Homework 2

The following table shows the hourly output per worker measured as quarts of olive oil and pounds of pasta in Greece and​ Italy: 6,3 6,12 The opportunity cost of producing one more quart of olive oil in Greece is _____ pounds of pasta. The opportunity cost of producing one more quart of olive oil in Italy is _______ pounds of pasta. The opportunity cost of producing one more pound of pasta in Greece is ______ quarts of olive oil. The opportunity cost of producing one more pound of pasta in Italy is ______ quarts of olive oil.

0.5, 2, 2, 0.5

Suppose Ford Motor Company issues bonds with a face value of ​$100,000 and an annual coupon payment of ​$6,000. What is the interest rate Ford is paying on the borrowed​ funds? The interest rate is __________ percent.

6 (6,000/100,000)

The diagram on the right represents a tariff imposed on an individual market. The total deadweight loss​ (loss in economic​ surplus) from this tariff is illustrated by areas

C and D.

What is the difference between absolute advantage and comparative​ advantage? ___________ advantage is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors. While _________ advantage is the ability of an​ individual, a​ firm, or a country to produce more of a good or service than competitors when using the same amount of resources. A country will always be an exporter of a good where it has _________ advantage in production.

Comparative, absolute, a comparative

__________ are goods and services produced domestically but sold to other countries _________ are goods and services bought domestically but produced in other countries. __________ are taxes imposed by a government on imports of a good into a country.

Exports, Imports, Tariffs

Which of the following is not a main source of comparative​ advantage?

Internal economies of scale.

What is meant by a country specializing in the production of a​ good? Is it typical for countries to be completely​ specialized?

It shifts resources toward producing only those goods where it has a comparative​ advantage; No

Suppose the United States and Japan produce only cell phones and digital music players. Assume that each country uses only labor to produce each​ good, and that the cell phones and digital music players made in the United States and Japan are exactly alike. The table below shows how much each country can produce of each good with one hour of labor. 4,6 23,14 According to the​ table, ______ has an absolute advantage in producing cell phones​, and _______ has an absolute advantage in producing digital music players. At the same​ time, _________ has a comparative advantage in producing cell phones​, and __________ has a comparative advantage in producing digital music players.

Japan, Japan, Japan, the United States

What do we mean by the separation of ownership from control in large​ corporations?

Shareholders own the​ corporation, but it is controlled by managers.

How is the separation of ownership from control related to the​ principal-agent problem?

The agents​ (managers) may pursue their own interests rather than the interests of the principals​ (shareholders).

Briefly explain how international trade increases a​ country's consumption. By specializing in the production of the goods and services in which they have _________ ​advantage, countries allocate resources more efficiently. In other​ words, goods and services are produced at their lowest _________ cost and world output increases. Since countries are producing goods and services at different opportunity​ costs, __________ can be negotiated that will allow all countries to consume more with trade than in autarky.

a comparative, opportunity, terms of trade

A bond represents ____________ , while a share of stock represents ________

a loan to the company, part ownership of the company

The graph on the right shows​ Tanzania's production possibilities frontier for cashew nuts and mangoes. Assume that the output per hour of work is 8 bushels of cashew nuts or 2 bushels of​ mangoes, and that Tanzania has​ 1,000 hours of labor. Without​ trade, Tanzania evenly splits its labor hours between cashews and mangoes and produces and consumes at point A. Suppose Tanzania opens trade with​ Kenya, and​ Kenya's output per hour of work is 1 bushel of cashew nuts or 1 bushel of mangoes. Having the comparative​ advantage, Tanzania completely specializes in cashew nuts. Locate the point of production for Tanzania. a) The point of production for Tanzania includes _____ bushels of mangoes and _______ bushels of cashew nuts b) Suppose Tanzania keeps​ 5,000 bushels of cashew nuts and exports the remaining​ 3,000 bushels. The terms of trade are 1 bushel of mangoes for 2 bushels of cashew nuts. Locate the point that shows the amount of cashew nuts and mangoes that Tanzania consumes with trade. After​ trading, the point of consumption for Tanzania includes ______ bushels of mangoes and _______ bushels of cashew nuts. c) Which of the following statements is true for Tazania with​ trade?

a) 0, 8,000 b)1,500, 5,000 c) With​ trade, Tanzania is producing on its PPF but not consuming on its PPF.

