Macroeconomics

In the no trade example, Mexico devotes half of its labor to computer production and half of its labor to shirt production. Mexico produces:

1 computer and 6 shirts.

In the no trade example, total world production of computers is _______, of which _______ are produced in the United States.

13; 12

A farmer produces both beans and corn on her farm. If she must give up 1616 bushels of corn to be able to get 66 bushels of beans, then her opportunity cost of 11 bushel of beans is

2.67 bushels of corn.

What were the terms of trade between Mexico and the United States in the video?

3 shirts for 1 computer

The survival rate among British prisoners being shipped to Australia rose to ________ as a result of changing the incentives of the ships' captains.

99 percent

Which of the examples provides the best evidence that inflation has occurred?

A person whose salary has increased is able to purchase fewer goods and services.

Which of the following is NOT mentioned in the video as something to be gained from studying economics?

A rewarding career as an economist or statistician

The second benefit of trade given in Chapter 2 is that "trade increases productivity through specialization..." How does the story of Professor Boudreaux and Dr. Bostwick demonstrate this?

Dr. Bostwick has been able to dedicate a lot of time in his life to studying pediatric gastroenterology because he did not also have to dedicate time to raising livestock, harvesting produce, or building shelters.

Which of the following is most likely true regarding Dr. Bostwick's efforts to save Professor Boudreaux's son's life?

Dr. Bostwick relied on the highly specialized knowledge of other specialists (such as pharmacists, pediatric nurses, and others) whose specialties he knows little about.

The first benefit of trade given in Chapter 2 is that "trade makes people better off when preferences differ." How does the story of Professor Boudreaux and Dr. Bostwick demonstrate this?

Dr. Bostwick was able to provide medical services that did not satisfy his own wants, so he exchanged those services for money that he used to buy things that did. Professor Boudreaux had money but desperately wanted medical services, so he exchanged the money for the medical services.

What role does absolute advantage play in analyzing trade?

It helps to explain countries' wealth.

Which of the following correctly describes the appearance of a demand curve?

It is a line or curve that slopes down and to the right.

The third benefit of trade given in Chapter 2 is that "trade increases productivity through comparative advantage." How does the story of Professor Boudreaux and Dr. Bostwick demonstrate this?

It was more efficient for Professor Boudreaux to continue to work and earn money as an economics professor and to trade for Dr. Bostwick's services than it would have been for him to quit economics and become a pediatric gastroenterologist because economics plays more to his strengths than does medicine.

After trade, Mexico consumes 1 computer and 9 shirts. How many units of labor would it have taken Mexico to produce this outcome on its own, without trade?

It would take 30 units of labor, which is more labor than Mexico has.

What happens when a company like eBay achieves a better matching of buyers and sellers?

Lower-valued goods are transformed into higher-valued goods.

What does it mean for Martha Stewart to have a comparative advantage in running Martha Stewart Living Omnimedia (MSO)?

Martha Stewart can run MSO at a lower opportunity cost than anyone else.

Martha Stewart has an absolute advantage in ironing shirts. What does this mean?

Martha Stewart is better at ironing shirts than anyone else.

Which of the following statements about medical specialization is correct?

Medical specialization increases medical knowledge, which increases medical productivity, which increases medical output.

Suppose that after specializing and trading, Bob ends up with 5 bananas and 10 fish, while Ann ends up with 5 bananas and 20 fish. Which statement below is true and demonstrates the power of comparative advantage?

Neither Bob nor Ann could have produced the amount of bananas and fish that they end up with in this example.

Juan Valdez, a coffee farmer in Colombia, sells his coffee to Cafe Emporium, a U.S. firm which specializes in gourmet coffee blends. What must be true of this arrangement? What can be inferred from the fact that Juan has voluntarily entered into a contract with Cafe Emporium?

None of these statements must be true. Juan is better off as a result of his deal with Cafe Emporium.

