Economics Chapter 8

"Gold is scarce—buy less of it!" This is a clear message to:

potential buyers

The opportunity cost principle reminds you that the true cost of something is:

what you must give up to get it.

Potential buyers and potential suppliers communicate through:

price

You have a baseball bat that you do not want anymore and your friend has a basketball that you want. If you buy the basketball from your friend and your friend buys the baseball bat from you, you both end up with gains from trade. You have:

reallocated the goods to better uses

Because Helen is slower in performing all the household chores than her roommate Jamie, Helen asks Jamie to do all the chores. Helen says that it is more efficient to give tasks to those who are best at them. However, Helen's conclusion is dead wrong for economists because:

she's not thinking about costs in the way an economist would.

You received a Batman car for your birthday but you already have one. Your friend, Jim, would like the Batman car since he does not have one. Jim has a Batman board game that you would like to have. If you sold your Batman car to Jim and Jim sold the Batman board game to you, this would be a gain from:

trade

When you are managing a household, you must determine who is going to complete certain tasks. If you are using comparative advantage to determine who is going to do which task, you should ask the question:

what is the best way to allocate tasks that need to be done in the household?

How do Chinese tea farmers learn about a rise in the popularity of tea in the West?

They communicate with buyers through price

Ofira and Firuze want to determine who has the lowest opportunity cost of cleaning the kitchen. Ofira spends two hours cooking a meal and one hour cleaning the kitchen. Firuze spends two hours cooking a meal and two hours cleaning the kitchen. What are the opportunity costs for Ofira and Firuze of cleaning the kitchen?

Ofira: 1/2 meal; Firuze: 1 meal

Ofira and Firuze want to find out who has the lowest opportunity cost of cooking a meal. Ofira spends two hours cooking a meal and one hour cleaning the kitchen. Firuze finishes cooking a meal in two hours and spends two hours cleaning the kitchen. What is the opportunity cost for Ofira and Firuze of cooking a meal?

Ofira: 2 rounds of cleaning the kitchen; Firuze: 1 round of cleaning the kitchen

Whitney and Houston want to find out who has a comparative advantage in cleaning the house. Whitney spends two hours washing the car and two hours cleaning the house. Houston spends one hour washing the car and three hours cleaning the house. Who has the comparative advantage of cleaning the house and what is the opportunity cost of cleaning the house?

Whitney; 1

Many buyers use futures contracts to agree to purchase a commodity at a specific time in the future. A futures contract will allow:

businesses to obtain useful information about possible future disruptions to input costs.

How best can I allocate tasks is a question you would ask if you were using:

comparative advantage

An example of gains from trade is that people sell their labor for money and spend that money on food because:

more benefits can be had by specializing in one task and then trading for other goods and services than doing every task by oneself.

A manager of an advertising company just received a new project to create a website and produce a video presentation. She must assign these tasks to her team. Alexis can write the content in four hours and edit a video presentation in three hours. Hoshi can do the content writing in three hours and the video editing in two hours. What are the opportunity costs for Alexis and Hoshi to write content?

Alexis: 4/3; Hoshi: 3/2

Candis and Freddie want to find out who has a comparative advantage in washing the car. Candis spends two hours washing the car and four hours cleaning the house. Freddie spends three hours washing the car and one hour cleaning the house. Who has the comparative advantage in washing the car and what is their opportunity cost?

Candis; 1/2

After Christmas, you and your friend talked about the gifts that you received. Your friend happens to have the stuff you love and you also have stuff he pines for. So, both of you trade stuff and feel better off for getting something each of you prefers to have. What do we call the benefits that you get from reallocating stuff to better uses?

Gains from trade

Whitney and Houston want to find out who has a comparative advantage in washing the car. Whitney spends three hours washing the car and three hours cleaning the house. Houston spends one hour washing the car and three hours cleaning the house. Who has the comparative advantage in washing the car and what is the opportunity cost?

Houston; 1/3

Lakisha and Zara are partners in a small suburban law office. They want to determine who should deal with producing a will. Lakisha can write a will in three hours, or an employment contract in four hours. Zara is slower, and it takes her four hours to write a will, and eight hours to write an employment contract. What are the opportunity costs for Lakisha and Zara to produce a will?

Lakisha 3/4; Zara 1/2

John and Lisa want to find out who has a comparative advantage in preparing and teaching a class. John spends six hours preparing and teaching the class and two hours grading papers. Lisa spends four hours preparing and teaching the class and two hours grading papers. Who has the comparative advantage in preparing and teaching a class and what is their opportunity cost?

Lisa; 2

Absolute advantage is the:

ability of one person to do a task using fewer inputs

At home, you decide who should clean the house or shop for groceries. At work, you, as a manager, decide who should run a new advertising campaign, or who should analyze the market trend. What is the underlying question that is similar to both scenarios?

How best can I allocate these tasks?

Caymon and Mary want to find out who has a comparative advantage in cutting the grass. Caymon spends five hours cutting the grass and four hours planting the garden. Mary spends three hours cutting the grass and three hours planting the garden. Who has the comparative advantage in cutting the grass and what is their opportunity cost?

Mary; 1