GAP 1 PART 2

Refer to Figure 3-20. Canada has a comparative advantage in the production of

Good Y and Mexico has a comparative advantage in the production of Good X

Refer to Table 3-11. Which of the following points would not be on Max's production possibilities frontier, based on a 36-hour production period?

(2 mittens, 6 hats)

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded

- applies to most goods in the economy. - is referred to as the law of demand. - is represented by a downward-sloping demand curve.

The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result,

- the quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the $30 price. - there is a surplus of blue jeans at the $30 price. - the equilibrium quantity of blue jeans exceeds the quantity demanded at the $30 price.

Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $15 is

0 units

Refer to Table 3-24. The opportunity cost of 1 unit of cheese for Spain is

1/2 unit of bread.

Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $6 is

19 units

Refer to Table 3-35. Finland's opportunity cost of producing 1 unit of ham is

2/3 dozen eggs. This is lower than Denmark's opportunity cost.

Refer to Figure 3-17. Suppose Daisy is willing to trade 3/4 tart to Maxine for each pie that Maxine makes and sends to Daisy. Which of the following combinations of pies and tarts could Maxine not then consume, assuming Maxine specializes in making pies and Daisy specializes in making tarts?

6 pies and 5 tarts

Refer to Figure 4-24. All else equal, a large number of people becoming vegetarians would cause a move from

DA to DB

Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches depends on how many chairs and couches are being produced in

Panel (a)

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for swimming lessons of an increase in the incomes of parents with school-aged children

Point A to Point D

Suppose Jim and Tom can both produce baseball bats. If Jim's opportunity cost of producing baseball bats is lower than Tom's opportunity cost of producing baseball bats, then

Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches depends on how many chairs and couches are being produced in

In competitive markets, which of the following is not correct?

Some sellers can set prices

Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because each person specializes in the activity for which he or she has the lower opportunity cost.

TRUE

Consider the market for portable air conditioners in equilibrium. A summer of unseasonably cool weather would cause

both the equilibrium price and quantity to decrease

Equilibrium price must decrease when demand

decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which he or she has a comparative advantage.

A decrease in demand will cause a decrease in price, which will cause a decrease in supply.

false

Adam Smith developed the theory of comparative advantage as we know it today.

false

Individual demand curves are summed vertically to obtain the market demand curve.

false

Production possibilities frontiers cannot be used to illustrate tradeoffs.

false

Sellers respond to a shortage by cutting their prices.

false

Suppose that in one hour Dewey can produce either 10 bushels of corn or 20 yards of cloth. Dewey's opportunity cost of producing one bushel of corn is 1/2 yard of cloth.

false

When a seller expects the price of its product to decrease in the future, the seller's supply curve shifts left now.

false

Refer to Figure 4-23. In this market for watermelons, a severe drought occurs which affects the watermelon crop. The equilibrium price

increases and the equilibrium quantity decreases

Elena loves orange juice. She reads in the newspaper that 20 percent of the Florida orange crop was destroyed by a late spring frost. Economists predict that the price of oranges will rise by 50 percent by the end of the year. As a result, Elena's demand for orange juice

increases today

Refer to Table 3-31. Relative to the rancher, the farmer has a comparative advantage in the production of

potatoes, but not in the production of meat.

Refer to Table 4-11. If the price were $4, a

shortage of 25 units would exist, and price would tend to rise.

Refer to Figure 4-18. At a price of $35, there would be a

surplus of 400 units

If the price of a good is low,

the quantity supplied of the good could be zero.

Refer to Table 3-23. Assume that the farmer and the rancher each has 24 labor hours available. If each person spends all his time producing the good in which he has a comparative advantage and trade takes place at a price of 1 pound of pork for 2 pounds of tomatoes, then

the rancher will gain from this trade, but the farmer will not.

Refer to Table 3-8. We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for Spain. If we were to do this, measuring cheese along the horizontal axis, then

the slope of England's production possibilities frontier would be -0.67 and the slope of Spain's production possibilities frontier would be -0.5.

When the price of a good or service changes,

there is a movement along a given supply curve

Refer to Table 3-36. Antigua has an absolute advantage in the production of

towels and Barbuda has an absolute advantage in the production of umbrellas.

Adam Smith was the author of the 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

true

Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production of ice cream.

true

For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.

true

When quantity demanded exceeds quantity supplied at the current market price, the market has a shortage, and market price will likely rise in the future to eliminate the shortage.

true

The opportunity cost of an item is

what you give up to get that item.