Microeconomics Chapter 2 Homework

What is absolute advantage? A.The ability to produce a good or service at a lower opportunity cost than other producers. B. The ability to produce more of a good or service than competitors using the same amount of resources. C. The gain from selling a product for more than it costs to produce that product. D. The gain from consuming a product whose benefit is greater than its cost. E. The ability to use all available resources to produce output.

B. The ability to produce more of a good or service than competitors using the same amount of resources.

The production possibilities frontier will shift outward

if resources are used to produce capital goods.

Where exactly the firm produces along the production possibilities frontier depends on consumer demand. If consumer demand is high for one good and low for the​ other _______of the first good will be produced and the firm will produce ______the end of the frontier for the first good.

more; closer to

A production possibilities​ frontier:

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

1) What is an​ entrepreneur? A. Entrepreneurs are policymakers in the government. B. Entrepreneurs operate businesses that produce goods and services. C. Entrepreneurs manage the free market. D. Entrepreneurs regulate profits. E. Entrepreneurs manage households that consume goods and services. 2) Why do entrepreneurs play a key role in a market​ system? A. They supply labor as a factor of production. B. They determine what goods and services are produced. C. They influence income distribution through taxes and transfer payments. D. They bring together factors of production. E. They determine who will receive goods and services.

1. B 2. D

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 a free market

A free market is one where the government does not control the production of goods and services.

Property rights are A. the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it. B. the rights individuals or firms have to the exclusive use of their property, excluding the right to buy or sell it. C. the rights individuals or firms have to the exclusive use of their property within individual culturally defined norms which are inconsistent in each area of the United States. D. the rights government has to the exclusive use of all​ property, including the right to buy or sell it.

A. the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.

A free market exists A. when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. B. when the government places significant restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. C. when the government places absolutely no restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. D. only in fiction. There are no markets or economies which even come close to approaching the status of a free market

A. when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.

Question 3 Explanation

As the economy moves down the production possibilities​ frontier, it experiences increasing marginal opportunity costs because increasing automobile production by a given quantity requires larger and larger decreases in tank production. Increasing marginal opportunity costs occur because some​ workers, machines, and other resources are better suited to one use than to another. The idea of increasing marginal opportunity costs illustrates an important economic​ concept: The more resources already devoted to any​ activity, the smaller the payoff to devoting additional resources to that activity. Next Question

The primary difference between absolute and comparative advantage is A. absolute advantage refers to the ability to produce a good or service at a lower opportunity cost and comparative advantage refers to the ability to produce more of a good or service using the same amount of resources. B. absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost. C. absolute advantage can never change while comparative advantage depends on the relative cost of a​ good's resources. D. absolute advantage is a concept that was utilized in communist countries and comparative advantage is a capitalist idea.

B. absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.

The production possibilities frontiers depicted in the diagram to the right illustrate A. the likely result of a ground war. B. both the labor force and capital stock increasing. C. technological advances in the tank industry. D. both the labor force and capital stock decreasing.

B. both the labor force and capital stock increasing.

The Scottish philosopher Adam Smith argued in 1776 that A. prices would do a better job of coordinating the activities of buyers and sellers than markets could. B. prices would do a better job of coordinating the activities of buyers and sellers than guilds could. C. guilds would do a better job of coordinating the activities of buyers and sellers than prices could. D. unions would do a better job of coordinating the activities of buyers and sellers than prices could

B. prices would do a better job of coordinating the activities of buyers and sellers than guilds could.

The Scottish philosopher Adam Smith argued in 1776 that A. guilds would do a better job of coordinating the activities of buyers and sellers than prices could. B. prices would do a better job of coordinating the activities of buyers and sellers than guilds could. C. prices would do a better job of coordinating the activities of buyers and sellers than markets could. D. unions would do a better job of coordinating the activities of buyers and sellers than prices could.

B. prices would do a better job of coordinating the activities of buyers and sellers than guilds could.

The production possibilities frontiers depicted in the diagram to the right illustrate A. technological advances in the automobile industry. B. technological advances in the tank industry. C. increases in both the labor force and capital stock. D. technological advances in both the tank and automobile industries

B. technological advances in the tank industry.

In the diagram to the​ right, point Upper G indicates an A.efficient result. B.unattainable result. C.inefficient result.

B.unattainable result.

