Chapter 1 Hw Study Questions

We can show economic​ inefficiency:

with points inside the production possibilities frontier.

We can show economic​ efficiency:

with points on the production possibilities frontier.

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

scarcity.

The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource​ limitations, the extent to which security is enhanced will most likely be determined by

​society's willingness to forego other goods and​ services, both public and private.

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 is the basis for​ trade?

Comparative advantage.

Two​ neighbors, countries A and​ B, produce books and​ blankets, among other goods and services.​ However, Country A produces more of both goods than country B. A student of​ economics, Maya, also notes that in both​ countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B. Which of the​ following, if​ true, would weaken​ Maya's conclusion?

Country A employs more capital per unit of labor in all industries than country B.

Which of the following is a correct statement about a mixed​ economy?

In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

Question content area Part 1 Best​ Goods, one of the leading department store​ chains, offers goods at low prices. It recently opened many new stores across the country. After successfully setting up stores in most major​ cities, Best Goods faced substantial opposition in the city of​ Joberg, where lobbyists for smaller general stores​ (local businesses) opposed its entry. These lobbyists argued that Best Goods would put many local stores out of business and would also increase income inequality and unemployment in the city. Which of the following can most reasonably be concluded from the information given in the​ question?

Lobbyists believe that those who lose jobs​ won't find alternative opportunities in the short term.

Who has the comparative advantage comparative advantage in producing​ oil?

Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal.

Today, which of the following countries has a centrally planned​ economy?

North Korea

What is comparative​ advantage?

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.

What happens if a country produces a combination of goods that efficiently uses all of the resources available in the​ economy?

The country is operating on its production possibilities frontier.

Can these two countries gain from trading oil and fish​ oil?

These countries cannot gain from trade because neither has a comparative advantage producing either good.

Microsoft charges a price of​ $599 for a copy of Windows 7. Is this pricing decision​ rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality.

How are economic resources allocated in a market​ economy?

by the decisions of households and firms interacting in markets

Scarcity implies that every society and every individual face​ trade-offs because scarcity means that

human wants are greater than what available resources can produce.

The production possibilities frontier will shift outward

if resources are used to produce capital goods

Opportunity cost is

the highest valued alternative that must be given up to engage in an activity.

Two​ neighbors, countries A and​ B, produce books and​ blankets, among other goods and services.​ However, Country A produces more of both goods than country B. A student of​ economics, Maya, also notes that in both​ countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B. ​Maya's conclusion is flawed because

she assumes that country​ A's population is no larger than country​ B's.

A production possibilities​ frontier:

shows the maximum attainable combinations of two goods that may be produced with available resources.

The production possibilities frontiers depicted in the diagram to the right illustrate

technological advances in the tank industry.

Equity is

the fair distribution of economic benefits.

Economists believe that an activity should be continued up to the point where

the marginal benefit from the activity is equal to the marginal cost.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good

will have a comparative advantage if it has a lower opportunity cost of producing that good.