Smartbook 2

Economic growth is represented by _____ shift in a country's PPC.

an outward

A PPC that becomes steeper as production of the good on the x-axis increases reflects the principle that

as we produce more of something, the opp cost of producing that good increases. reason: the slope of a ppc tells us the opp cost of producing an aditional unity of the good on the x-axis. the principle of increasing opp cost tells us that as we produce more of a good, we should first use the resources w/ the lowest opp cost before turning to resources w higher opp costs.

A bow-shaped ppc that becomes steeper as the production of the good on the x-axis increases reflects the fact that _____

as you produce more of the good on the x-axis, the opp cost of producing that good increases reason: the abs value of the slope of the ppc captures the opp cost of producing the good on the x-axis. as the slope becomes steeper, the opp cost of producing that good increases.

Any combination of goods that can be produced using currently available resources is known as a(n)

attainable point

A production possibilities curve is a(n)

graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good. reason: (sometimes it's also called a production possibilities frontier.)

When 2 parties produce the good or service for which they wield a comparative advantage, there are gains from specialization and exchange. In general, this means:

each can consumes a combination of goods that would have been unattainable otherwise.

when the ppc curve shifts outward, this is evidence of

economic growth

True or false: A person's comparative advantage can never change

false reason: experience, education and training can change a person's comparative advantage.

The fact that the production possibility curve is downward sloping illustrates the idea that

having more of one thing generally means having less of something else.

All else equal, as population density increases you would expect specialization to

increase reason: as population density increases it becomes easier for individuals to trade with one another

Which of the following causes an inward shift in the ppc?

reduction in population

Zach and Alex both build furniture. If Zach has a comparative advantage in the production of tables, and Alex has a comparative advantage in the production of chairs, then both Zach and Alex can be made better off if Zach specializes in the production of _______ and if Alex specializes in the production of _______.

tables; chairs reason: the principle of comparative advantage tells us that everyone will be better off if each person specializes in the task as which he or she has a comparative advantage.

On the graph of a production possibility curve (PPC), the opportunity cost of the good on the horizontal axis is determined by

the absolute value of the slope of the production possibilities curve |slope PPC|

The idea that because resources are limited, having more of one thing generally means having less of another is captured by the fact that

the production possibilities curve is downward sloping,

On the graph of a production possibility curve (PPC), the opportunity cost of the good on the vertical axis is determined by

the reciprocal of the absolute value of the slope of the PPC: 1/|slope PCC|

Any combination of goods that cannot be produced using currently available resources is known as a(n)

unattainable point

Suppose Damon and Destiny are auto mechanics. If we want to know which one has a comparative advantage in performing oil changes, then we would want to know

which one has the lowest opportunity cost of performing an oil change reason: the one that has the lowest opportunity cost is the one with the comparative advantage.

Productivity in programming Productivity in bicycle repair Pat 2 webpages/hour 1 repair per hour Barb 3 web page updates/hour 3 repairs per hour Given the information in the table, Barb's opportunity cost of updating a web page is

1 bike repair reason: in the time it takes Barb to update one web page, she could have repaired one bike

Productivity in programming Productivity in bicycle repair Pat 2 webpages/hour 1 repair per hour Barb 3 web page updates/hour 3 repairs per hour Given the information in the table, Barb's opportunity cost of repairing a bike is

1 web page update reason: yes! In the time it takes Barb to repair one bike, she could have updated one web page

Corn (bushels/year): (0,8000) Potatoes (bushels/year): (24000,0) Eddie's PPC According to the figure on the right, Eddie's opportunity cost of growing a bushel of potatoes is

1/3 of a bushel of corn reason: the opportunity cost of the good on the x-axis is given by |slope PPC|

Corn (bushels/year): Eva: (0,24000) Potatoes (bushels/year): Eva: (8000,0) According to the picture on the right, Eva's opportunity cost of growing a bushel of corn is

1/3 of a bushel of potatoes reason: the opportunity cost of the good on the y-axis is given by 1/|slope PPC|

Bread (loaves.day): (0,30) Jam (jars/day): (10,0) Lydia's PPC According to the figure on the right, Lydia's opportunity cost of making a loaf of bread is

1/3 of a jar of jam reason: the opportunity cost of the good on the y-axis is given by 1/|slope of the PPC|

Corn (bushels/year): Eva: (0,24000) Eddie: (0,8000) Potatoes (bushels/year) Eva: (8000,0) Eddie: (24000,0) Break-even: (6000,6000) Consider the figure on the right. Suppose that in the absence of trade, Eva and Eddie each produce 6,000 bushels of potatoes and 6,000 bushels of corn. If instead they each specialize in growing the crop in which they have a comparative advantage and split the total output of each crop evenly between them, then how many bushels of potatoes and how many bushels of corn can they each have?

