Who has a comparative advantage in writing an employment contract, and what is their opportunity cost? a. Lakisha; 4/3 b. Lakisha; 3/4 c. Zara; 1/2 d. Zara; 2

Lakisha 3/4; Zara 1/2

Decision makers need to acquire essential information to make a sensible decision. When the information is not available for them, this creates: a. prediction markets b. internal markets c. gains from trade d. a knowledge problem

a knowledge problem

As prices _____, they provide useful business intelligence. a. aggregate information b. create incentives c. are constant d. vary randomly

aggregate information

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 _____. a. amount of lawn that could have otherwise been mowed b. number of hours spent mowing the lawn c. number of hours spent sweeping the floor d. amount of the house that could have otherwise been swept

amount of lawn that could have otherwise been mowed

What is an outcome of using comparative advantage to reallocate tasks to the lowest-cost producer? a. the highest opportunity cost in producing a good b. an extraordinary degree of specialization c. a high level of absolute advantage d. a significant role of centralized managers

an extraordinary degree of specialization

Managers can harness market forces by setting up internal markets, which: a. are organized within a company to buy and sell scarce resources b. buy and sell raw materials rather than finished products c. have a geographic scope limited to one country with no international transactions d. trade only with employees rather than companies and governments

are organized within a company to buy and sell scarce resources

You have a comparative advantage if you can complete a task: a. at a higher opportunity cost than anyone else b. at a lower opportunity cost than anyone else c. using more inputs than anyone else d. using fewer inputs than anyone else

at a lower opportunity cost than anyone else

Some people argue that international trade has no benefit and causes damage to domestic markets. The critics overlook the fact that comparative advantages drive the international trade, and that international trade makes people better off because they can get stuff: a. with little marginal cost b. at the lowest opportunity cost c. at the highest opportunity cost d. with zero opportunity cost

at the lowest opportunity cost

Which of the following benefits could a company gain from using internal markets? a. greater market power and reduced costs of production b. better allocation of its resources and more accurate predictions c. increased profits and reduced competition d. access to more input markets and greater levels of competition

better allocation of its resources and more accurate predictions

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? a. it allows businesses to fully eliminate risk b. businesses can use opportunity costs to calculate their absolute advantages c. businesses can buy and sell commodities in the internal markets d. businesses can obtain useful information about possible future disruptions to input costs

businesses can obtain useful information about possible future disruptions to input costs

To get maximum output, you should allocate each task to the person who: a. has an absolute advantage in completing the task b. can do the task with the lowest opportunity cost c. can do the task with the smallest amount of input d. has a cost advantage in completing the task

can do the task with the lowest opportunity cost

You have an absolute advantage in producing a product if you: a. have the most capital to work with b. have training in producing it c. can produce the product at the lowest opportunity cost d. can produce the product using the fewest inputs

can produce the product using the fewest inputs

Specialization will increase output when it is based on: a. absolute advantage b. comparative advantage c. who can produce the fastest d. who can produce at the lease comparative cost

comparative advantage

If Bishan wants to capitalize on comparative advantage in his life, then he should: a. do more of what he is relatively food at and then trade for other things b. produce either goods or services but not both c. do more of what he has an absolute advantage in and trade for other things d. compare his preferences to those of others and trade with those who likes things he does not

do more of what he is relatively good at and then trade for other things

Similar to regular markets, internal markets help companies: a. accurately predict future outcomes b. centralize power to central planners c. efficiently allocate scarce resources to the best uses d. direct all economic activities

efficiently allocate scarce resources to the best uses

After Christmas, you and your friend talked about the gifts that you received. Your friend happens to have the stuff you love and you also have stuff he pines to have. So, both of you trade stuff and feel better off for getting something each of you prefers to have. What do we call the benefits that you get from reallocating stuff to better uses? a. comparative advantage b. cost-benefit principle c. absolute advantage d. gains from trade

