Ch3

The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit:

Competition

"Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly:"

Coordination problem

Which of the following represents land-, labor-, and capital-intensive commodities, respectively? - Automobiles, corn, and transistor radios - Clothing, aircraft, and automobiles - Corn, clothing, and aircraft - Wheat, automobiles, and transistor radios

Corn, clothing, and aircraft

In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles?

Country A

In Country A, a worker can make 5 bicycles per hour. In Country B, a worker can make 7 bicycles per hour. Which country has an absolute advantage in making bicycles?

Country B

True or False: If Country B has an absolute advantage over Country A in producing bicycles, it must also have a comparative advantage over Country A in producing bicycles.

False?

The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate:

Freedom of choice

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice:

Freedom of enterprise

Suppose that the opportunity-cost ratio for fish and lumber is 1F ≡ 1L in Canada but 2F ≡ 1L in Iceland. Then ____________ should specialize in producing fish while ___________ should specialize in producing lumber.

Iceland; Canada

"Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets:"

Incentive problem

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest:"

Invisible hand

An institution that brings buyers and sellers together:

Market

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off:

Mutually agreeable

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property:

Private property

What each individual or firm believes is best for itself and seeks to obtain:

Self-interest

In a command economy, scarce goods are allocated by

a government-appointed planning board based on the board's long-term priorities.

Distinctions between land-, labor-, and capital-intensive commodities are important because

an abundant supply of one type of resource gives a country a comparative cost advantage in products using that resource.

Self-interest helps achieve society's economic goals because

as consumers and producers exercise their freedom to act in their own self-interest, markets will produce the desired goods at the lowest possible cost.

What is produced is ultimately determined by

consumers, because if the goods offered are not what consumers want, consumers will not buy them.

"If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries:"

creative destruction

There is a wide variety of desired goods and services in a market system because

individual wants are diverse.

In a market system, scarce goods are allocated through the operation of

market prices that are determined by consumers and producers acting in their own self-interest.

Distinctive products

provide an export niche for a country

a. Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, Big Country needs to give up - 1 unit of Y for 1 unit of X and should produce good X. Small Nation needs to give up 3/4 of a unit of X for 1 unit of Y and should produce good Y. - 3/4 of a unit of Y for 1 unit of X and should produce good Y. Small Nation needs to give up 1 unit of X for 1 unit of Y and should produce good X. - 3/4 of a unit of Y for 1 unit of X and should produce good X. Small Nation needs to give up 1 unit of X for 1 unit of Y and should produce good Y. - 1 unit of Y for 1 unit of X and should produce good Y. Small Nation needs to give up 3/4 of a unit of X for 1 unit of Y and should produce good X.

why?