A production possibilities frontier​ (PPF) is A. a curve showing the generally attainable combinations of two products that may be produced with all planned or​ potential, yet undeveloped technology. B. a curve that shows the potential productive capabilities of the frontier​ (defined as the area outside of​ cities) of a developing economy. C. a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. D. a curve that illustrates the demand of two goods for the average consumer.

C. a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

On the diagram to the​ right, movement along the curve from points A to B to C illustrates A. decreasing marginal opportunity costs. B. constant marginal opportunity costs. C. increasing marginal opportunity costs. D. reflexive marginal opportunity costs

C. increasing marginal opportunity costs.

One of the great benefits of trade is A. that it makes it possible for society to become better off by increasing its production but not its consumption. B. that it provides society what it desires most in life even if it does not enhance the means for achieving its goals. C. that it makes it possible for society to become better off by increasing its consumption. D. that it makes it possible for society to become better off by increasing its consumption.

D. that it makes it possible for society to become better off by increasing its consumption.

What is comparative​ advantage? A. The gain from selling a product for more than it costs to produce that product. B. The gain from consuming a product whose benefit is greater than its cost. C. The ability to produce more of a good or service than competitors using the same amount of resources. D. The ability to use all available resources to produce output. E. The ability to produce a good or service at a lower opportunity cost than other producers.

E. The ability to produce a good or service at a lower opportunity cost than other producers.

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 A. will not have a comparative advantage because it has fewer resources. B. will have a comparative advantage if it is able to produce that good at a low total cost. C. will have a comparative advantage if it devotes more resources toward that​ good's production. D. will have a comparative advantage if it produces more efficiently. E. will have a comparative advantage if it has a lower opportunity cost of producing that good.

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

What are the two main categories of participants in​ markets?

Firms and households

What does increasing marginal opportunity costs​ mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.

A production possibilities frontier​ (PPF) is a curve showing the ________attainable combinations of two goods that can be produced with available resources and current technology. It can be applied to​ people, firms or the economy as a whole.

Maximum

What is the circular-flow diagram and what does it illustrate?

The circular-flow diagram shows how households and firms are linked through product and factor markets.

What are the implications of this idea for the shape of the production possibilities​ frontier?

The production possibilities frontier will be bowed outward.

When countries specialize in producing goods in which they have ___________ advantage and trade for goods in which other countries have _____ advantage, the incomes of all countries increase.

a comparative; a comparative

All combinations of goods produced​ along, or​ inside, a production possibilities are

attainable with the resources​ available, but combinations beyond the production possibilities frontier are unattainable given current resources.

In what ways does a free market economy differ from a centrally planned​ economy? Unlike a free market​ economy,

centrally planned economies have extensive government controls.

The basis for trade is ______________ advantage.

comparative

All combinations of goods on the frontier are _______because all available resources are being fully​ utilized, and the fewest possible resources are being used to produce a given amount of output. Combinations inside the frontier are __________because maximum output is not being obtained from the available resources.

efficient; inefficient

​A(n) _______________ is someone who operates a​ business, bringing together the factors of productionlong dash—​labor, ​capital, and natural resourceslong dash—to produce goods and services.

entrepreneur

Two key groups participate in markets. A ____________ consists of all the individuals in a home. _________ are suppliers of goods and services. We can use a simple economic model called the ________-________ ________to see how participants in markets are linked.

household Firms circular-flow diagram

Which participants are of greatest importance in determining what goods and services are​ produced?

households

The primary difference between product markets and factor markets is that

product markets are markets for goods, while factor markets of production-labor, capital, natural resources, and entrepreneurial ability.

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.

We can show economic​ inefficiency:

with points inside the production possibilities frontier.

We can show economic​ efficiency:

with points on the production possibilities frontier.

Factors of production are divided into four broad​ categories:

≻Labor includes all types of​ work, from the​ part-time labor of teenagers working at​ McDonald's to the work of top managers in large corporations. ≻Capital refers to physical​ capital, such as computers and machine​ tools, that is used to produce other goods. ≻Natural resources include​ land, water,​ oil, iron​ ore, and other raw materials​ (or "gifts of​ nature") that are used in producing goods. ≻An entrepreneur is someone who operates a business. Entrepreneurial ability is the ability to bring together the other factors of production to successfully produce and sell goods and services. Next Question