Microeconomics Chapter 3 Study Guide

a production possibilities frontier is bowed outward

the rate of trade off between the two goods being produced depends on how much of each good is being produced

Differences in the opportunity cost allow for gains from trade.

True

Which of the following is not an example of the principle that trade can make everyone better off?

All of the above are examples of the principle that trade can make everyone better off

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,

Belarus should export linen to Russia

Refer to table 3-35 which good(s) does Finland have an absolute advantage producing?

Both eggs and ham

Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake and eat corn. In which of the following cases is it impossible for both Olivia and Andrew to benefit from trade?

Both olivia and Andrew can benefit from trade in all of the above cases

Refer to Figure 3-25 Colombia should specialize in the production of

Coffee and import soy beans

Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer spends 1 hour less producing corn and 1 hour more producing beans, he reduces his output of corn by 2 bushels and raises his output of beans by 3 bushels. In view of these assumptions, the farmer's production possibilities frontier is bowed out.

False

Trade between countries

allows each country to consume at a point outside its production possibilities frontier

Refer to figure 3-10 Both Alice and Betty

face a constant trade off between producing pitchers of lemonade and pizza

By definition, exports are

goods produced domestically and sold abroad

Tom Brady should probably not mow his own lawn because

his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for him.

a farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows the farmers opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton.

is equal to 1

a person can benefit from specialization and trade by obtaining a good at a price that is

lower than his or her opportunity cost of that good

a professor spends 10 hours per day giving lectures and writing papers. for the professor, a graph that shows his various possible mixes of output (lectures given per day and papers written per day) is called his

production possibilities frontier

assume that indonesia and india can switch between producing rice and bananas at a constant rate. Refer to table 3-34 For which good(s) does indonesia have a comparative advantage

rice but not bananas

Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellies opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendans opportunity cost of one apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production of ice cream.

true

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

true

as long as two people have different opportunity costs, each can gain from trade with the other, since trade allows each person to obtain a good at a price lower than his or her opportunity cost

true

for both parties to gain from trade, the price at which they trade must lie between the two opportunity costs

true