chapter 2 Microeconomics

In the diagram to the​ right, point F indicates an ______

inefficient results

We can show economic​ inefficiency:

with points inside the production possibilities frontier

The basis for trade is _________ advantage.

comparative

We can show economic​ efficiency:

with points on the production possibilities frontier.

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.

Tom's lawn service specializes in mowing lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1​ hour, he can mow 4 lawns or trim 6 bushes. Use the line drawing tool to graph​ Tom's production possibilities frontier given he has 4 hours to devote to lawn services. Properly label this line. Carefully follow the instructions​ above, and only draw the required objects. ​Tom's opportunity cost of mowing lawns in terms of trimming bushes is ______ trimmed bushes per mowed lawn. ​(Enter your response rounded to two decimal​ places.)

1.50

suppose that France is currently producing 1 bottle of wine and 9 pounds of cheese and Germany is currently producing 3 bottles of wine and 8 pounds of cheese. ​ Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 11 pounds of cheese. After specialization and​ trade, France gains by consuming the same amount of wine and ______ additional​ pound(s) of cheese ​(enter a numeric response using an​ integer) and Germany gains by consuming the same amount of wine and _____ additional​ pound(s) of cheese.

2, 1

Refer to the graph. What is the opportunity cost of moving from point B to point​ C?

20 sedans

From the PPFs shown above it can be determined that the opportunity cost of oil is lower in country

A

What is an​ entrepreneur?

Entrepreneurs operate businesses that produce goods and services.

According to Adam​ Smith, which of the following is necessary for the proper functioning of the market​ system?

For markets to​ work, people must be free to pursue their​ self-interest.

Suppose that France and Germany both produce wine and cheese. The table below shows combinations of the goods that each country can produce in a day. Who has the comparative advantage in producing wine and who has the comparative advantage in producing​ cheese?

France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese.

What does increasing marginal opportunity costs​ mean?

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

What is absolute​ advantage?

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

What happens if a country produces a combination of goods that efficiently uses all of the resources available in the​ economy?

The country is operating on its production possibilities frontier.

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

The production possibilities frontier will be bowed outward

Why do entrepreneurs play a key role in a market​ system?

They bring together factors of production.

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.

A production possibilities frontier​ (PPF) is

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

The primary difference between absolute and comparative advantage is

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.

If a market system functions​ well, which of the following is necessary for the enforcement of contracts and property​ rights?

an independent court system

Your neighbor's consumption point before trade is illustrated by point

b

Your neighbor's consumption point after trade is illustrated by point ___

b

The production possibilities frontiers depicted in the diagram to the right illustrate

both the labor force and capital stock increasing

An economist remarks that​ "the cost of consuming a book is the combination of the retail price and the opportunity cost of the time spent​ reading." Source​: Craig L.​ Garthwaite, "Demand​ Spillovers, Combative​ Advertising, and Celebrity​ Endorsements," American Economic​ Journal: Applied Economics​, Vol.​ 6, No.​ 2, April​ 2014, p. 78. The cost of _____ a book is the price you pay to buy the​ book, but the cost of _____ a book would include the time spent reading the book.

buying, consuming

What is the basis for​ trade?

comparative advantage

After these two countries specialize and trade with each​ other, country A will be importing

corn

Given the comparative opportunity costs as revealed by the PPFs shown​ above, the comparative advantage for country B lies in ______

corn

In the diagram to the​ right, point C indicates an

efficient results

is someone who operates a​ business, bringing together the factors of production—​labor, capital, and natural resources—to produce goods and services.

entrepreneur

In economic​ terminology, the inputs used to produce output are referred to as

factors of production.

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

firms and households

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, firm, circular flow diagram

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

households

The production possibilities frontier will shift outward

if technological advances occur

What is the outcome of enforcing contracts and property rights in a market​ system?

increased economic activity

On the diagram to the​ right, movement along the curve from points A to B to C illustrates

increasing marginal opportunity costs.

The Scottish philosopher Adam Smith argued in 1776 that

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

Whether carried out by an individual or a​ country, production beyond the production possibilities frontier

is not physically possible

The Scottish philosopher Adam Smith argued in 1776 that

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

In​ economics, the term capital refers to

physical capital, such as machinery, that is used to produce other goods

According to Adam​ Smith, which of the following is the instrument the invisible hand uses to direct economic​ activity?

prices

The primary difference between product markets and factor markets is that

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

A production possibilities​ frontier

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

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the​ __________ the payoff to devoting additional resources to that activity.

smaller

The production possibilities frontiers depicted in the diagram to the right illustrate

technological advances in the tank industry.

One of the great benefits of trade is

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

What is comparative​ advantage?

the ability to produce a good or service at a lower opportunity cost than other producers

What are private property​ rights? Private property rights​ are:

the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property

Property rights are

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

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.

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.

With respect to​ consumption, individuals and countries

​can, through​ trade, consume beyond their production possibilities frontiers.

The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource​ limitations, the extent to which security is enhanced will most likely be determined by

​society's willingness to forego other goods and​ services, both public and private.