Macro- Econ ch 2 questions

Two countries that specialize their production along the lines of comparative advantage and then trade with one another will be able to:

both produce and consume more.

Mexico has a comparative advantage in producing corn:

if its opportunity cost of producing corn is lower than the opportunity cost in other countries.

Economists view recent increases in outsourcing as:

merely the working of comparative advantage in services rather than in goods.

In recent years many phone banks for telemarketing and customer service have moved from the U.S. to foreign nations such as the Philippines and India. This move is usually called:

outsourcing

The Apple iPod was designed by Apple in the U.S., manufactured in factories in Asia, and sold throughout the world. Apple's use of Asian manufacturers to produce the iPod is an example of:.

outsourcing

If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal, it would be efficient to locate production facilities in:

the U.S. since the cost per unit of output will be lower.

Countries gain from trade by producing:

the goods they can produce at the lowest opportunity cost.

The morel is a prized mushroom that is often abundant in the Western United States in years after forest fires. Suppose two companies are buying morels from workers willing to find them. One company offers to pay workers $5.00 per pound, and the other company will pay workers only $4.00 per pound. Economists would say that:

this situation violates the law of one price and is not likely to persist.

In two hours JustBorn Candies can produce 30,000 Peeps or 90,000 Mike and Ikes or any combination in between. . Identify and label three points: efficient production, inefficient production, impossible.

An efficient production point is on the production possibilities curve., an inefficient production point is inside the production possibilities curve., and an impossible point is outside the production possibilities curve..

Which of the production possibility information shown in the tables below embodies the principle of rising trade-off?

A. History Economics 40 100 60 90 80 70

Which of the following is an example of the law of one price?

Because their countries have similar institutions, computer programmers in Germany and the United States are paid about the same.

John can clean the house in three hours and do the laundry in four. Jane can clean the house in two hours or do the laundry in two. Can they benefit by specialization and trade?

Both can benefit because John has a comparative advantage in cleaning.

In two hours JustBorn Candies can produce 30,000 Peeps or 90,000 Mike and Ikes or any combination in between. a. What is the trade-off between Peeps and Mike and Ikes?

For every Peep, 3 Mike and Ikes can be produced.

What effect has globalization had on the ability of firms to specialize? How has this affected the competitive process?

Globalization increases competition by allowing greater specialization and division of labor.

If workers in China and India become as productive as U.S. workers, what adjustments will allow the United States to regain its competitiveness?

It is possible that there will be development in areas of production/services that will allow U.S. wages to remain high, but in all likelihood either U.S. nominal wages will grow slowly and foreign nominal wages will grow rapidly and catch up or U.S. exchange rates will decline to equalize wages. Some combination of the two is most likely

Japan United States Bolts of Cloth Tons of Wheat Bolts of Cloth Tons of Wheat 2000 0 1500 0 1600 300 1200 400 1200 600 900 800 800 900 600 1200 400 1200 300 1600 0 1500 0 2000 c. Is there a possible trade that benefits both countries?

Japan has a comparative advantage in cloth and will trade cloth for wheat; the United States has a comparative advantage in wheat and will trade wheat for cloth.

Suppose the United States and Japan have the following production possibility tables: Japan United States Bolts of Cloth Tons of Wheat Bolts of Cloth Tons of Wheat 1500 0 1000 0 1200 200 800 300 900 400 600 600 600 600 400 900 300 800 200 1200 0 1000 0 1500 c. Is there a possible trade that benefits both countries?

Japan has a comparative advantage in cloth and will trade cloth for wheat; the United States has a comparative advantage in wheat and will trade wheat for cloth.

Does the fact that the production possibility model tells us that trade is good mean that in the real world free trade is necessarily the best policy? Explain.

No, because the model does not take into account the importance of institutions and government in trade and takes no other societal goals into account besides maximum total output. These contexts should be taken into account when formulating policy

Does the fact that the production possibility model tells us that trade is good mean that in the real world free trade is necessarily the best policy? Explain.

No, because the model does not take into account the importance of institutions and government in trade and takes no other societal goals into account besides maximum total output. These contexts should be taken into account when formulating policy.

State the law of one price. How is it related to the movement of production out of the United States?

