Econ chapter 2

The graph below shows Tanya's weekly production possibilities frontier for doing homework (writing papers and doing problem sets). The vertical intercept (point A) is 8, and the horizontal intercept (point B) is 2. A: The slope of the production possibilities frontier is B: The opportunity cost of doing one problem set is C: The opportunity cost of writing one paper is

A: -4 B: 0.25 paper C: 4 problem sets

Points above the PPF line

are impossible/unattainable with current resources

Points below PPF line

are inefficient but possible

The invisible hand refers to the coordination that occurs from

everyone working in his or her own self-interest.

Points on the PPF line

-possible -efficient: all resources are fully utilized

2 rules of trade

1. two countries differ in their opportunity costs to produce a good; if they lose more/opportunity cost is higher than if they were to produce it themselves, the trade is unfair 2.Set favorable price; country cannot charge more than it would cost for other country to produce it themselves

Your friend Sam has been asked to prepare appetizers for the university reception. She has an unlimited amount of ingredients and six hours in which to prepare them. Sam can make 360 mini-sandwiches or 180 servings of melon slices topped with smoked salmon and a dab of sauce per hour. A: Sam's opportunity cost of making one mini-sandwich is: B: Sam's opportunity cost of making one melon appetizer is: C: Suppose the reception has been postponed, so Sam has an extra four hours to prepare. The opportunity cost of making one mini-sandwich is now: D: Suppose the reception has been postponed, so Sam has an extra four hours to prepare. The opportunity cost of making one melon appetizer is now: E: Suppose Sam's friend Chris helps by preparing the melon slices, increasing Sam's productivity to 360 mini-sandwiches or 360 melon appetizers per hour. The opportunity cost of making one mini-sandwich is now: F: Suppose Sam's friend Chris helps by preparing the melon slices, increasing Sam's productivity to 360 mini-sandwiches or 360 melon appetizers per hour. The opportunity cost of making one melon appetizer is now

A: 0.5 melon appetizers B: 2 mini-sandwiches C: 0.5 melon appetizers D: 2 mini sandwiches E: 1 melon appetizer F: 1 mini-sandwich

Suppose that workers in a country can produce either yams or potatoes, and that all inputs are equally well-suited to the production of both goods. If all workers produce yams, 40 million yams can be produced. If all workers produce potatoes, 20 million potatoes can be produced. A: The opportunity cost of producing a potato is B: The opportunity cost of producing a yam is C: Suppose that there is an increase in resources that shifts the horizontal intercept to 40 million potatoes. The opportunity cost of potatoes is now

A: 2 B: 0.5 C: 1

Vietnam and Ecuador both produce shrimp and rice. Vietnam can produce 140 thousand pounds of shrimp or 70 thousand pounds of rice in a year. Ecuador can produce 90 thousand pounds of shrimp or 15 thousand pounds of rice in a year. A: Vietnam's opportunity cost of producing one pound of rice is equal to B: Ecuador's opportunity cost of producing one pound of rice is equal to C: The two countries decide to specialize and trade with each other. The country that produces rice will sell one pound of rice for no less than _______ pounds of shrimp. The other country will pay no more than _______t pounds of shrimp for the one pound of rice.

A: 2 pounds of shrimp B: 6 pounds of shrimp C: 2 pounds of shrimp, 6 pounds of shrimp

The Red Cross and WIC (Women Infants Children program) both provide emergency food packages and first-aid kits to New York City homeless shelters. The table below shows their weekly production possibilities in providing emergency goods to NYC homeless shelters. Red Cross WIC Food packages 300 or 0 200 or 0 First-aid kits 0 50 0 20 NYC homeless shelters need a total of 20 first-aid kits per week. Currently, they get 10 kits from the Red Cross and 10 kits from WIC. With their remaining resources, how many food packages can each organization provide to NYC homeless shelters? A: red cross B: WIC

A: 240 B: 100

Katrina and David can both produce pizzas and loaves of bread. In one hour, Katrina can produce 10 pizzas or 15 loaves of bread. In one hour, David can produce 8 pizzas or 16 loaves of bread. Each person has 6 hours to spend baking. A: If Katrina and David split their time equally between pizza and bread, the total production of pizza will be ______ pizzas, and the total production of bread will be _______ loaves of bread. B: If Katrina and David each produce the good in which she or he has a comparative advantage, the total production of pizza will be _________ pizzas, and the total production of bread will be _______ loaves of bread.

