Econ Midterm- Part 3

The process of market creation is most similar to the creation of a country's

Language

What happens to the price of new, unrecycled clothing?

The price of new clothing decreases.

Spend some time driving in Detroit, MI—the Motor City—and you're sure to see bumper stickers with messages like "Buy American" or "Out of a job yet? Keep buying foreign!" or "Hungry? Eat your foreign car!" Explain these bumper stickers in light of what you've learned: Who is hurt most by imported automobiles?

American (domestic) car manufacturers

There are 1 million hours of labor available for making cars in the North, and another 1 million hours of labor available for making cars in the South. In a no-trade world, let's assume that two-thirds of the auto industry labor in each region is used to make high-quality cars and one-third is used to make low-quality cars. What will be the global output of low-quality cars? *

27,778

There are three conditions that explain why a free market is efficient: 1. The supply of goods is sold by the sellers with the lowest cost. 2. There are no unexploited gains or wasteful trades. 3. The supply of goods is purchased by the buyers that place the highest value on the goods. Which condition or conditions cease to hold in the case of a tariff on imported goods?

A and B only.

What primarily caused the shift from Globalization 2.0 to Globalization 3.0?

Advancements in communication.

What primarily caused the shift from Globalization 1.0 to Globalization 2.0?

Advancements in transportation.

How is international trade similar to domestic trade? a. International trade makes people better off when preferences differ. b. International trade increases productivity through specialization and the division of knowledge. c. Trade increases productivity through comparative advantage.

All of the above

If the United States were to eliminate a tariff on, say, Mexican shirts thereby lowering its cost, which product might be purchased more by Americans? a. computer b. toothpaste c. pants

All of the above.

Why do you think iron and steel became more common around the same time as the increase in price of bronze?

An increase in the price of bronze encourages innovation to produce substitutes.

Andy enters in a futures contract allowing him to sell 5,000 troy ounces of gold at $1,000 per ounce in 36 months. After that time passes, the market price of gold is $950 per troy ounce. How much did Andy make or lose?

Andy made $250,000.

You manage a department store in Florida, and one winter you read in the newspaper that orange juice futures have fallen dramatically in price. Should your store stock up on more sweaters than usual, or should your store stock up on more Bermuda shorts?

Bermuda shorts

What is a source of comparative advantage? a. climate b. institutions

Both A and B

Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day.

Data has the absolute and comparative advantage at solving physics problems.

How is the increasing price of bronze an incentive?a. Consumers will save more money by conserving bronze.b. Consumers who switch to substitutes can save money.c. Entrepreneurs can profit by developing new alternatives to bronze.d. Entrepreneurs can profit by developing ways to recycle bronze.e. All of the above.

E. All of the above.

The Japanese people currently pay about four times the world price for rice because of trade barriers. Who is more likely to make a greater effort lobbying for or against a reduction in trade barriers?

Japanese rice farmers.

The supply curve for rice in Japan slopes upward, just like any normal supply curve. If Japan eliminated its trade barriers to rice, what would happen to the number of workers employed in the rice-producing industry in Japan: Would it rise or fall?

Fall

Given your prediction about the change in the price of paper, how would the price of pencils change? (Hint: are paper and pencils complements or substitutes?)

Fall, because demand would shift to the left.

The video explores how prices tie all goods together. To illustrate this idea, suppose new farming techniques drastically increased the productivity of growing wheat. Given this change, how would the price of wheat change?

Fall, because supply would shift to the right.

Which of the following best describes Globalization 1.0?

Foreign trade is limited to a minority of goods, and transportation is slow and dangerous. Most goods are produced locally.

One question that economics students often ask is "In a market with a lot of buyers and sellers, who sets the price of the good?" There are two possible correct answers to this question: "Everyone" and "No one." a. What is meant by "Everyone?"

In a market with many participants, each person's actions push the supply or the demand just a little bit, so everyone has some small influence.

Given your answer to the previous question, what would happen to the price of paper?