12,000 bushels of corn and 12,000 bushels of potatoes

Productivity in programming Productivity in bicycle repair Pat 2 webpages/hour 1 repair per hour Barb 3 web page updates/hour 3 repairs per hour Given the information in the table, Pat's opportunity cost of repairing a bike is

2 web page updates reason: in the time it takes Pat to repair one bike, she (or he!) could have updated two web pages

According to the figure on the right, Eva's opportunity cost of growing a bushel of potatoes is _____. Corn (bushels/year;y) potatoes(bushels/year;x) (0,24000),(8000,0)

3 bushels of corn reason:the opportunity cost of the good on the x-axis is given by |slope PPC|.

Corn (bushels/year): (0,8000) Potatoes (bushels/year): (24000,0) Eddie's PPC According to the figure on the right, Eddie's opportunity cost of growing a bushel of corn is

3 bushels of potatoes reason: the opportunity cost of a good on the y-axis is given by 1/|slope PPC|

Bread (loaves.day): (0,30) Jam (jars/day): (10,0) Lydia's PPC According to the figure on the right, Lydia's opportunity cost of making a jar of jam is

3 loaves of bread reason: the opportunity cost of a good on the x-axis is given by |slope PPC|.

Bread (loaves/day): (0,4) Jam (jars/day): (8,0) Sean's PPC According to the figure on the right, if Sean uses all of his resources to make bread, how many loaves of bread can he make each day?

4 reason: in this graph, the y-intercept tells us the number of loaves of bread per day that Sean can make.

Cheese (thousands of lbs/day)y wine (thousands of lbs/day)x (0,8), A(4,7),B(5,6.5),C(7,5),D(8,4) PPC for a lg econ According to the figure on the right, if all of this economy's resources are devoted to producing cheese, how many lbs of cheese can it produce each day

8000

Corn (bushels/year): (0,8000) Potatoes (bushels/year): (24000,0) Eddie's PPC Eddie owns a small farm. According to the figure on the right, if Eddie uses all of his resources to grow corn, how many bushels of corn can he grow each year?

8000 reason: in this graph, the y-intercept tells us the number of bushels of corn. Eddie can grow each year if he devotes all of his resources ti growing corn.

Amber takes 15 minutes to make a pot of coffee and 30 minutes to make a loaf of banana bread. Buzz takes 10 minutes to make a pot of coffee and 40 minutes to make a loaf of banana bread. Who has the comparative advantage in making banana bread?

Amber reason: Amber's opportunity cost of making a loaf of banana bread is 2 pots of coffee. Buzz's opportunity cost of making a loaf of banana bread is 4 pots of coffee. So Amber has the comparative advantage over Buzz in making banana bread.

Productivity in programming Productivity in bicycle repair Pat 2 webpages/hour 1 repair per hour Barb 3 web page updates/hour 3 repairs per hour Given the information in the table, who has the comparative advantage in bike repairs?

Barb reason: Barb's opportunity cost of a bike repair is 1 web page update, and Pat's opportunity cost of a bike repair is 2 web page updates. So, Barb has a comparative advantage over Pat in bike repairs.

If Cathy has an absolute advantage over Reid in cooking dinner, then

Cathy's opportunity cost of cooking dinner is lower than Reed's opportunity cost of cooking dinner

Corn (bushels/year): Eva: (0,24000) Eddie: (0,8000) Potatoes (bushels/year) Eva: (8000,0) Eddie: (24000,0) According to the picture on the right, who has the absolute advantage in growing potatoes?

Eddie reason: Eddie can grow more potatoes than Eva, so he has an absolute advantage over Eva in growing potatoes.

Corn (bushels/year): Eva: (0,24000) Eddie: (0,8000) Potatoes (bushels/year) Eva: (8000,0) Eddie: (24000,0) According to the picture on the right, who has the comparative advantage in growing potatoes?

Eddie reason: eddie's opp cost of growing a bushel of potatoes is only 1/3 of a bushel of corn, while eva's opp cost of growing a bushel of potatoes is 3 bushels of corn

Corn (bushels/year): Eva: (0,24000) Eddie: (0,8000) Potatoes (bushels/year) Eva: (8000,0) Eddie: (24000,0) According to the picture on the right, who has the comparative advantage in growing corn?

Eva reason: Eva's opportunity cost of growing a bushel of corn is only 1/3 of a bushel of potatoes, while Eddie's opportunity cost of growing a bushel of corn is 3 bushels of potatoes.

