Quiz 2

How can a country gain from specialization and trade?

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

What do economists mean when they use the Latin expression ceteris paribus?

All else equal.

What is the basis for trade?

Comparative advantage

A variable that will cause the demand curve to shift:

Consumer income

Does your standard of living increase?

Economic theory says yes: specialization and trade produce mutually beneficial results.

In every one of 28 industries, Balassa found that the United States had absolute advantage. In these circumstances, would there have been any gain to the United States from importing any of these products from Britain?

Even with an absolute advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage.

What is comparative advantages?

The ability to produce a good or service at a lower opportunity cost than other producers.

What is absolute advantage?

The ability to produce more of a good or service than competitors using the same amount of resources.

"The United States should only import those products that could not be produced here." Is this a good policy?

This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantages.

Is specialization and trade between individuals and countries more about having a job or more about obtaining a higher standard of living?

While specialization and trade facilitate the attainment of higher living standards, the immediate or proximate motivation behind it is most likely jobs.

Individually, if you go from a situation of not trading with others (you produce everything yourself) to a situation of trading with others, do you still have a job?

Yes you do, even if you are less efficient than others in production of everything, there will be something at which you are at least disadvantaged; it is in this activity that you have a comparative advantage and, hence, a job.

McDonald's distributes $1.00 off coupons. This will cause

a movement along the demand curve for McDonald's Big Mac hamburgers.

Specialization should not be based on which kind of advantage?

absolute advantage

The basis for trade is...........advantage.

comparative advantage

Tablet computers and apps for the tablet are clearly

complements

The price of Burger King's Whopper hamburger declines. This would cause

demand for the McDonald's Big Mac hamburger to decrease.

The prices of fries decreases due to a potato surplus. This will

increase the demand for McDonald's Big Mac hamburgers.

With respect to the demand for the Apple iPad, the increase in the availability of "apps" for the Android based tablets would

reduce the demand for the iPad because enhancements (in the form of additional apps) to Android based latter's relative appeal.

A number of political leaders have expressed concern about the nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production......These individuals would see their position weakened most by the knowledge that....

the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of great value.

You shouldn't necessarily do what you are better than anyone else at doing

unless your advantage in that activity is greater than the advantages you possess in other activities.