Microeconomics Chapter 9 and 11 Q's

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer ex: Mr. Weinandy has the advantage over LeBron with cutting grass

Absolute Advantage

the ability to produce more of a given product using a given amount of resources

The tendency for a resource that has no price to be used until its marginal benefit falls to zero is referred to as:

the tragedy of the commons

Protectionism (isolationism)

the view that free trade is injurious and should be restricted

Inefficiency of Protectionism

trade barriers are inefficent and reduce the size of the economic pie

If Atlantis has an open economy then it...

trades with other countries

If Utopia has a closed economy, the number of cases of tile consumed each is _____ per year, and if it has an open economy the number of cases of tile consumed is _____ per year.

300;450

After the imposition of the quota, the quantity demanded of TVs is _____ thousand.

80

In an open economy, the quantity demanded of TVs in the domestic market will be ________.

90,000 (In an open economy, the domestic price becomes the world price, which in this case is $125 per TV. At that price, the quantity of TVs demanded domestically is 90 thousand.)

If Al has an absolute advantage over Beth in preparing meals, then:

Al can prepare more meals in a given time period than Beth

external benefit (positive externality)

a benefit of an activity received by people other than those who pursue the activity

external cost (negative externality)

a cost of an activity that falls on people other than those who pursue the activity ex: pollution- of environment, with light, or with noise

The United States generally has a comparative advantage in the development of technology because it has:

a disproportionate share of the world's best research universities.

The existence of a negative externality will result in

a greater than optimal level of production

Tariff

a tax imposed on an imported good

If a nation can produce a more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers.

absolute

Closed Economy

an economy that does not trade with the rest of the world

Open Economy

an economy that trades with other countries

Suppose the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. This regulation will increase the cost of producing diesel fuel. If the supply of diesel fuel has a positive slope and demand has a negative slope, then the quantity of diesel fuel sold after imposition of the regulation will:

decrease

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The town council has proposed putting a meter on each household's pump, and charging residents for each gallon of water used. This would:

discourage residents from using too much water

If Fredonia has a closed economy, it _____ with other countries.

does not trade

Opening this economy to trade would benefit ______ and harm _____.

domestic TV consumers; domestic TV producers

Opening this economy to trade would benefit ______ and harm _____.

domestic car consumers; domestic car producers

Australia is a net exporter of wool, free trade will benefit the ________.

domestic producers

Free trade is ______, because it ______ the size of the pie available to the economy.

efficient; decreases

Japan exports cars to the other countries of the world. In an open economy Japan is most likely to have a domestic price that is _____ the world price of cars.

equal to

The United States imports garments from third world countries. This means that if the U.S. economy were closed, the domestic price of goods would be _____ the world price of garments.

greater than

The United States imports shoes from third world countries. This means that if the U.S. economy were closed, the domestic price of goods would be _____ the world price of shoes.

greater than

Protectionism is the view that free trade is ______ and should be _______.

harmful;restricted

LeBron James won't mow his own lawn because...

he could just pay someone else, gets paid with basketball more so than just cutting his grass +Do It Yourself only when... opportunity cost is less than hired cost

Taiwan exports tools to the United States. Consumers in Taiwan will probably pay a(n) _____ price for tools with free trade than they would with a closed economy.

higher

Imports/Exports

if the world price is below the domestic supply= imports if above world price= exports

The demand for microwaves in a certain country is given by: D = 8,000-30P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10P. If this economy opens to trade while the world price of a microwave is $50, and the government imposes a tariff of $30 per microwave, then this country will ______ microwaves.

import 800

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will:

increase total economic surplus

The benefits of specialization can be used to explain why:

individuals and nations benefit from trade

When external benefits exist...

maximizing private profits produces less than the social optimum

The essential cause of the tragedy of the commons is the fact that:

one person's use of a commonly held resource imposes an external cost on others.

If this is a closed economy, how many bushels of corn will be produced?

600 million bushels

What is the price of a TV in an open economy with a quota?