T/F: If the United States has an absolute advantage over the Netherlands in the production of tomatoes, then there is no reason for the United States to import tomatoes from the Netherlands.

False reason: if the Netherlands has a comparative advantage in the production of tomatoes, the the US might still import tomatoes from the Netherlands.

Hazel and Rusty are farmers. Each year, Hazel can either grow 100 bushels of tomatoes or 50 bushels of green beans, and Rusty can either grow 60 bushels of tomatoes or 20 bushels of green beans. Who has the comparative advantage in growing green beans?

Hazel reason: Hazel's opportunity cost of growing a bushel of green bean is 2 bushels of tomatoes, and Rusty's opportunity cost of growing a bushel of green bean is 3 bushels of tomatoes. So, Hazel has a comparative advantage over Rusty in growing green beans.

Belle and Linda work in a beauty salon, either coloring or cutting people's hair. If Belle colors someone's hair, she gives up 4 haircuts. If Linda colors someone's hair, she gives up 3 haircuts. Thus, ______ has a comparative advantage in coloring hair.

Linda reason: Linda's opportunity cost of coloring hair is less than Belle's opportunity cost of coloring hair, so Linda has a comparative advantage over Belle in coloring hair.

Bread (loaves/day): Lydia: (0,30) Sean: (0,4) Jam (jars/day): Lydia: (10,0) Sean: (8,0) According to the picture on the right, who has the absolute advantage in making jam?

Lydia reason: Lydia can make more jam than Sean so she has an absolute advantage over Sean in making jam

Bread (loaves/day): Lydia: (0,30) Sean: (0,4) Jam (jars/day): Lydia: (10,0) Sean: (8,0) According to the picture on the right, who has the comparative advantage in making bread?

Lydia reason: lydia's opp cost of making a loaf of bread is only 1/3 of jar of jam, while sean's opp cost of making a loaf of bread is 2 jars of jam.

Bread (loaves/day)y Jam (jars/day) Sean's PPC: (0,4),(8,0) Lydia's PPC: (0,30),(10,0) According to the picture on the right, who has the comparative advantage in making jam?

Lydia reason: sean's opp cost of making jar of jam is only 1/2 of a loaf of bread, while lydia's opp cost of making a jar of jam is 3 loaves of bread

Suppose that Miles and Frank are both architects. Miles has a comparative advantage over Frank in designing skyscrapers. Select all of the reasons why this might arise:

Miles has more innate ability than Frank Miles had more training than Frank Miles had more experience than Frank reason: innate ability, experience, training, and education can all give rise to comparative advantage

Productivity in programming Productivity in bicycle repair Pat 2 webpages/hour 1 repair per hour Barb 3 web page updates/hour 3 repairs per hour Given the information in the table, who has the comparative advantage in web page updates?

Pat reason: Pat's opportunity cost of a web page update is 1/2 of bike repair. Barb's opportunity cost of a web page update is 1 bike repair. So Pat has a comparative advantage over Barb in web page updates

Bread (loaves/day): Lydia: (0,30) Sean: (0,4) Jam (jars/day): Lydia: (10,0) Sean: (8,0) According to the picture on the right, who has the comparative advantage in making jam?

Sean reason: Sean's opportunity cost of making jar of jam is only 1/2 of a loaf of bread, while Lydia's opportunity cost of making a jar of jam is 3 loaves of bread

Increasing opportunity cost explains why production possibilities curves have

a slope that becomes steeper as production of the good on the x-axis increases. reason: the slope of the PPC tells us the opportunity cost producing an additional unit of the good on the x-axis.so, if the PPC becomes steeper as production of the good on the x-axis increases, then this reflects increasing opportunity cost.

Denise can knit 2 scarves per day and Jacob can knit 3 scarves per day. So, we know that Jacob has a(n) ____ advantage in knitting scarves.

absolute

Denise can knit 2 scarves per day and Jacob can knit 3 scarves per day. So, we know that Jacob has a(n) ___________ advantage in knitting scarves.

absolute

If it takes a person less time to perform a task than anyone else, then that person has a(n) ______________ advantage in performing that task.

absolute

Joe and Rachel are roommates. Rachel takes 10 minutes to do the dishes, and Joe takes 15 minutes to do the dishes. So, we know that Rachel has a(n) ________ advantage in washing dishes.

absolute

Increasing opportunity cost is reflected in a ppc that is

bow-shaped reason: opp cost is reflected in the slope of the ppc, is the ppc is bow-shaped (so that the ppc becomes steeper as production of the good on the x-axis increases), then this implies that the opp cost of producing the good on the x-axis increases as production of that good increases

increasing opportunity cost is reflected in a production possibilities curve that is

bow-shaped reason: opportunity cost is reflected inn the slope of the PPC, if the PPC is bow-shaped (so that the PPC becomes steeper as production of the good on the x-axis increases), then this implies that the opportunity cost of producing the good on the x-axis increases as production of that good increases.

