PS 1

A person has a comparative advantage in activity X when that person's:

opportunity cost is lower for him than for other trading partners

Wage rates are primarily based on the:

productivity of labor

In the opening story, the payment to captains of prisoner transport ships for each convict who arrived in Australia instead of for each convict who boarded the ship:

saved the lives of hundreds of convicts

(Figure: PPF Mexico & United States) Use the above figure in which both Mexico and the United States each have 24 units of labor. Mexico has a comparative advantage in ______, and the United States has a comparative advantage in ______.

shirts; computers

As the United States becomes more productive at manufacturing chemicals and pharmaceutical drugs, the opportunity cost of producing other items such as textiles ________, leading to _____ demand for foreign textiles.

increases; increased

A rock carving from ancient Norway depicts two identical people doing different jobs in the same boat: one uses a bow to hunt while the other paddles. How does this early example illustrate the benefits of trade?

One learns to be very good at paddling, and one learns to be very good at hunting; this is an example of specialization and division of knowledge

Trade tends to:

increase the wages of both high- and low-productivity countries

Which of the following is least likely a consequence of the division of knowledge?

a totally self-sufficient family farm

A cell phone plan costs $50 per month for 1,000 minutes and $0.30 per minute for each additional minute after 1,000. What is the marginal fee for the 1,001st minute used?

$0.30

Jack and Jill work at a bakery. In 1 hour, Jack can decorate either five ice-cream cakes or two wedding cakes. In 1 hour, Jill can decorate either four ice-cream cakes or one wedding cake. Thus, the opportunity cost of decorating an ice-cream cake is _____ for Jack and _____ for Jill.

2/5 wedding cake; 1/4 wedding cake

(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of textiles China can produce?

8 tons

How is the unemployment rate related to the opportunity cost of college?

As the unemployment rate increases, the opportunity cost of attending college falls because fewer opportunities for employment exist

Owen Wilson is an actor who has acted in many action comedy films. In contrast, Tom Cruise has acted in many serious action films. How might the theory of specialization be applied to them?

Casting directors see Owen Wilson as relatively better at action comedy roles and Tom Cruise as relatively better at serious action roles and cast them accordingly

Which of the following situations would lead to more starvation?

a world where everyone grows his or her own food and there is no trade

The United States and the European Union are groups of semi-independent states that have come together under an agreement whereby resources can travel freely across borders and a common currency is in use. Which of the following statements best explains how this allows for the achievement of economies of scale?

Each state or country can adopt large-scale production techniques that allow lower per unit costs of production

Which statement is TRUE?

It is virtually impossible for a country to be the low-cost producer of all goods and services.

Anita is a wonderful baker and can bake 10 cakes in a day, but then she has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can make only seven cakes or 100 cookies in a day. Based on this information, which of the following statements is TRUE?

John has the absolute advantage in the production of cookies

Most people do not buy the safest car they can find. Why not?

Other factors matter besides safety, such as comfort, cost, and fuel economy

(Figure: PPF Goods X & Y) Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed in the figure is only attainable through foreign trade?

Point C

Which of the following explains why someone with an absolute advantage in painting houses may NOT spend their time painting houses?

She may be relatively better at something else than painting houses

(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, which of the following is TRUE?

The United States has an absolute advantage in producing iPhones, and Canada has an absolute advantage in producing iPods

What is a plausible economic explanation as to why Braille "dots" are commonly found on drive-up automatic teller machines although blind customers likely will not use a drive-up automatic teller machine?

The marginal cost of making two different types of keypads is substantial, and the benefit of providing keypads without the Braille dots is less than that marginal cost

Why is it less costly to attend college during a recession?

The opportunity cost is lower during a recession because there are fewer labor market opportunities

Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates?

The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates

(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE?

The opportunity cost of producing a TV in Japan is 2 bushels of wheat

The slope of the production possibilities frontier at a given point indicates ______

a country's opportunity cost of production

A producer has a comparative advantage over other producers if his production of the good involves:

a lower opportunity cost

n the 1800s, the federal government paid railroad companies for each mile of track built. This payment scheme created incentives for railroad companies to lay track:

between points A and B using the most indirect route

Economists believe people make decisions by:

comparing marginal costs with marginal benefits.

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as Y = 50 - 2X and tells us that the opportunity cost of catching (producing) an additional unit of fish in Iceland is:

constant in fish production

When markets don't align self-interest with social interest:

governments may improve the situation by changing incentives

It makes sense that Martha Stewart hires another person to do her ironing because:

her opportunity cost of ironing is higher than the opportunity cost for the person she hires

What is thinking on the margin?

making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity

(Table: Production Possibilities for the United States and Mexico) According to the table on production possibilities for the United States and Mexico, Mexico has an absolute advantage in ________ and a comparative advantage in _________.

neither good; corn

Without trade, the knowledge used by an entire economy would be about the same as the knowledge had by:

one person

According to economists, when the Food and Drug Administration raises the approval requirements for new drugs:

society will potentially lose a new drug approval

The real cost of producing a good is:

the opportunity cost of producing the good

The opportunity cost of a choice is:

the value of the opportunities lost

Economics is the study of:

trade-offs when making decisions

Babe Ruth could produce two home runs in a week of play as a fielder or one win in a week of play as a pitcher. What was his opportunity cost for a week of pitching?

two home runs