Micro Econ CH.9
1-2. What is the difference between absolute advantage and comparative advantage? ----- advantage is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. While ----- advantage is the ability of an individual, a firm, or a country to produce more of a good or service than competitors when using the same amount of resources. 3. A country will always be an exporter of a good where it has ----- advantage in production.
1. Comparative 2. absolute 3. a comparative
1. A book on the Roman Empire makes the following observation: "Romans bought their pots from professional potters, and bought their defence from professional soldiers. From both they got a quality productlong dashmuch better than if they had had to do their soldiering and potting themselves." Source: Bryan Ward-Perkins, The Fall of Rome and the End of Civilization, Oxford: Oxford University Press, 2005, p. 49. Briefly explain what economic concept the author is illustrating in this passage. 2. How does he know that Romans got better pots and better defense by relying on this economic concept?
1. Comparative advantage, where people produce that for which they have a lower opportunity cost. 2. The Romans gave up less than if they had produced these goods themselves.
1. What is absolute advantage? 2. The table below shows the quantity of two goods that a worker can produce per day in a given country. Which of the following statements is true?
1. The ability of an individual, firm, or country to produce more of a good or service than competitors when using the same amount of resources. 2. Country A has an absolute advantage in the production of both goods and a comparative advantage in the production of food.
1. Using the numbers in the table, determine which country has a comparative advantage in producing each product. Which of the following statements is true? 2-3. ----- should produce Smartphones and ----- should produce Fitness Bracelets.
1. The opportunity cost for Canada to produce one Smartphone is 1.25 Fitness Bracelet. 2. Canada 3. Switzerland
1. A World Trade Organization publication calls comparative advantage "arguably the single most powerful insight in economics." Source: World Trade Organization, "Understanding the WTO," www.wto.org/english/thewto_e/whatis_e/tif_e/fact3_e.htm. The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors is known as ----- 2. Referring to your answer above, what makes it such a powerful insight?
1. comparative advantage 2. It explains why if individuals, firms, and countries specialize and trade they will be better off.
1. Briefly explain whether the value of U.S. exports is typically larger or smaller than the value of U.S. imports. The value of U.S. exports 2. For the U.S. economy, imports and exports represent ----- fraction of GDP compared to what they were in 1970.
1. has been smaller than the value of U.S. imports since about 1980. 2. A larger
If the United States were to stop trading goods and services with other countries, which of the following U.S. industries would be likely to see their sales decline the most?
All of the above
Which of the following factors may explain why a country like the Netherlands is more likely to import and export larger fractions of its GDP than would a larger country, such as China or the United States?
All of the above
You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor, which of the following statements is true?
All of the above
Briefly explain whether you agree or disagree with the following statement: "International trade is more important to the U.S. economy than to most other economies."
Disagree. Exports and imports are a relatively small fraction of the United States GDP.
Briefly explain whether you agree with the following statement: "Japan has always been much more heavily involved in international trade than are most other nations. In fact, today Japan exports LOADING... a larger fraction of its GDP than do Germany, the United Kingdom, or the United States."
Disagree. Japan exports about 20% of its GDP, of the above, only the U.S. exports a smaller percentage.
The United States is the leading exporting country in the world.
False
Patrick J. Buchanan, a former presidential candidate, argues in his book on the global economy LOADING... that there is a flaw in David Ricardo's theory of comparative advantage LOADING...: "Classical free trade LOADING... theory fails the test of common sense. According to Ricardo's law of comparative advantage. . . if America makes better computers and textiles than China does, but our advantage in computers is greater than our advantage in textiles, we should (1) focus on computers, (2) let China make textiles, and (3) trade U.S. computers for Chinese textiles . . . The doctrine begs a question. If Americans are more efficient than Chinese in making clothes . . . why surrender the more efficient American industry? Why shift to a reliance on a Chinese textile industry that will take years to catch up to where American factories are today?" Source: Patrick J. Buchanan, The Great Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed to the Gods of the Global Economy, Boston: Little, Brown, 1998, p. 66. According to comparative advantage, why is Buchanan's argument incorrect?
His argument is incorrect because the United States should free up resources to produce the goods in which it has the comparative advantage.
Briefly explain whether you agree with the following argument: "Unfortunately, Bolivia does not have a comparative advantage LOADING... with respect to the United States in the production of any good or service." (Hint: You do not need any specific information about the economies of Bolivia or the United States to be able to answer this question.)
If the U.S. trades at all with Bolivia, then the argument above is false. There would be no trade unless both countries were made better off, and this would imply Bolivia has the comparative advantage in the production of at least one good or service.
Which of the following describes the importance of international trade around the world?
Imports and exports remain a smaller fraction of GDP in the U.S. than in most other countries
Which of the following statements is true about the importance of trade in the U.S. economy?
While exports and imports have been steadily rising as a fraction of GDP, not all sectors of the U.S. economy have been affected equally by international trade.
An article in the New York Times quoted an economist as arguing that "global free trade and the European single market...encourage countries to specialize in sectors where they enjoy comparative advantage. Germany's [comparative advantage] is in cars and machine tools." Source: Anatole Kaletsky, "In Disguise, a Budget That Britain Needs," New York Times, March 24, 2014. For the author's observation to be correct, must Germany be able to produce more cars and machine tools per hour worked than do France, Italy, the United Kingdom, and Germany's other trading partners? For Germany to have a comparative advantage in a product relative to France or another country, it would have
a lower opportunity cost of producing the product than the other country.
In the 2016 Summer Olympic Games, Ashton Eaton (from the United States) won a gold medal in the decathlon, which requires athletes to compete in 10 different track and field events. In one of these events, Eaton ran a 100-meter race in 10.46 seconds. In a separate event, Usain Bolt (from Jamaica) won a gold medal by running 100 meters in 9.81 seconds. a. The concept of comparative advantage better explains b. Based on their performance at the 2016 Olympic Games, who was the better athlete?
a. Bolt's performance because he specialized in an event and had the fastest time. b. This cannot be determined because this is a normative question.