Micro Econ CH.9

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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.


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