Microeconomics Chapter 2

The concepts of comparative advantage, specialization, and trade:

All of the statements are true.

Suppose England has a comparative advantage over the United States in producing tea. If this is true, then:

England should produce more tea than it wants and sell the rest to the United States.

Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPods or 10 tablets each year. Country B has 200 workers. A bundle of goods that Country A could not make would be:

(500 iPods, 300 tablets).

Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPods or 10 tablets each year. Country B has 200 workers. Which of the following is true?

Country B should produce tablets and Country A should produce iPods, and they could benefit from trade.

Suppose an American worker can make 100 chairs or catch 1,000 fish per day. A Chilean worker, on the other hand, can produce 40 chairs or catch 400 fish per day. Which of the following statements is true?

Neither the United States nor Chile has a comparative advantage in chair production.

Suppose that, given the same number of workers, the United States can produce five times as many computers or 10 times as many airplanes as Mexico. Which of the following statements is true?

The United States has an absolute advantage in the production of both airplanes and computers.

Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. On the other hand, a Canadian worker can produce 10 pairs of shoes or grow 20 apples per day. Which of the following statements is true? The United States has an absolute advantage:

and a comparative advantage in the production of apples.

People will choose to specialize and trade if they can acquire the goods they want:

at a lower cost than it would cost them to make the goods themselves.

When a producer is operating efficiently it is producing:

at a point on its production possibilities frontier.

When nations trade, it:

can benefit all nations involved.

The production possibilities frontier:

can show all possible combinations of goods but not tell us which combination society should choose

Tom and Jerry have two tasks to do all day: make dishes and build fences. If Tom spends all day making dishes, he will have make 16 dishes. If he instead devotes his day to building fences, Tom will build 4 fences. If Jerry spends his day making dishes, he will make 14 dishes; if he spends the day building fences, he will build 7 fences. Jerry has a comparative advantage in:

fence production because he has the lower opportunity cost of a fence.

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. Suppose Country B decides to specialize in tomatoes, and Country A specializes in bananas. What terms of trade would both countries agree to? One tomato for:

four bananas

The concepts of comparative advantage, specialization, and trade form a compelling argument in favor of:

free trade.

Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPods or 10 tablets each year. Country B has 200 workers. Country A has the absolute advantage in the production of:

iPods only.

When two countries specialize and trade with one another total production:

increases, but only if comparative advantage exists.

A realistic production possibilities curve:

is concave while a simple PPF has constant opportunity costs.

People often choose to specialize and trade because:

it will allow them to enjoy more goods than they can create on their own.

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. Suppose Country A specializes in bananas, and Country B specializes in tomatoes. The limits to the terms of trade that Country B would find acceptable are Country B will accept no:

less than 3 bananas for each tomato.

If Spain is capable of producing either tapas or soccer balls or some combination of those two products, then Spain should:

produce the good it has a comparative advantage in producing.

People would not choose to specialize because:

production standards are harder to control if goods are imported from other countries.

If society were to experience an increase in its available resources its production possibilities frontier would:

shift out

A production possibilities frontier is a line or curve that:

shows all the possible combinations of outputs that can be produced using all available resources.

Two countries will choose to specialize and trade only if:

the terms of trade fall between their opportunity costs for producing the goods on their own.

When a country loses its comparative advantage in the production of a good it:

will gain the comparative advantage in the production of another good.

Tom and Jerry have two tasks to do all day: make dishes and build fences. If Tom spends all day making dishes, he will have make 16 dishes. If he instead devotes his day to building fences, Tom will build 4 fences. If Jerry spends his day making dishes, he will make 14 dishes; if he spends the day building fences, he will build 7 fences. After looking at the production possibilities for both Tom and Jerry, we can conclude that:

Tom has the comparative advantage in dish production.

A country's newest ruler has decided the country will become self-sufficient and ceases trade with the rest of the world. The likely outcome of this action will be that the country's citizens will be:

forced to consume less than before if they possessed a comparative advantage in the production of a good.

The improvement in outcomes that occurs when specialized producers exchange goods and services is called:

gains from trade.

When a producer has the ability to produce a good or service at a lower opportunity cost than others, economists say the producer:

has a comparative advantage at producing that good.

When a producer has a comparative advantage in producing a good, it means the producer:

has the ability to produce the good at a lower opportunity cost than others.

