Exam 1

The production possibilities frontier provides an illustration of the principle that

people face trade offs

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.

_________ refers to uniform distribution of those benefits and ___________ refers to maximizing benefits from scarce resources

equality and efficiency

An economy's production of two goods is efficient if

it is impossible to produce more of one good without producing less than the other

If something happens to alter the quantity demanded at any given price, then

the demand curve shifts

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

the nation is not using all available resources or is using inferior technology or both

Given 10 hours, Australi and Brazil can produce tomatoes and apples as follows: Suppose that in Australia, it takes 10 hours to harvest 50 bushels of apples and 10 hours to harvest 25 bushels of tomatoes. Suppose a worker in Brazil can harvest 25 bushels of apples in 10 hours or 20 bushels of tomatoes in 10 hours. - Which country has the absolute advantage in producing apples? - Which country has the absolute advantage in producing tomatoes? - Which country has the comparative advantage in producing apples? - What exchange ratio would benefit both countries?

- Australia - Australia - Australia - 10 apple for 7 tomatoes

In one year, if Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. In our year, Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food. (Assume linear production possibility frontiers.) - ________ has the absolute advantage in the production of clothing, and ________ has the absolute advantage in the production of food. - _______ has the comparative advantage in the production of clothing and ________ has the comparative advantage in the production of food - What terms of trade can both Texia and Urbania benefit from?

- Texia;Texia - Texia;Urbania - 2.3 food for 1 clothing

The US and Brazil has following opportunity cost. Which of the following terms of trade will benefit both the US and Brazil? US : opportunity cost of a large jet = 1.3 small jet Brazil : opportunity cost of a large jet = 3 small jet

1 large jet = 2 small jets

For which of the following individuals would the opportunity cost of going to college be highest

A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

no individual buyer or seller has any significant impact on the market price

Competitive market

society is getting the most it can from its scarce resources

Efficiency

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

If Korea is capable of producing either shoes or soccer balls or some combination of the two, then

Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer ball

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

People face tradeoffs

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.

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3-off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?

The amount you value the first movie + 3 dollars

The opportunity cost of one good in terms of the other depends on how much of each good the economy is producing

The bowed-outward shape of the production possibilities frontier can be explained by the fact that

represents the sum of the quantities supplied by all the sellers at each price of the good

The market supply curve

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that

Comparative advantage is an economy's ability to produce a particular good or service at _____________________ than its trading partner

a lower opportunity cost

If the demand for a good falls when income falls, then the good is called

a normal good

When we move along a given demand curve,

all nonprice determinants of demand are held constant.

The movement from point A to point B on the graph shows

an increase in quantity demanded

An increase in the price of a good will

decrease in quantity demanded

The overriding reason why households and societies face many decisions is that

resources are scarce

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises

Resources are

scarce for households and scarce for economies.

What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services people wish to have?

scarcity

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

sell the ticket because the marginal benefit exceeds the marginal cost