HW2 - Ch.2: Economic Models: Trade-offs and Trade

Determine if the items represent an example of positive economics or normative economics. -The richest 1 % of Americans should pay more taxes than the rest of the 99 %. A decrease in the supply of coconut will increase the price of German chocolate cake, a good which requires coconut shavings as a key ingredient. -As minimum wage increases, the prices of all goods and services also tends to increase. -Social welfare spending in Sweden occupies too large a portion of the national budget.

1. normative economics 2. positive economics 3. positive economics 4. normative economics

Christine and Paul are deciding how to split their time between writing music and lyrics for their new album. Their PPFs for 72 h of work are shown. Christine and Paul have to write music for 8 songs and lyrics for 12 songs (4 songs already have music). When they are done, they can go to a private island and relax from all their hard work. It is possible that they will use more than 72 h. A graph with Lyrics written in number of songs on the horizontal axis which runs from 0 to 9 and music written in number of songs on the vertical axis which runs from 0 to 9. The graph contains two lines. The first line is labelled as Christine's PPF. Christine's PPF intersects the music axis at 8 and the lyrics axis at 9. The second line is labelled as Paul's PPF. Paul's PPF intersects the music axis at 6 and the lyrics axis at 4. Both lines are perfectly linear. Once they start writing lyrics and music, assuming their hired help packs for them and their plane is waiting outside their door, in how many hours can they board the plane to their relaxing island getaway?

Hours: 96 Christine will write music for 0 songs Paul will write music for 8 songs Christine will write lyrics for 12 songs Paul will write lyrics for 0 songs

Vincent and Jean are two cooks who work in a village.Each of them can bake cakes or make pizzas.Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Which cook has the absolute advantage in baking cakes?

Jean

Vincent and Jean are two cooks who work in a village.Each of them can bake cakes or make pizzas.Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Which cook has the absolute advantage in making pizzas?

Jean

Vincent and Jean are two cooks who work in a village.Each of them can bake cakes or make pizzas.Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Which cook has the comparative advantage in making pizzas?

Jean

Assume Spain and Libya can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Spain can produce 10 metric tons of grain or 5 metric tons of dates in a season. Each farmer in Libya can also produce 10 metric tons of grain or 25 metric tons of dates.Which country has the absolute advantage in producing dates?

Libya

Assume Spain and Libya can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Spain can produce 10 metric tons of grain or 5 metric tons of dates in a season. Each farmer in Libya can also produce 10 metric tons of grain or 25 metric tons of dates.Which country has the comparative advantage in producing dates?

Libya

Assume Spain and Libya can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Spain can produce 10 metric tons of grain or 5 metric tons of dates in a season. Each farmer in Libya can also produce 10 metric tons of grain or 25 metric tons of dates.Which country has the comparative advantage in producing grain?

Spain

Select the correct definition of the term \"comparative advantage.\"

The ability to produce a good or service at a lower opportunity cost than another.

Classify the statements as true or false by dragging them into the appropriate box: - Countries specialize in the production of goods for which they have a comparative advantage. - A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good. - It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage then trade with one another. - The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone. - Absolute advantage is the source of the potential gains from specialization and trade.

True: - Countries specialize in the production of goods for which they have a comparative advantage. - It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage then trade with one another. False: - The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone. - Absolute advantage is the source of the potential gains from specialization and trade. - A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good.

Classify each statement as true or false by dragging it into the corresponding category: - When two countries choose to partake in international trade, it is a mutually beneficial activity for both countries. -Wealthier countries always benefit more from international trade than poorer countries do - Countries trade for goods in which they do not have a comparative advantage, and therefore, would never trade with nations that have similar resource endowments. -Through specialization and trade, it is possible for a country to consume a combination of goods that is beyond its original production possibilities frontier.

True: - When two countries choose to partake in international trade, it is a mutually beneficial activity for both countries. -Through specialization and trade, it is possible for a country to consume a combination of goods that is beyond its original production possibilities frontier. False: -Wealthier countries always benefit more from international trade than poorer countries do - Countries trade for goods in which they do not have a comparative advantage, and therefore, would never trade with nations that have similar resource endowments.

Vincent and Jean are two cooks who work in a village.Each of them can bake cakes or make pizzas.Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Which cook has the comparative advantage in baking cakes?

Vincent

Suppose two economists are debating a tax reform bill. Both economists agree that the bill would increase the after-tax income of the top 5% of income earners; however, they disagree on whether the bill would improve the tax system. Which is the most plausible reason for why these economists disagree?

differences in values

When trading with more developed countries:

less developed countries have a comparative advantage in the production of some goods or services.

Assume Spain and Libya can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Spain can produce 10 metric tons of grain or 5 metric tons of dates in a season. Each farmer in Libya can also produce 10 metric tons of grain or 25 metric tons of dates. Which country has the absolute advantage in producing grain?

neither

In a competitive market, all of the choices along the production possibility frontier display __ efficiency, while the specific choice on the frontier that society picks is the one with _ efficiency.

productive, allocative

Why is the shape of the production possibilities frontier (PPF) often curved instead of straight?

some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for