Chapter 1,2,20,21

Assume that one day's labor in Argentina can produce either 20 units of cloth or 2 units of wine, while in Chile one day's labor can produce either 24 units of cloth or 12 units of wine. If Argentina transfers 2 units of labor from wine to cloth and Chile transfers 1 unit of labor from cloth to wine, the increase in combined output by those two workers will be:

8 wine; 16 cloths

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.

Budget Constraint

Which of the following best characterizes the circular flow of income?

Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

Suppose that Canada can produce 100,000 hockey sticks or 10,000 gallons of maple syrup in a typical workweek, while Germany can produce 90,000 hockey sticks or 10,000 gallons of maple syrup in a typical workweek. From these numbers, we can conclude:

Canada has a comparative advantage in the production of hockey sticks

Economic models like the _____________________ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories.

Circular Flow Diagram

In which of the following countries will the national government have the greatest influence with respect to the nation's economy?

Cuba

In countries like _____________ the command economy predominates.

Cuba and North Korea

Regardless of whether you are looking through the microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected __________ doesn't change.

Economy

A circular flow diagram is when workers or firms focus on particular tasks for which they are well-suited within the overall production process.

False

A command economy is an interaction between potential buyers and sellers.

False

A market-oriented economy is an economy where economic decisions are passed down from government authority and where the government owns the resources.

False

A production possibilities frontier is all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent.

False

A traditional economy is an economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand.

False

Fiscal policy is policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing.

False

Macroeconomics is the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms.

False

Microeconomics is the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance.

False

Normative statements describe the world as it is.

False

Opportunity costs are costs that were incurred in the past and cannot be recovered.

False

Specialization is when the average cost of producing each individual unit declines as total output increases.

False

Sunk cost is whatever must be given up to obtain something that is desired.

False

The budget constraint is a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.

False

The division of labor measures the size of total production in an economy.

False

The labor market is a market in which firms are sellers of what they produce and households are the buyers.

False

The product market is the market in which households sell their labor as workers to business firms or other employers.

False

The value chain is when one country can use fewer resources to produce a good compared to another country or when one country is more productive compared to another country.

False

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 36 units of food per year or 18 units of clothing. Which of the following is true?

Georgeland has an absolute but not a comparative advantage in producing clothing.

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. Which of the following statements is true?

If Alpha specializes in growing apples and Beta specializes in growing oranges, they could both gain by specialization and trade.

_____________ are numerical limitations on the quantity of products that can be imported.

Import quotas

In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true?

India has a comparative advantage in the production of rice.

When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being:

Low Inflation

It is sometimes argued that nation should not depend too heavily on other countries for supplies of certain key products. This argument is commonly known as the _______________.

National Interest Argument

Suppose that the USA can make 15,000,000 cars or 20,000,000 bottles of wine with one year's worth of labor. France can make 10,000,000 cars or 18,000,000 bottles of wine with one year's worth of labor. From these numbers, we can conclude:

The USA has an absolute advantage in the production of cars.

If the USA could produce 1 ton of potatoes or 0.5 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, there can be mutual gains from trade if:

The USA specializes in potatoes because of its comparative advantage in producing potatoes.

________________________ is theoretically possible, even sensible: give an industry a short-term indirect subsidy through protection, and then reap the long-term economic benefits of having a vibrant healthy industry.

The infant industry argument

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.

Why would foreign firms export a product at less than its cost of production—which presumably means making a loss?

This may be part of a long-term strategy in which foreign firms would sell at below the cost of production in the short-term for a time, and when they have driven out the domestic U.S. competition, they would then raise prices.

A circular flow diagram is a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market.

True

Absolute advantage is when one country can use fewer resources to produce a good compared to another country or when one country is more productive compared to another country.

True

Allocative efficiency means that the particular mix of goods being produced—that is, the specific choice along the production possibilities frontier—represents the allocation that society most desires.

True

An underground economy, also known as a black market, is a market where buyers and sellers make transactions in violation of one or more government regulations.

True

Exports are goods and services made domestically and sold abroad.

True

Intra-industry trade is the international trade of goods within the same industry.

True

Modern trade theory is an evolution of ideas in economic thought.

True

Private enterprise is a system where private individuals or groups of private individuals own and operate the means of production.

True

Scarcity is when human wants for goods and services exceed the available supply.

True

Sunk costs are costs that we have made in the past and cannot recover.

True

The division of labor is the way in which different workers divide required tasks to produce a good or service.

True

The labor market is the market in which households sell their labor as workers to business firms or other employers.

True

The law of diminishing returns holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline.

True

Utility is satisfaction, usefulness, or value one obtains from consuming goods and services.

True

When a country can consume more than it can produce as a result of specialization and trade, that country is experiencing gains from trade.

True

Which of the following would most likely shift the production possibilities curve inward?

a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

A rule that every imported product must be opened by hand and inspected with a magnifying glass, by one of just three government inspectors available at any given time might be referred to as

a non-tariff barrier

A tariff differs from a quota in that a tariff is:

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

Jethro has a(n) ____________________ in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up

absolute advantage

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n)____________________in producing that product.

absolute advantage

Marginal thinking is best demonstrated by:

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

During the second half of the twentieth century, trade barriers have in general:

declined quite substantially both in the U.S. economy and in the global economy.

In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.

division of labor

The concept of ____________________ means that as the measure of output goes up, average costs of production decline—at least up to a point.

economies of scale

The circular flow diagram of economic activity is a model of the:

flow of goods, services, and payments between households and firms.

The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves __________ spending.

government

Which of the following best describes a fiscal policy tool?

government spending

Which of the following is not a short-run impact of imposing quotas on the American industries they seek to protect?

government tax revenues increase

After the USA introduces a tariff in the market for calculators, the price of calculators in the USA will:

increase

Raising an existing tariff on grapes from Argentina will:

increase American consumption of domestically produced grapes.

Introducing a tariff on vitamin Z would:

increase American consumption of domestically produced vitamin Z.

A new American import quota on imported steel would be likely to:

increase American production of steel.

Import tariffs generally ________ the output of domestic producers of the affected products and also _________ the output of domestic exporters.

increase; decrease

Which of the following best describes a monetary policy tool?

interest rates

Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization?

international trade

The opportunity cost of an action:

is a subjective valuation that can be determined only by the individual who chooses the action.

"Tariffs and other trade restrictions increase the domestic scarcity of products from abroad. Such policies benefit domestic producers of the restricted products at the expense of domestic consumers." This statement:

is essentially correct.

Intra-industry trade between similar trading partners allows the gains from ________________ that arise when firms and workers specialize in the production of a certain product.

learning and innovation

Trade allows each country to take advantage of ______________ in the other country.

lower opportunity costs

Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

marginal analysis

In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

market-oriented economy

The basic difference between macroeconomics and microeconomics is:

microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

The basic difference between macroeconomics and microeconomics is that:

microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

The slope of the production possibility frontier is determined by the _________ of expanding production of one good, measured by how much of the other good would be lost.

opportunity cost

The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower

opportunity cost

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

the benefit to his grades from studying for an hour.

If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:

the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.

If macroeconomics looks at the economy as a whole, it focuses on which of the following?

unemployed people