Increase, because demand would shift to the right.

How would the price of cookbooks specializing in recipes using wheat flour change?

Increase, because demand would shift to the right.

Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze). What does the increasing price of bronze signal?

It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve it more or seek substitutes.

b. What is meant by "No one?"

Nobody actually plans for a given price to be the equilibrium price.

Use the information below to answer questions 1-7. According to the Wall Street Journal (August 30, 2007, "In the Balance"), it takes about 30 hours to assemble a vehicle in the United States. Let's use that fact plus a few invented numbers to sum up the global division of labor in auto manufacturing. In international economics, "North" is shorthand for the high-tech developed countries of East Asia, North America, and Western Europe, while "South" is shorthand for the rest of the world. Let's use that shorthand here. (In the North it takes 30 hours to make one high-quality care and 20 hours to make one low-quality car. In the South it takes 60 hours to make one high-quality care and 30 hours to make one low-quality car.) Which region has an absolute advantage at producing high-quality cars? *

North

Which country has a comparative advantage for producing high-quality cars? *

North

Which country has an absolute advantage at producing low-quality cars? *

North

The cost of the next most valuable opportunity is known as a a. Sunk cost b. Opportunity cost c. Comparative advantage d. Absolute advantage

Opportunity cost

If a nation's government made it impossible for inefficient firms to fail by giving them loans, cash grants, and other bailouts to stay in business, is that nation likely to be poorer or richer as a result of this strategy? (Hint: Steven Davis and John Haltiwanger. 1999. "Gross Job Flows." In Handbook of Labor Economics (Amsterdam: North-Holland) found than in the United States, 60% of the increase in U.S. manufacturing efficiency was caused by people moving from weak firms to strong firms.)

Poorer

Two major-party presidential candidates are running against each other in the 2016 election. The Democratic Party candidate promises more money for corn-based ethanol research and the Republican Party candidate promises more money for defense contractors. In the weeks before the election, defense stocks take a nosedive. Who is probably going to win the election: the pro-ethanol candidate or the pro-defense spending candidate?

Pro-ethanol research, or the Democratic Party, candidate

After this invention, will society's scarce productive resources (machines, workers, retail space) flow toward the "new clothing" sector or away from it? (Note: You may think this theoretical question is fanciful but three-dimensional printers, which can create plastic or plaster prototypes of small items such as toys, cups, etc., have fallen dramatically in price. Every day, you're getting just a bit closer to having your own personal Star Trek replicator.)

Resources will flow away from the new clothing sector.

In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms.

Sienna has the absolute and comparative advantage at baking cookies.

What best describes how Globalization 4.0 is described in the video? [Which we have not achieved yet]

Someone being in one location providing a service in a completely different location remotely.

Which country has a comparative advantage for producing low-quality cars? *

South

Choose the pair that best expresses a relationship similar to that in the original pair. Arbitrager: Region ::

Speculator: Time

Sometimes speculators get it wrong. In the months before the Persian Gulf War, speculators drove up the price of oil: The average price in October 1990 was $36 per barrel, more than double its price in 1988. Oil speculators, like many people around the world, expected the Gulf War to last for months, disrupting the oil supply throughout the Gulf region. Thus, speculators either bought oil on the open market (almost always at the high speculative price) or they already owned oil and kept it in storage. Either way, their plan was the same: to sell it in the future, when prices might even be higher. As it turned out, the war was swift: After one month of massive aerial bombardment of Iraqi troops and a 100-hour ground war, then President George H. W. Bush declared a cessation of hostilities. Despite the fact that Saddam Hussein set fire to many of Kuwait's oil fields, the price of oil plummeted to about $20 per barrel, a price at which it remained for years. How much money did speculators lose or make on each barrel?

Speculators lost $16 per barrel.

Suppose you learned that growing political instability in Chile (the largest producer of copper) will greatly reduce the productivity of its mines in two years. Ignoring all other factors, which curve (demand or supply) will shift which way in the market for copper two years from now?