A: 54, 93 B: 60, 96

Eleanor and her little sister Joanna are responsible for two chores on their family's farm, gathering eggs and collecting milk. Eleanor can gather 9 dozen eggs or collect 3 gallons of milk per week. Joanna can gather 2 dozen eggs or collect 2 gallons of milk per week. A: The family wants 2 gallons of milk per week and as many eggs as the sisters can gather. Currently, they collect one gallon of milk each and as many eggs as they can. How many dozens of eggs does the family have per week? B: If the sisters specialized, which sister should collect the milk? C: If the sisters specialized, how many dozens of eggs would the family have per week?

A: 7 dozen eggs B: Joanna C: 9 dozen eggs

Katrina and David can both produce pizzas and loaves of bread. In one hour, Katrina can produce 10 pizzas or 20 loaves of bread. In one hour, David can produce 6 pizzas or 18 loaves of bread. A: Which of the following is a true statement about absolute advantage? B: Which of the following is a true statement about comparative advantage?

A: Katrina has an absolute advantage in both goods. B: Katrina has a comparative advantage in pizza. Correct

Two students are assigned to work together on a project that requires both writing and an oral presentation. Steve can write 1 page or prepare 3 minutes of a presentation each day. Anna can write 2 pages or prepare 1 minute of a presentation each day. A: Who has a comparative advantage at writing? B: Suppose that Steve goes to a writing tutor and learns some tricks that enable him to write 3 pages each day. Now who has a comparative advantage at writing?

A: anna B: anna

You've been put in charge of a bake sale for a local charity at which you are planning to sell cookies and cupcakes. Suppose another volunteer is going to help you bake. Suppose you have a comparative advantage at baking cookies and the other volunteer has a comparative advantage at baking cupcakes. A: In this case, you should bake ________ and the other volunteer should bake _________. B: You should split up the baking because:

A: cookies, cupcakes B: there will be more cookies and cupcakes produced between you than if you each spent half of your time baking each good.

You've been put in charge of a bake sale for a local charity at which you are planning to sell cookies and cupcakes. Suppose another volunteer is going to help you bake. A: If one of you has a comparative advantage at baking cookies, it means that one of you: B: Could one of you have an comparative advantage at baking both items?

A: gives up fewer cupcakes for each cookie baked. B: No, because each person can have a comparative advantage in only one task.

Suppose that the manager of a restaurant has two new employees, Rahul and Henriette, and is trying to decide which one to assign to which task. Rahul can chop 20 pounds of vegetables or wash 100 dishes per hour. Henriette can chop 30 pounds of vegetables or wash 120 dishes. A: Who should be assigned to chop vegetables? B: Who should be assigned to wash dishes?

A: henriette B: Rahul

The Dominican Republic and Nicaragua both produce coffee and rum. The Dominican Republic can produce 20 thousand tons of coffee per year or 5 thousand barrels of rum. Nicaragua can produce 15 thousand tons of coffee per year or 3 thousand barrels of rum. Suppose the Dominican Republic and Nicaragua sign a trade agreement in which each country would specialize in the production of either coffee or rum. A: Which country should specialize in coffee? Nicaragua Correct B: Which country should specialize in rum? The Dominican Republic C: The minimum price at which these countries will trade coffee is _________ barrel of rum per ton of coffee and the maximum price is ________ barrel of rum per ton of coffee

A: nicaragua B: Dominican republic C: 0.200, 0.250

You've been put in charge of a bake sale for a local charity, at which you are planning to sell cookies and cupcakes. Suppose another volunteer is going to help you bake. A: If one of you has an absolute advantage at baking cookies or cupcakes, it means that: B: Could one of you have an absolute advantage at baking both items?

A: one of you can produce more cupcakes (or cookies) in total with the same amount of resources than the other person. Correct B: Yes, if one of you is more productive in both goods than the other. Correct

Can a producer have comparative advantage in both goods?

