Micro Econ Chapter 2

When producers specialize in making a particular good according to their comparative advantage, total production possibilities

are greater than if each produced the combination of goods they themselves want to consume

Points inside the production possibilities frontier are

attainable and inefficient

The functioning of the invisible hand depends on some assumptions, such as

free competition and full information

When you lose comparative advantage in one thing you BLANK in another thing

gain

When specialized producers exchange goods and services, outcomes improve because of

gains from trade

There is room for trade as long as the two countries

differ in their opportunity costs to produce a good and they set a trading price that falls between those two opportunity costs.

Points along the production possibilities frontier are attainable and

efficient

Trade can be driven by self interest because

everyone gets more of the things they want than they were if they were self-sufficient

The opportunity cost of producing one good in terms of the other typically BLANK as more of a good is produced because skills vary among workers

increase

Assume that workers cannot produce the same amount of each good. The opportunity cost of producing one good in terms of the other

increases as more of a good is produced because skills vary among workers

Specialization

increases total production, using the same number of workers and same technology

Points BLANK the production possibilities frontier are inefficient while points BLANK the production possibilities frontier are efficient.

inside, along

When an economy chooses a point inside the production possibilities frontier,

it could produce more of both goods with its given resources

Gains from trade refer to the improvement in outcomes that occur when producers BLANK and exchange goods and services.

specialize

If each country focuses on producing the good for which it has comparative advantage, the country would

specialize in production of that good

The two main factors that drive the change in the U.S. production possibilities are

technology, and number of workers

Along a straight line production possibilities curve, the slope of the line measures

the opportunity cost of one good in terms of the other

The production possibilities frontier helps us answer the second economists question, "What are the trade-offs"?, because

there is a trade off between the production of the two goods

In the Nineteenth century, the U.S. snatched the comparative advantage in clothing

through a combination of new technology and cheap labor

Geographic shifts in the production of clothing has occurred, in large part, because of lower relative..

wages

Who is credited with first using the term "invisible hand" to describe this coordinating mechanism?

Adam Smith

True or False: Points inside the production possibilities frontier are achievable, but still make full use of all available resources

FALSE

Which of the following statements is true?

No producer has a comparative advantage at everything, and each producer has a comparative advantage at something.

True or False: Based on the assumption of efficiency, we can predict that an economy will choose to produce at a point on the frontier rather than inside it.

TRUE

A producer has a comparative advantage when they can produce

a good at a lower opportunity cost

If a producer can generate more output than others with a given amount of resources, that producer has an

absolute advantage

Points inside the production possibilities frontier are

achievable, but don't make full use of all available resources

The production possibilities frontier shows all the possible combinations of outputs that can be produced using

all available resources

A country has a BLANK advantage over another country if it can make a product at a lower opportunity cost than another country.

compartive

When opportunity costs are increasing, the shape of production possibilities frontier is a

concave curve

When opportunity costs are increasing, the shape of the production possibilities frontier is a

concave curve

The production possibilities frontier gives us a way to represent the

constraints on production.

When opportunity costs are increasing, the production possibilities frontier is

convex

When the country appears to be guided by an invisible hand,

no government intervention is required to coordinate production.

Based on the assumption of efficiency, we can predict that an economy will choose to produce at a point

on the frontier, rather than inside it

A problem with specialization is that each producer may end up with BLANK good

one

Points that lie BLANK the production possibilities frontier are unattainable

outside

When the technology improves the production of one good, the production possibilities frontier

pivots outword

The production possibilities frontier shows the

production constraint of two outputs that can be produced using all available resources