Suppose that after specializing and trading, Bob ends up with 5 bananas and 10 fish while Ann ends up with 5 bananas and 20 fish. Which of the following is true about the terms of trade?

One banana must have traded for two fish.

Suppose that Paulie and Vince each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vince each can produce in one hour, respectively, if they devote all of their time and effort to making the good. Paulie can make 5 cups of ice cream for every 20 shirts, and Vince can make 10 cups of ice cream for every 15 shirts. What is Paulie's opportunity cost of producing one cup of ice cream (round to two decimal places)? What is Vince's opportunity cost of producing one t-shirt (round to two decimal places)?

Paulie: 4.00 shirts Vince: 0.67 cups of ice cream

Which of the following does NOT provide an example of how highly specialized medicine increases society's productivity in caring for the sick? As an example, consider the existence of very specialized medical fields such as pediatric gastroenterology.

Physicians whose preferences lead them to specialized medical fields are more satisfied with their work than physicians whose preferences lead them into general practice.

Do not encourage investments in physical and human capital

Political instability, corrupt government, and trade restrictions

By the time Tasmania was "discovered" in 1642, it had become the simplest material culture in the modern world. This is because:

Tasmania's isolation had left it unable to trade with the rest of the world.

If Mexico had demanded that the United States trade 1 computer to Mexico in exchange for 1 shirt, which of the following would be true?

The United States would not benefit from this trade.

How did Adam Smith explain the observation that civilization often begins near rivers or sea coasts?

The ease of trade over water opened up bigger markets, allowing for more specialization.

In economics, what is meant by "optimal decisions are made at the margin?"

The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.

Absolute advantage can be determined by comparing different producers'

input requirements per unit of output.

Professor Cowen's point that trade makes people better off when preferences differ is:

intuitive but fundamental.

Without the division of knowledge allowed by specialization, the total amount of knowledge in society:

is not much greater than the total amount of knowledge in any one brain.

The increase in the total amount of bananas and fish that Ann and Bob enjoy as a result of specialization according to comparative advantage ______ the same as the increase that results from the division of labor because _____.

is not; neither Ann nor Bob has to improve their productivity in order to get the increase

After partially specializing according to comparative advantage, the United States produces 14 computers and 10 shirts because:

it has moved 2 units of labor from shirt production to computer production.

Mobs on Black Friday are primarily caused by:

lower prices.

If Mexico specializes according to its comparative advantage, it will produce:

no computers and 12 shirts.

In order to understand how specialization and trade according to comparative advantage can lead to more total output, one needs to understand the concept of:

opportunity cost.

On the graph of a demand curve, ________ is shown on the vertical axis, and ________ is shown on the horizontal axis.

price; quantity demanded

Trade based on comparative advantage allows us to produce and consume more, even if no one ever gets better at producing, simply by:

rearranging who produces what.

Conditions on board ships carrying prisoners from England to Australia in the 18th century improved only after:

sea captains were given an incentive to improve conditions.

Suppose that Ann was able to catch only 20 fish in the time it would otherwise take her to gather 10 bananas, and that Bob's abilities were the same as in the video. If Ann specialized in catching fish and then traded 7 fish to Bob in exchange for 5 bananas, this would benefit Ann because:

she gives up less than 2 fish per banana.

In the Mexico/U.S. example from the video, the opportunity cost of producing computers is measured in:

shirts.

Select the correct definition of the term "comparative advantage."

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

From the Ch. 1 Mini Lecture: Suppose you have ordered a value meal at a local fast-food restaurant. The cashier asks if you would like to "super-size" your meal. In order to make an efficient decision, you should compare _____.

the additional cost of the larger meal versus the additional benefits received.

The British ship captains responded to the new payment system because:

they responded to incentives.

What is the great economic problem?

to satisfy as many wants as possible with our limited resources

The buying and selling of goods on eBay provides a great example of the Professor Cowen's point that:

trade makes people better off when preferences differ.

