chapter 3

Refer to Table 3-21. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of radios increased by

6

Refer to Table 3-5. Assume that Aruba and Iceland each has 80 labor hours available. If each country divides its time equally between the production of coolers and radios, then total production is

60 coolers and 18 radios.

Refer to Table 3-4. Which of the following combinations of wheat and beef could Andrea produce in one 8-hour day?

7 bushels of wheat and 15 pounds of beef

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

Economists generally support

free international trade.

If Shawn can produce more donuts in one day than Sue can produce in one day, then

Shawn has an absolute advantage in the production of donuts

When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all

rely upon one another for the goods and services we consume.

Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if

the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

A production possibilities frontier is a straight line when

the rate of tradeoff between the two goods being produced is constant.

The opportunity cost of an item is

what you give up to get that item.

Which famous economist developed the principle of comparative advantage as we know it today?

David Ricardo

Refer to Table 3-21. Jamaica's opportunity cost of one cooler is

0.5 radios, and Norway's opportunity cost of one cooler is 0.125 radios.

Refer to Table 3-21. At which of the following prices would both Jamaica and Norway gain from trade with each other?

1 radio for 4 coolers

By definition, imports are

goods produced abroad and sold domestically

Refer to Table 3-21. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by

24

Refer to Table 3-4. Assume that Andrea and Paul each has 480 minutes available. If each person divides his time equally between the production of wheat and beef, then total production is

24 bushels of wheat and 64 pounds of beef.

Refer to Table 3-21. Suppose Jamaica decides to increase its production of radios by 12. What is the opportunity cost of this decision?

24 coolers

By definition, exports are

goods produced domestically and sold abroad

Trade between countries

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

Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could

benefit both Steve and Tom.

Refer to Table 3-21. Jamaica should specialize in the production of

radios and Norway should specialize in the production of coolers.

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which he or she has a comparative advantage.

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.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

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.

Comparative advantage is related most closely to which of the following?

opportunity cost

Refer to Table 3-21. Jamaica has a comparative advantage in the production of

radios and Norway has a comparative advantage in the production of coolers.

Refer to Table 3-21. Jamaica has an absolute advantage in the production of

radios and Norway has an absolute advantage in the production of coolers