A person has an absolute advantage in a give task if they

can complete that task in less time than the other person

Amber takes 15 minutes to make a pot of coffee and 30 minutes to make a loaf of banana bread. Buzz takes 10 minutes to make a pot of coffee and 40 minutes to make a loaf of banana bread. So Buzz has an absolute advantage over Amber in making

coffee reason: it takes Buzz less time to make a pot of coffee, so Buzz has an absolute advantage over Amber in making coffee.

If Tom's opportunity cost of performing a task is lower than Jerry's, then Tom has a(n) ____ advantage over Jerry in performing that task.

comparative

One person has a(n) __________ advantage over another if his or her opportunity cost of performing a task is lower than the other person's opportunity cost.

comparative

One person has a(n) _____________ advantage over another if his or her opportunity cost of performing a task is lower than the other person's opportunity cost.

comparative

Jack and Katie are stranded on a remote island and eat fish and coconuts to stay alive. For Katie, the opportunity cost of catching a fish is 8 coconuts. For Jack, the opportunity cost of catching a fish is 5 coconuts. Thus, we know that Jack has a ____________ over Katie in catching fish.

comparative advantage reason: Jack has a comparative advantage over Katie in catching fish because his opportunity cost of catching a fish is lower than Katie's opportunity cost of catching fish.

The reason why countries trade with one another is that each country can benefit by specializing in the production of the goods and services at which they have a(n)

comparative advantage reason: the principle of comparative advantage states that everyone does best when each person (or country) concentrates on the activities at which he/she has a comparative advantage

Everyone can be made better off if each person specializes in performing the task at which he or she has a(n)

comparative advantage reason: the principles of comparative advantage tells us that everyone can be made better off if each person specializes in performing the task at which he or she has a comparative advantage.

The population of Latvia had declined by over 20% since that county's split with the Soviet Union. All else equal, a decline in population will

lead to an inward shift of the ppc. reason: as population falls, a country's total output will fall

Cheese (thousands of lbs/day)y wine (thousands of lbs/day)x (0,8), A(4,7),B(5,6.5),C(7,5),D(8,4) PPC for a lg econ According to the figure on the right, the opportunity cost of going from 4,000 to 5,000 bottles of wine per day is ________ than the opportunity cost of going from 7,000 to 8,000 bottles of wine per day.

less reason: the opportunity cost of going from 4,000 to 5,000 bottles of wine per day is 500 lbs of cheese per day. the opportunity cost of going from 7,000 to 8,000 bottles of wine per day is 1000 lbs of cheese per day

Low population density tends to __ specialization

limit reason: Low population density can limit specialization by making it harder for individuals to trade with one another

Cheese (thousands of lbs/day)y wine (thousands of lbs/day)x (0,8), A(4,7),B(5,6.5),C(7,5),D(8,4) PPC for a lg econ According to the figure on the right, as the economy moves from producing 7,000 to 8,000 bottles of wine per day, it has to give up ___ cheese than when it moves from producing 4,000 to 5,000 bottles of wine per day.

more reason: the opp cost of going from 4000 to 5000 bottles of wine per day is 500 lbs of cheese per day, while the opp cost of going from 7000 to 8000 bottles of wine per day is 1000 lbs of cheese per day

Indicate which of the following will lead to an outward shift on the ppc.

new factories and equipment measurable increase in the population

If a software company located in the United States uses an Indian company to handle customer service calls, this is typically referred to as _______-

outsourcing, out sourcing, out-sourcing, offshoring, off shoring, or off-shoring

When firms in the US hire low-wage workers overseas to perform various services, this is typically referred to as _________.

outsourcing, out sourcing, out-sourcing, offshoring, off shoring, or off-shoring

a new government policy that encourages investment in new factories and equipment is likely to cause an _____ shift in an economy's ppc.

outward reason:an increase in an economy's productive resources will lead to an outward shift in a country's ppc.

Martha takes 2 hours to make a cake and 2 hours to make a pie and Jamie takes 4 hours to make a cake and 1 hour to make a pie. So, Jaime has an absolute advantage over Martha making

pies reason: Jaime takes less time than Martha to make a pie. So he has an absolute advantage over Martha in making pies

A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good is a

production possibilities curve reason: (sometimes it's also called a production possibilities frontier)