In which economy is there more total medical knowledge--one in which all physicians are general practitioners or one in which physicians specialize, and why?

The one in which physicians specialize, because the physician's brains are not all filled with the same medical knowledge, so the total amount of medical knowledge can exceed the medical knowledge contained in just one physician's brain.

How is economics defined in the video?

The study of human action

Below is a table of mortality rates, expressed as the number of children per thousand live births that die yearly, for children in various countries, along with the country's GDP per capita, an economic measure of the relative standard of living in 2005. Based on this information, what conclusion can be made?

The wealthiest countries have the lowest mortality rates.

The day-to-day living conditions of modern Americans are very different from what they were in the 20th century. While doing research for an economics project, Charlie discovers that more households today, as compared to households 100 years ago, have electricity, air conditioning, and a car. Which of the following explains why modern Americans enjoy a higher standard of living than Americans 100 years ago? In which field do researchers focus on investigating the phenomena described?

There has been economic growth in our society. Economics

Which is an issue that makes central banking difficult for the Federal Reserve Bank (the Fed)?

There is a lag between when policies are enacted and when the effects of those policies can be seen.

If Professor Cowen had to grow his own food and tailor his own clothes, which of the following would NOT occur?

There would be more knowledge of farming and sewing in the world.

Trade based on absolute advantage:

would not occur in a case where one party can outproduce the other in all goods.

How can we get the most value out of the goods that we already have?

Through trade

After Mexico and the United States specialize according to comparative advantage, what happens to total world production of computers and shirts?

Total world production of both computers and shirts increases.

Which of the following is NOT mentioned by Professor Cowen as one of the benefits of trade?

Trade universally improves the quality of life.

Which of the following is true about trade?

Trade will increase aggregate wealth while possibly making some individuals worse off.

At the time of the Great Depression, fiscal and monetary policy were not well understood

True

Booms and busts are natural responses to everchanging economic conditions

True

Countries specialize in the production of goods for which they have a comparative advantage

True

Had the US government used fiscal and monetary policy more effectively, many economists believe that the Great Depression would not have been as severe

True

It can mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another

True

What does the theory of comparative advantage help to explain?

Why people trade and which goods they should trade

Can learning economics help you better manage your money and invest in the stock market?

Yes, but there is much more to economics than that.

Another way to describe a "high value" use of oil is as:

a use of oil for which oil has few substitutes.

The solution to the problem of the British prisoner ships discussed in the video worked in large part because it:

aligned the best interest of the sea captains with the best interest of society.

The problem of the shockingly high death rate among British prisoners en route to Australia was solved by:

an economist.

What is inflation?

an increase in the overall price level

Trade is able to turn:

diversity into strength.

After specialization and production, but before trade, Mexico has _______ than it did with no specialization, and the United States has _______ than it did with no specialization.

fewer computers; fewer shirts

Recall that, depending on how Ann spends her time, she can either catch 30 fish or gather 10 bananas. This means that if she chooses to catch one fish, she must:

give up one third of a banana.

In terms of productive ability, the ______, the greater the benefit from trading with one another.

greater the difference between two individuals

Every different good in the world:

has its own unique demand curve.

A demand curve shows:

how much of a good people will want at different prices.

_____ advantage answers the question "Which country can produce more?" and is found by comparing across _____.

Absolute; countries

Recallk from the Ch. 1 Mini Lecture: Which economist referred to economics as "a study of mankind in the ordinary business of life?"

Alfred Marshall

Which demonstrates a scenario with no opportunity cost?

All of these scenarios have an opportunity cost.

In the Mexico/U.S. example from the video, why was it better to have shirts produced in Mexico?

Because producing a shirt in Mexico requires giving up fewer computers than in the U.S.

Why does Professor Boudreaux think that it is better to have a common disease than to have a rare disease?

Because the market for the treatment of common diseases is larger

A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good

False

Absolute advantage is the source of the potential gains from specialization and trade

False

The process of specialization and trade has positive net benefits and is, therefore beneficial to everyone.