Supply curve will decrease, that is, a shift to the left (up).

Sugar farmers in Florida who use unusually large amounts of fertilizer to produce their crops do so because their land isn't all that great for sugar production. If we translate this into the language of the supply curve, where would these sugar farmers be on the supply curve?

Upper-right

After the development of iron, did the supply or demand for bronze shift? Which way did it shift? Why?

The demand for bronze shifted to the left (down) because there was now a good substitute for bronze.

Suppose a new invention comes along that makes it easier and much less expensive to recycle clothing: perhaps a new device about the size of a washing machine can bleach, re-weave, and re-dye cotton fabric to closely imitate any cotton item you see in a fashion magazine. Head into the laundry room, drop in a batch of old clothes, scan in a couple of pages from Vogue, and come back in an hour. If you think of the "market for clothing" as the "market for new clothing," does this shift the demand or the supply of clothing, and in which direction?

The demand for clothing shifts left: a fall in demand

Laptop and desktop computers are substitutes. Now that the price of laptops has changed, what does this do to the demand for desktop computers?

The demand for desktops decreases.

Which of the following could not have caused the shift?

The demand for the minerals increased.

In 1980, University of Maryland, Julian Simon bet Stanford entomologist Paul Ehrlich that the price of any five metals of Ehrlich's choosing would fall over 10 years. Ehrlich believed that resources would become scarcer over time as the population grew, while Simon believed that people would find good substitutes, just as earlier people developed iron as a substitute for scarce bronze. The price of all five metals that Ehrlich chose (nickel, tin, tungsten, chromium, and copper) fell over the next 10 years and Simon won the bet. Ehrlich, an honorable man, sent a check in the appropriate amount to Simon. What does the falling price tell us about the relative scarcity of these metals?

The falling price indicates that the metals are less scarce than what they were before.

Which of the following is true about the American film industry and ticket sales today?

The international market is becoming more profitable than the domestic market.

Trade restrictions on sugar cause U.S. consumers to pay more than twice the going world price for sugar. However, you are very unlikely to ever encounter bumper stickers that say things like "Out of money yet? Keep taxing foreign sugar!" or "Hungry? It's probably because domestic sugar is so expensive!" Why?

The price increase of sugar per person is small.

Let's see if the forces of the market can be as efficient as a benevolent dictator. Since laptop computers are increasingly easy to build and since they allow people to use their computers wherever they like, an all-wise benevolent dictator would probably decree that most people buy laptops rather than desktop computers. This is especially true now that laptops are about as powerful as most desktops. Since it's become much easier to build better laptop computers in recent years, laptop supply has increased. What does this do to the price of laptops?

The price of laptops decreases.

Will the price rise or fall as a result of this curve shift?

The price will rise.

When speculators sold their stored oil in the months after the war, did this massive resale tend to increase the price of oil or decrease it?

The resale decreased the price of oil

If you instead think of the "market for clothing" as the "market for clothing, whether it's new or used," does this shift the demand or supply of clothing, and in which direction?

The supply of clothing shifts right: a rise in supply.

How does the change in desktop demand affect the quantity supplied of desktop computers?

The supply of desktops decreases.

True or False: Every country has at least one comparative advantage in something

True

Some people argue for protectionism by pointing out that other countries with whom we trade engage in "unfair trade practices," and that we should retaliate with our own protectionist measures. One such policy is the policy of some countries to subsidize exporting industries. India, for example, subsidizes its steel industry. Who is hurt by this subsidy?

U.S. steel producers

Once it became easier to build good laptops, did "invisible hand" forces push more of society's resources into making laptop and push resources away from making desktops?

Yes

Many people will tell you that, whenever possible, you should always buy U.S.-made goods. If this argument were taken to its natural conclusion, where should you buy all of your goods from? *

Yourself

In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen.

b. Mitchell has the absolute and comparative advantage at making miso soup. c. Kana has the absolute and comparative advantage at cleaning the kitchen.