$125 (In an open economy with a quota, the price equates the quantity supplied with the quota with domestic demand, which in this case occurs at a price of $125 per TV.) domestic demand line

What is the domestic price of a TV in a closed economy?

$137.50 (In a closed economy, the equilibrium price equates the domestic supply and domestic demand, which in this case occurs at a price of $137.50)

The amount of revenue the government collects after imposing the tariff is ________.

$40,000

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10% interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. If the villagers purchase the socially optimal number of goats and bonds, then total village income will be ______.

$70

What is the price of a TV in an open economy without a quota?

$75 (where world price and domestic demand meet)

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick BurgerOperates aDrive-ThroughWindow Quick BurgerDoes Not OperateDrive-ThroughWindow Quick Burger$24,000$15,000The Sunshine Café$11,000$23,000 If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would have to pay Quick Burger at least ______ per month to NOT operate a drive-through window.

$9,000; Quick Burger's payoff would fall by $9,000 per month (from $24,000 to $15,000) if it did not operate a drive-through window.

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Paula to produce one shirt?

1/4 computer

If this is an open economy, the price of a car will be ________.

10,000/car (world price line)

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Ricardo to produce one computer?

2 shirts

In an open economy, the quantity supplied of TVs in the domestic market will be ________.

30,000

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Paula to produce one computer?

4 shirts

Amy can produce either 5000 pounds of cheese or 20 cars per year. Mike can produce either 5000 pounds of cheese or 10 cars per year. Mike's opportunity cost of producing one car is ______ pound(s) of cheese.

500; In the time it takes Mike to produce 1 car, he can produce 5000/10 = 500 pounds of cheese.

If this is an open economy, quantity of cars demanded domestically will be ________.

60,000

In an open economy, how many bikes will this country export?

60,000; At the world price of $140 per bike, the quantity of bikes supplied domestically is 80 thousand, and the quantity of bikes demanded domestically is 20 thousand, implying that the country will export 60 thousand bikes.

Which of the following statements is true?

Comparative advantage does not require absolute advantage.

Suppose that your neighbor smokes in his yard. You can smell his cigarette smoke from inside your house, and you dislike the smell. Which of the following statements is correct?

If it is difficult for you and your neighbor to negotiate with each other, then you may not be able to arrive at an efficient solution to this problem.

You have noticed that your next-door neighbor, Mary, always works in the garden, and her husband, Joe, always walks the dog. You conclude that if Joe and Mary are efficient, then it must be the case that:

Joe has a comparative advantage in walking the dog

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below. Suppose Smith and Jones begin by producing 100 calculators per hour; as Smith and Jones choose to efficiently produce fewer computers and more calculators, ______ should devote more time to calculators because his ______.

Jones; opportunity costs are lower

Refer to the table above. ______ has the comparative advantage in making pies and ______ the comparative advantage in making cakes. Time to Make a PieTime to Make a CakeMartha60 minutes80 minutesJulia50 minutes60 minutes

Martha;Julia

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Is it socially optimal for Quick Burger to operate a drive-through window?

No, because total payoffs are higher when Quick Burger does not operate a drive-through window

Suppose it takes Paul 3 hours to bake a cake and 2 hours to move the lawn, and suppose it takes Tom 2 hours to bake a cake and 1 hour to mow the lawn. Which of the following statements is correct?

Paul has the comparative in baking cakes

Which of the following investments is part of a positional arms race?

