Macroeconomics Chapter 2
The slope of a horizontal line is:
0
ABC Republic decides to change production from (100 cars and 10,000 computers) to (110 cars and 9,000 computers). What is the opportunity cost of 1 car?
100 computers.
Assume the slope of the above PPF curve is -3/4. What is the opportunity cost for one computer?
3/4 of a car.
Based on the same facts from the above question, what country has comparative advantage over the production of computer?
Canada.
When prices of cars increase, car sales tend to decrease.
Car price and car sale have a negative relationship
According to the textbook, why do economists have a very positive view of international trade?
Economists view international trade in term of comparative advantage. International trade benefits all trading partners.
Which of the following is a normative (subjective, based on value judgement) statement?
It is too hot to play tennis today.
The slope of line A is 1. The slope of line B is 2.
Line B is steeper than line A
Assume that the average U.S. worker can produce 10 computers/hour, and the average Canadian worker can produce 5 computers/hour. In addition, assume the U.S. opportunity cost of 1 computer is 1/100 of a car, and the Canadian opportunity cost of 1 computer is 1/200 of a car. Based on the above facts, what country has absolute advantage in the production of computer.
The U.S.
Which of the following is a positive (objective, factual) statement?
The temperature is 92 degrees today.
Can a country consume more than what it produces? In another word, can a country's consumption point be outside of its production possibility frontier?
Yes. A country can consume more than what it produces due to benefit, or gains from trade.
If the U.S. is more productive than Canada in the production of all goods and services, would the U.S. benefit from trading with Canada?
Yes. International trade is based on comparative advantage (opportunity cost), not absolute advantage (productivity). Trade allow each country to specialized in goods and services that the country has lower opportunity costs.
Economic models:
are simplified representation of economic situations that are used to better understand real-life situations.
In the circular-flow diagram, the firms:
buy factors of production in the input market. pay wages, rents, and dividends to households in the input market. sell goods and services in the output sector. all of the above are correct.
The slope of a line is calculated by
change in y/change in x.
A production point on the production possibilities frontier (point B on the above graph) is:
efficient.
A hypothetical car-computer production possibility frontier (PPF) of ABC Republic is shown below. The slope of this PPF is equal to: (Refer to graph in save doc.)
he opportunity cost of one computer expressed in number of cars.
Normative economics:
involves analysis about how the world should work. Normative economics is often subjective and based on value judgments.
Positive economics:
involves analysis that tries to answer questions about the way the world works. Positive economics tries to be objective and factual.
Why do economists often disagree?
is because of differences in economic modeling, and/or differences in values.
A production point inside the production possibilities frontier (point A in the above graph) is:
possible but inefficient.
A production point outside of the production possibilities frontier (point C in the above graph) is:
possible only if technology improves.
The two basic markets shown by the simple circular flow model
product and resource.
In terms of the circular flow diagram households make expenditures in the _____ market and receive income through the _____ market.
product; resource
The production possibility frontier model illustrates:
the trade-offs facing an economy that produces only two goods.
The main function of the Council of Economic Advisors is:
to advise the president.