gains from trade

Specialization allows us to work on specific tasks for which we hold a comparative advantage. When each product is made at the lowest opportunity cost, it: a. decreases specialization b. generates gains from trade c. decreases efficiency d. generates an absolute advantage

generates gains from trade

If you need to make a decision and all the information needed to make a good decision is not available, then you: a. are dealing with a partitioning issue b. have to make a prediction c. face an analysis hurdle d. have a knowledge problem

have a knowledge problem

When people focus on their comparative advantage and then trade for other things, they: a. increase the time they spend working and reduce the variety in their consumption b. have a lower standard of living than if they focused on their absolute advantage c. improve their standard of living or increase their leisure time d. focus their consumption on just a few things

improve their standard of living or increase their leisure time

Suppose that puzzles become more popular. The resulting _____ will lead the price of puzzles to rise a. increase in supply b. decrease in demand c. increase in demand d. decrease in supply

increase in demand

Comparative advantage-driven specialization ensures that each product is made at the: a. lowest marginal cost b. highest marginal cost c. highest opportunity cost d. lowest opportunity cost

lowest opportunity cost

Markets allow you to trade tasks because each task should be done at the: a. highest possible marginal cost b. lowest possible marginal cost c. highest possible opportunity cost d. lowest possible opportunity cost

lowest possible opportunity cost

The market economy in South Korea uses _____ to direct its economic activities a. a centrally planned government b. knowledge problems c. gains from trade d. market forces

market forces

A prediction market is a market where: a. information is missing to make a good decision b. signals lead to future actions c. payoffs are linked to whether an uncertain event occurs d. information is disaggregated

payoffs are linked to whether an uncertain event occurs

What successfully plays a central role in coordinating economic activity? a. producers b. prices c. centralized government d. buyers

prices

The main role of markets is: a. providing jobs and products b. preventing waste in choices c. facilitating consumption d. reallocating resources to better uses

reallocating resources to better uses

Internal markets, which are markets that managers set up within their organization, are: a. set up to allocate resources of a company more efficiently, often not using real money b. based on predetermined prices rather than equilibrium prices c. required to use real money to allocate real resources across firms in an industry d. allowed to sell only to customers an an approved list of buyers

set up to allocate resources of a company more efficiently, often not using real money

Because Helen is slower in performing all the household chores than her roommate Jamie, Helen asks Jamie to do all the chores. Helen says that it is more efficient to give tasks to those who are best at them. However, Helen's conclusion is dead wrong for economists because: a. she is seeking to gain from trade b. she's considering the comparative advantage c. she's focusing too much on the lowest opportunity cost d. she's not thinking about costs in the way an economist would

she's not thinking about costs in the way an economist would

"Tea is now more valuable - make more tea!" This is a clear message to: a. tea farmers b. potential buyers c. grocery chain stores d. tea connoisseurs

tea farmers

How do Chinese tea farmers learn about a rise in the popularity of tea in the West? a. they send messages about the benefits of tea b. they observe internal tea markets c. they communicate with buyers through price d. they learn that Westerners love tea products

they communicate with buyers through price

What is a lesson learned for the management of individual companies from the Korean peninsula? a. they should hardness the power of market forces b. firms should rely on the judgment of the management c. firms should let centralized managers allocate scarce resources d. they should leave the market forces alone

they should harness the power of market forces

Why would a company set up internal markets? a. to solve the knowledge problem b. to prevent the product price from falling c. to solve a problem with product design d. to gain access to resources that were previously unavailable

to solve the knowledge problem

The opportunity cost principle reminds you that the true cost of something is: a. what you must give up to get it b. the cost required to produce an additional unit c. dependent on a variety of other factors d. based on your fixed costs

what you must give up to get it

When each person in a group - a household, a business, or the economy- focuses on the task for which they have a comparative advantage, the result is that the group: a. production falls to zero b. will produce the same amount c. will produce less d. will produce more

will produce more