Studying hard for your economics exam because your professor grades on a curve

Quota

a legal limit on the quantity of a good that may be imported

A cost of an activity that falls on people not engaged in the activity is call a(n):

a negative externality

Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates:

a negative externality

If the price of a good or service in a closed economy is lower than the world price...

and that economy opens itself for trade, the economy will tend to become a net exporter of that good or service

If the price of a good or service in a closed economy is greater than the world price...

and that economy opens itself to trade, the economy will tend to become a net importer of that good or service

Shel and Fran are neighbors. They work at the same firm and hold the same title. Shel finds that when Fran's consumption rises, Shel feels worse off. Fran feels the same way about Shel's consumption. Suppose the firm that employs both Fran and Shel begins to offer one hour of overtime at 1.5 times their base hourly wage. It is likely that:

both Fran and Shel will work more

If there is demand for a good or service...

but no market for it, then there will inevitably be shortages

Which of the following is an example of a positional arms control agreement?

campaign spending limits

Amy can produce either 5000 pounds of cheese or 20 cars per year. Mike can produce either 5000 pounds of cheese or 10 cars per year. By the principle of comparative advantage, Mike should specialize in producing?

cheese

If a country is a net importer of a good, the price of that good will ____ when the economy goes from closed to open for trade.

decrease

If the domestic quantity supplied of a good is greater than the domestic quantity demanded, the country is likely to be a(n)

exporter of the good

Protections or subsidies on positive externalities

free speech- the 1st amendment recognizes the value of open communications planting trees- government subsidizes trees on private property basic research- millions of dollars spent by federal government yearly

Coase Theorem

if people can negotiate the right to perform activities that cause externalities, they can always arrive at efficient solutions to problems caused by externalities

Suppose that, a country with a closed economy opens itself to international trade and becomes a net exporter. In that case, the price of that good will ____ when the economy goes from closed to open for trade.

increase

If the consumption of good generates an external benefit, then the market equilibrium quantity will be:

less than the socially optimal quantity

Refer to the table below. According to the table, Corey has the absolute advantage in:

making pizza

When external costs exist...

maximizing private profits produces more than the social optimum

Refer to the table below. According to the table, Martha has the absolute advantage in:

neither pies nor cakes

If the price of a good in a closed economy is greater than the world price, then if the country opens its markets to world trade the country will be a ______ of that good.

net importer

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. To maximize total output, Paula should specialize in producing _____ while Ricardo should specialize in producing _______.

shirts;computers

Tragedy of the Commons

situation in which people acting individually and in their own interest use up commonly available but limited resources, creating disaster for the entire community

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ______ reduction in driving if demand is ______.

small; relatively inelastic

The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.

Which one of the following government actions is intended to generate positive externalities?

subsidies for planting trees on hillsides

If the government wants to increase economic efficiency, it should:

subsidize goods that entail positive externalities. never change.

If an activity generates a positive externality, the government can increase total economic surplus by ______ the activity, and if an activity generates a negative externality, the government can increase total economic surplus by ______ the activity.

subsidizing;taxing

Earth Movers & Shakers operates 3 iron ore mines. The table below shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. Suppose Earth Movers & Shakers needs to fill an order for 100 tons of ore in a single day. If it has no other orders to fill that day, and it's not possible to transfer miners from one mine to another, it should:

take 75 tons from Middle Drift and 25 tons from Mother Lode

If the production of a good generates a positive externality, then:

the market equilibrium quantity will not be socially optimal

externality

the name given to an external cost or external benefit of an activity

The town of Pleasantville has two local TV stations. If one of them invests in the newest weather forecasting technology, one can predict that:

the other station will upgrade its weather forecasting technology.

The following payoff matrix shows the outcomes for the Unites States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die. This situation above illustrates a positional externality because:

using atomic weapons improves each country's outcome but hurts the other country.

Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. In deciding what kind of car to buy, individuals:

will have a strong incentive buy large cars because large cars are safer than small cars.

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If all ten people can negotiate with each other at no cost, then the Coase theorem predicts that if the cigar smoker has the right to determine whether smoking is allowed, then there ______ be smoking, and if the other nine people in the room have the right to determine whether smoking is allowed, then there ______ be smoking.

will;will

economic efficiency

wise use of available resources so that costs do not exceed benefits

The price at which a good or service is traded on international markets is called the ________ price.

world

If you have a comparative advantage in a particular task, then:

you give up less to accomplish that task than do others