The law of one price states that the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country. Wages adjusted for productivity differences are lower in other countries, so firms choose to use workers in foreign countries

Resources Devoted to Clothing Output of Clothing Resources Devoted to Food Output of Food 100% 20 0% 0 80 16 20 5 60 12 40 9 40 8 60 12 20 4 80 14 0 0 100 15 d. Say the country gets equally better at producing both food and clothing. What will happen to the production possibility curve?

The production possibility curve: shifts out along both axes.

Resources Devoted to Clothing Output of Clothing Resources Devoted to Food Output of Food 100% 20 0% 0 80 16 20 5 60 12 40 9 40 8 60 12 20 4 80 14 0 0 100 15 c. Say the country gets better at the production of food. What will happen to the production possibility curve?

The production possibility curve: shifts out along the food axis only.

Resources Devoted to Clothing Output of Clothing Resources Devoted to Food Output of Food 100% 5 0% 0 80 4 20 7 60 3 40 13 40 2 60 18 20 1 80 22 0 0 100 25 d. Say the country gets better at producing clothing and worse at producing food. What will happen to the production possibility curve?

The production possibility curve: shifts out along the clothing axis and shifts in along the food axis.

Resources Devoted to Clothing Output of Clothing Resources Devoted to Food Output of Food 100% 5 0% 0 80 4 20 7 60 3 40 13 40 2 60 18 20 1 80 22 0 0 100 25 c. Say the country gets better at the production of food. What will happen to the production possibility curve?

The production possibility curve: shifts out along the food axis only.

How does the theory of comparative advantage relate to production possibility curves?

The theory of comparative advantage underlies the shape of the production possibility curve. As more and more of a good is produced, resources that have less of a comparative advantage are brought into the production of a good, causing the production possibility curve to be bowed outward.

A country has the following production possibility table: Resources Devoted to Clothing Output of Clothing Resources Devoted to Food Output of Food 100% 20 0% 0 80 16 20 5 60 12 40 9 40 8 60 12 20 4 80 14 0 0 100 15 b. What's happening to the trade-off between food and clothing?

The trade-off between clothing and food is increasing.

A country has the following production possibility table: Resources Devoted to Clothing Output of Clothing Resources Devoted to Food Output of Food 100% 5 0% 0 80 4 20 7 60 3 40 13 40 2 60 18 20 1 80 22 0 0 100 25 b. What's happening to the trade-off between food and clothing?

The trade-off between clothing and food is increasing.

Which of the following factors will help the United States regain comparative advantages in industries in which it has lost comparative advantages?

The value of the U.S. dollar falls.

If neither of two countries has a comparative advantage in either of two goods, what are the gains from trade?

There are no gains from trade.

Which of the following is an example of the law of one price in action?

Wages in India are lower than in the United States, so firms move their call-centers to India. This tends to raise wages in India and depress wages in the United States.

Juan works at Texas Burgers in El Paso and earns $8.00 per hour. His twin brother Felipe works in Mexico Burgers in Cuidad Juarez just across the border earning $3.00 per hour for exactly the same work. An economist looking at this situation sees:

an incentive for Felipe to cross the border to get a job and thus reduce the gap.

According to the law of one price,

competition, combined with transferable goods and resources, drives the prices of similar goods toward equality.

Suppose the United States and Japan have the following production possibility tables: Japan United States Bolts of Cloth Tons of Wheat Bolts of Cloth Tons of Wheat 1500 0 1000 0 1200 200 800 300 900 400 600 600 600 600 400 900 300 800 200 1200 0 1000 0 1500 b. In what good does the United States have a comparative advantage?

Wheat

Japan United States Bolts of Cloth Tons of Wheat Bolts of Cloth Tons of Wheat 2000 0 1500 0 1600 300 1200 400 1200 600 900 800 800 900 600 1200 400 1200 300 1600 0 1500 0 2000 b. In what good does the United States have a comparative advantage?

Wheat.

John and Jane Smith are both economists who are deciding how to split household chores of cooking and cleaning. They discover that John has a comparative advantage in cooking. Does this discovery tell them anything about comparative advantage in cleaning?

Yes; Jane must have a comparative advantage in cleaning.