Chapter 2: Trade-offs, Comparative Advantage, and the Market System

According to the theory of comparative advantages, specialization and free trade will benefit

all trading partners who specialize in goods where they have comparative advantage

Ms. Boulware is the best lawyer and the best secretary in town. She has

an absolute advantage in both jobs

A product produced in a foreign country and purchased by residents of the home country is called

an import

In what type of economy does the government decide how most economic resources will be allocated?

centrally planned economy

In the circular flow diagram, which arrow shows the flow of goods and services?

B

In the graph above, which of the following combinations of pies and cakes is unattainable given the existing resources?

Four cakes and seven pies

What are copyrights designed to accomplish?

Protect intellectual property rights

When nations specialize in their comparative advantage and engage in trade

overall standards of living increase

Absolute advantage is the ability of an individual, firm, or country to

produce more of a good or service than competitors using the same amount of resources

The role of the entrepreneur always involves

taking risks

In his 1776 book, "An Inquiry into the Nature and Causes of the Wealth of Nations," Adam Smith notes that specialization increases productivity. Which of the following was the cause of this phenomenon?

the division of labor

If a country has a comparative advantage in the production of a good, then that country

has a lower opportunity cost in the production of that good

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the _______ the payoff to devoting additional resources to that activity

smaller