No; each producer has a comparative advantage at something

What can PPFs not tell you?

Which point on the line will be chosen; it is all dependent on the situation of the company

Suppose that workers in a country can produce either cars or cheese, and that all inputs are equally well-suited to the production of both goods, so that opportunity costs are constant. The production possibilities frontier will be _________. In the real world, it is unlikely that all resources will be perfectly substitutable in making these goods. Thus, the production possibilities frontier will be ___________. This means that every time the country decides to shift production from cheese to cars, the opportunity cost of the additional car will be_______ than the last.

a straight line, a curve that is bowed outward, higher

Comparative advantage

ability to produce a good or service at a lower opportunity cost than others ex. US has to give up more to make a shirt (sacrifices resources for wheat, etc) than Bangladesh does; Bangladesh has comparative advantage

You've been put in charge of a bake sale for a local charity, at which you are planning to sell cookies and cupcakes. A production possibilities graph of this situation would show:

all of the combinations of cookies and cupcakes you are able to produce with your time and resources.

You manage two employees at the flower shop. They perform two tasks: caring for the displays of cut flowers and making flower arrangements to fill customer orders. In organizing your employees and assigning them tasks, you should:

assign the two tasks according to which worker has a comparative advantage in each task.

product possibilities frontier (PPF)

graph that shows all the different combinations of output for two goods that can be produced using all available resources and technology

Assuming that workers are not all equally productive in producing each good, the opportunity cost of producing one good in terms of the other:

increases as more of a good is produced, because skills vary among workers.

Specialization _________ total world production using __________ workers and _________ technology.

increases, the same number of, the same

curved line/concave frontier on PPF means..

increasing opportunity cost; an increase of production of one good will lead to greater loss of another good; bigger gaps in ratio

Points ______ the production possibilities frontier are inefficient while points ______ the production possibilities frontier are efficient.

inside, on

Suppose that a worker in Country A can produce either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can produce either 18 bananas or 6 tomatoes each year. Country B has 400 workers. Country A specializes in producing bananas and Country B specializes in producing tomatoes. Regarding the terms of trade, Country A will give no _____ than _____ for every _____.

more; 5 bananas; one tomato 25 bananas/5 tomatoes= 5/1 ratio opportunity cost

You manage two employees at a pet salon. Your employees perform two tasks: giving flea baths and grooming animals. If you constructed a single production possibilities frontier for flea baths and grooming that combined both of your employees' work efforts, you would expect the production possibilities frontier to be:

not a straight line because each worker would likely differ in her relative skills at grooming and giving flea baths and would therefore differ in the opportunity cost for performing each task.

Suppose two countries produce the same two goods and have identical production possibilities frontiers. You would expect these countries:

not to trade because identical production possibilities frontiers would indicate that the two countries face the same opportunity costs, so there are no gains from trade.

What are two main factors that change production possibilities?

number of workers and changes in technology -improvements in either can either shift or rotate the graph outwards

Specialization

spending all of your time producing a particular good (US in wheat, Bangladesh in T-shirts)

Absolute advantage

the ability to produce more of a good/service than others with a given amount of resources (typically countries with better tech and more workers) ex. US has an absolute advantage over Bangladesh in that it can produce 4x as many shirts as Bangladesh

gains from trade

the improvement in outcomes that occurs when producers specialize and exchange goods and services -gains do not have to be equal for trading arrangement to benefits everyone

opportunity cost on PPF represents

the slope -use the slope (rise over run from 1 point to another) to determine opportunity cost (how many of something lost to produce more for another)

Brazil is the largest coffee producer in the world and coffee is one of Brazil's major export goods. Suppose that in 20 years, Brazil no longer produces much coffee and imports most of its coffee instead. Brazil's pattern of trade has changed over time because:

there was a change in its comparative advantage.

If each country focuses on producing the good for which it has a comparative advantage...

total production increases ex. Restauarants have waiters, chefs, hostesses, busters and expo roles bc if someone had to do all those tasks at once it would slow things down and be less efficient & less time would be put into a certain task

You can lose a comparative advantage in one thing..

without gaining comparative advantage in another thing