False

With careful enough planning, fiscal and monetary policy can prevent recession

False

Which scenario would least likely change an individual's behavior?

In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread.

Which of the following explains why local restaurants provide better customer service than cable companies?

Incentives

As an academic economist, Professor Boudreaux is certainly familiar with performing research. Why didn't he simply perform the research on pediatric gastroenterology necessary to acquire the same level of knowledge as Dr. Bostwick and diagnose his son on his own?

Professor Boudreaux gave up less by continuing to work as an economist and hiring Dr. Bostwick than he would have had to give up to stop working and learn pediatric gastroenterology, and at best the result would have been the same.

Encourage investments in physical and human capital

Property rights, dependable legal system, and competitive markets

In 2008, Betserai was a 10-year-old quintrillionaire living in Bulawayo, Zimbabwe. He was literally rolling in money. In fact, Betserai has so much money that he decided to make kites out of billion dollar bills instead of putting the money into the bank to earn interest. None of Betserai's friends bothered to save their money, either. Rupert was Betserai's American pen pal and heard of Betserai's story and was extremely confused. He was taught that Zimbabwe was one of the poorer countries in the world, or at the least substantially poorer than the United States. Which statement best explains this phenomenon?

Rapid rises in price levels made the Zimbabwean dollar near worthless in terms of purchasing power.

Why doesn't Martha Stewart do all of her own ironing?

She has a comparative advantage in running her business.

_______ leads to increases in _______, which in turn leads to increases in _______.

Specialization; knowledge; productivity

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny each can produce in 11 hour, respectively, if they devote all of their time and effort into making the good. Round all answers to two decimal places. Paulie can produce 5 cups of ice cream for every 19 shirts, and Vinny can produce 6 cups of ice cream for every 12 shirts. a. What is Paulie's opportunity cost of producing a cup of ice cream? b. What is Vinny's opportunity cost of producing a t-shirt? c. Paulie has a comparative advantage in _____ and Vinny has a comparative advantage in ______ .

a. Paulie's opportunity cost is 3.80 shirts b. Vinny's opportunity cost is 0.50 cups of ice cream c. shirts; ice cream

Which term best describes the situation that, relative to England, France can produce beef at a lower cost of production (i.e., can produce beef using fewer inputs)?

absolute advantage

When individuals specialize and trade based on comparative advantage, an improvement in the ability of one individual to produce will benefit:

both individuals.

The demand curve demonstrates that, keeping all other factors constant, people respond to a lower price of a good by :

buying more of a given product.

Daniel is a baker who has decided to create his own brand of chain restaurants, Short and Sweet. He negotiates with three suppliers for weeks and ultimately signs contracts with these suppliers. Francis, who owns a new sugar plantation, agrees to sell Daniel freshly refined sugar on the condition that Daniel helps him advertise his brand of sugar. Diana runs an orchard and provides Daniel with fruit. She enters into the partnership knowing that she can dramatically increase her profits if she can sell fruit to Daniel. Lastly, Ryan, who owns a mill, decides to purchase a new piece of machinery so that he can sell Daniel flour at a lower price than his competitor. The end result of Daniel's interactions with his suppliers is that folks in his neighborhood have a chance to buy delicious baked goods at reasonable prices. Daniel's situation with his suppliers is an example of

the invisible hand.

Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?

the laws, social norms, and conventions of a culture

The theory of comparative advantage says you should specialize in producing what you can produce at:

the lowest opportunity cost.

Professor Boudreaux's son is alive today in part because of each of the following EXCEPT:

the material his father learned in his college biology class.

When British sea captains were paid for _______ instead of being paid for _______, the survival rate of prisoners improved dramatically.

the number of prisoners who arrived alive; the number of prisoners who embarked for Australia

Because physicians often specialize in one part or system of the body:

the total combined knowledge of physicians is greater than it would be without specialization.