Refer to the graph about the market for lumber in the United States. a) The graph shows the effect of a​ $0.50 per board foot tariff on lumber. What is the quantity of lumber supplied​ (in thousands of board​ feet) by domestic producers after the​ tariff? b) What is the reduction in U.S. lumber consumption​ (in thousands of board​ feet) as a result of the​ tariff?

a) 900 b) 100

a) What is a​ quota? b) What is a voluntary export​ restraint?

a) A numerical limit a government imposes on the quantity of a good that can be imported into a country. b) An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.

a) What is absolute​ advantage? b) The table below shows the quantity of two goods that a worker can produce per day in a given country. 6,3 1,2 Which of the following statements is​ true?

a) The ability of an​ individual, firm, or country to produce more of a good or service than competitors when using the same amount of resources. b) Country A has an absolute advantage in the production of both goods and a comparative advantage in the production of food

Using the numbers in the​ table, determine which country has a comparative advantage in producing each product. 7,12 4,5 a) Which of the following statements is​ true? b) _________ should produce Smartphones and _______ should produce Fitness Bracelets.

a) The opportunity cost for Canada to produce one Smartphone is 1.25 Fitness Bracelet. b) Canada, Switzerland

An income statement shows a​ firm's

all of the above.

What term do economists use to refer to the conflict between the interests of shareholders and the interests of top​ management?

a​ principal-agent problem

How is the U.S. economy affected by international​ trade? U.S. consumers buy _______ quantities of goods and services produced in other countries. At the same​ time, U.S. businesses sell _______quantities of goods and services to consumers in other countries.

increasing, increasing

A flow of funds from savers to borrowers through financial intermediaries such as banks is _________ finance, while a flow of funds from savers to firms through financial​ markets, such as the New York Stock Exchange is _________ finance.

indirect, direct

Limited liability becomes more important for firms trying to raise funds from a large number of​ investors, rather than from a small number of​ investors, because

investors that make a small investment in a firm may be unwilling to risk all their personal assets if the firm fails.

Comparative advantage

is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors.

The formula for calculating the present value of a bond that will pay a coupon of​ $100 per year for 10 years and has a face value of​ $1,000 is

present value= $100/(1+i) + $100/(1+i)^2 + ...... + $100/(1+i)^10 + $1000/(1+i)^10

The shares of stock issued as a result of​ Lyft's Initial Public Offering​ (IPO) were sold in a _________ market. The IPO is an example of _________ finance.

primary, direct

Limited liability means that

shareholders in a corporation cannot lose more than their investment in the firm.

The three major types of firms in the United States are called

sole​ proprietorships, partnerships, and corporations.

ExxonMobil is a large corporation. Who owns this​ company? ExxonMobil is owned by

stockholders.

The principal-agent problem arises almost everywhere in the business world—but it also crops up even closer to​ home, such as the case of the college classroom. In this​ case, who is the principal and who is the​ agent? The principal is the_______and the agent is the______

student, professor

The government grants limited liability to the owners of corporations

to limit shareholder risk and thus encourage investment in corporations.

The owners of sole proprietorships and partnerships have

unlimited liability

Direct finance is borrowing_________​,while indirect finance is borrowing_________If you borrow money from a bank to buy a new​ car, you are using_______finance.

via financial markets, from financial intermediaries, indirect

A(n) ______ is a financial security that represents partial ownership of a​ firm, while a ______ is a financial security that represents a promise to repay a fixed amount of funds.

​stock, bond