Unit 2 Test Econ (Shane Hall)

The "Big Mac Index" is one method of determining

Purchasing Power Parity for a nations currency

___________________ is determined by which person or group or persons can produce a given quantity of a good using the fewest resources.

Absolute advantage

The fact that economist are generally united in their support of free trade is traceable to which people?

Adam Smith and David Ricardd

What is the World Economy? What does it consist of?

Any good, service, or investment that crosses international boarders.

typically refers to an economic and social system in which the means of production (also known as capital) are privately controlled

Capitalism

Despite its faults, why is capitalism still considered an efficient and profitable system? Which countries historically provide evidence of capitalism's success in saving their economy?

Capitalism has brought prosperity to both communist and crumbling economies. Germany after WWII or Russia after the Fall of Communism

a form of socialism that abolishes private ownership, a political theory favoring collectivism in a classless society, a state of affairs perceived as oppressive, overly arbitrary, or totalitarian.

Communism

What is the driving force of specialization? True or false

Comparative advantage

The principle of comparative advantage as we know it today was developed by who?

David Ricardo

What is the major question facing communist countries who have transformed into capitalist economies?

How to maintain economic freedom but not political freedom.

A countries consumption possibilities Frontier can be outside its PPF if what ?

If it trades with other countries

Trade can make everyone better off because it does what

It allows you to specialize according to comparative advantage

The European Union is significant because why?

It created the world's largest economy. Europe has historically been a divided continent. In order to join countries must have high standards of human rights.

Why was the Maastricht Agreement significant in the history of the European Union?

It removed all barriers to people, goods, and money.

What happens to a country without trade ( look at consumption possibilities frontier

Its production possibilities Frontier is the same thing as its consumption Possibilities Frontier

Define globalization. Explain the two waves of growth associated with this trend. Explain two of the advantages of globalization and provide an example for one advantage. Provide two of the disadvantages and provide and example for one disadvantage. Do you agree or disagree with the globalization trend? Why?

See the Chapter 3 power points to answer this question.

If Shawn can produce donuts at a lower opportunity cost than Sue, then what concept is being portrayed?

Shawn has a comparative advantage in the production of donuts

refers to various theories of economic organization advocating state, worker or public ownership and administration of the means of production and allocation of resources.

Socialism

Adam Smiths book

The Wealth of Nations

Trade between countries allows them to do / have what?

To consume at a point outside of their PPF

The goal of a country concerning international trade is what?

To have a favorable balance of trade

A country that currently does not trade with other countries could benefit by doing what?

Trading with other countries

What does Interdependent mean

We rely upon one another for the goods and services we all consume

Total output in an economy increases when each person specializes because why?

because each person spends more time producing what they have a comparative advantage in

Specialization and trade are closely linked to ________________

comparative advantage

The "price" of a currency is determined by what?

how much someone will pay for it

For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to...

have a comparative advantage in both activities

Absolute advantage

the ability to produce a good using the fewest amount of of inputs

Comparative advantage

the ability to produce a good with the lowest opportunity cost

Some people see what as a drawback to international trade?

the homogenization of cultures

The gains from trade are what?

the result of more efficient resource allocation

Adam Smith asserted that a person should never attempt to make a home...

what it will cast him more to make than to buy