If we consider the reality that each worker has different skills, then the production possibilities frontier would:

have a concave shape.

Suppose an American worker can make 50 pairs of gloves or grow 300 radishes per day. On the other hand, a Bangladeshi worker can produce 100 pairs of gloves or grow 200 radishes per day. Using the concepts of advantage and trade, we can say that the opportunity cost of one pair of gloves is:

higher for the United States than Bangladesh, therefore the United States has a comparative advantage in radish production.

What determines a country's limits to acceptable terms of trade?

Their opportunity costs in production.

Tom and Jerry have two tasks to do all day: make dishes and build fences. If Tom spends all day making dishes, he will have make 16 dishes. If he instead devotes his day to building fences, Tom will build 4 fences. If Jerry spends his day making dishes, he will make 14 dishes; if he spends the day building fences, he will build 7 fences. After looking at the production possibilities for both Tom and Jerry, we can surmise that:

Tom has the absolute advantage in the production of dishes and Jerry has the absolute advantage in fence production.

Suppose that a worker in Country A can make either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can make either 18 bananas or 6 tomatoes each year. Country B has 400 workers. Two possible consumption bundles that Country B could produce are:

(3,600 bananas, 1,200 tomatoes) and (1,800 bananas, 1,600 tomatoes)

Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year. Country has 100 workers. Suppose a worker in Country B can make either 2 iPods or 10 tablets each year. Country B has 200 workers. A bundle of goods that Country B could potentially make would be:

(300 iPods, 450 tablets).

Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPods or 10 tablets each year. Country B has 200 workers. A bundle of goods that Country B could not make would be:

(400 iPods, 250 tablets).

Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPods or 10 tablets each year. Country B has 200 workers. A bundle of goods that Country A could potentially make would be:

(500 iPods, 250 tablets).

Tom and Jerry can spend each day making dishes and building fences. If Tom spends all day making dishes, he can make 16 dishes. If, instead, he devotes his day to building fences, Tom can build 4 fences. If Jerry spends his day making dishes, he can make 14 dishes; if he spends his day building fences, he can build 7 fences. The opportunity cost of one fence is ______ for Tom and ____ for Jerry. Therefore Tom should specialize in _________.

4 dishes; 2 dishes; fences

Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. On the other hand, a Canadian worker can produce 10 pairs of shoes or grow 20 apples per day. The opportunity cost of one pair of shoes for the United States is _______, while the opportunity cost of one pair of shoes for Canada is _________.

5 apples; 2 apples

Tom and Jerry have two tasks to do all day: make dishes and build fences. If Tom spends all day making dishes, he will have make 16 dishes. If he instead devotes his day to building fences, Tom will build 4 fences. If Jerry spends his day making dishes, he will make 14 dishes; if he spends the day building fences, he will build 7 fences. If Tom divides his time evenly between activities and acts efficiently, he will produce:

8 dishes and 2 fences.

Suppose an American worker can make 100 chairs or catch 900 fish per day. On the other hand, a Chilean worker, can make 40 chairs or catch 400 fish per day. The United States has an absolute advantage in the production of both fish and chairs. This means that the United States:

can produce more fish and chairs than Chile given the same amount of workers.

When a producer has an absolute advantage at producing a good, it means the producer:

can produce more of that good than others with the same amount of resources.

Suppose that only two goods are produced in an economy. If a country possesses the comparative advantage in the production of one good then it:

cannot also possess the comparative advantage in the production of the other good.

Tom and Jerry have two tasks to do all day: make dishes and build fences. If Tom spends all day making dishes, he will have make 16 dishes. If he instead devotes his day to building fences, Tom will build 4 fences. If Jerry spends his day making dishes, he will make 14 dishes; if he spends the day building fences, he will build 7 fences. Because Tom has a ____________ opportunity cost for one fence compared to Jerry, we know Tom has _________________________.

higher; the comparative advantage in dish production

When a country is producing goods and services efficiently it:

is getting the most output by using all its available resources.

If a country possesses the absolute advantage in the production of one good:

it can produce more of that good given the same resources.

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. Suppose Country A specializes in bananas, and Country B specializes in tomatoes. The limits to the terms of trade that Country A would find acceptable are Country A will give no:

more than 5 bananas for each tomato.