Micro Econ Chapter 2
When producers specialize in making a particular good according to their comparative advantage, total production possibilities
are greater than if each produced the combination of goods they themselves want to consume
Points inside the production possibilities frontier are
attainable and inefficient
The functioning of the invisible hand depends on some assumptions, such as
free competition and full information
When you lose comparative advantage in one thing you BLANK in another thing
gain
When specialized producers exchange goods and services, outcomes improve because of
gains from trade
There is room for trade as long as the two countries
differ in their opportunity costs to produce a good and they set a trading price that falls between those two opportunity costs.
Points along the production possibilities frontier are attainable and
efficient
Trade can be driven by self interest because
everyone gets more of the things they want than they were if they were self-sufficient
The opportunity cost of producing one good in terms of the other typically BLANK as more of a good is produced because skills vary among workers
increase
Assume that workers cannot produce the same amount of each good. The opportunity cost of producing one good in terms of the other
increases as more of a good is produced because skills vary among workers
Specialization
increases total production, using the same number of workers and same technology
Points BLANK the production possibilities frontier are inefficient while points BLANK the production possibilities frontier are efficient.
inside, along
When an economy chooses a point inside the production possibilities frontier,
it could produce more of both goods with its given resources
Gains from trade refer to the improvement in outcomes that occur when producers BLANK and exchange goods and services.
specialize
If each country focuses on producing the good for which it has comparative advantage, the country would
specialize in production of that good
The two main factors that drive the change in the U.S. production possibilities are
technology, and number of workers
Along a straight line production possibilities curve, the slope of the line measures
the opportunity cost of one good in terms of the other
The production possibilities frontier helps us answer the second economists question, "What are the trade-offs"?, because
there is a trade off between the production of the two goods
In the Nineteenth century, the U.S. snatched the comparative advantage in clothing
through a combination of new technology and cheap labor
Geographic shifts in the production of clothing has occurred, in large part, because of lower relative..
wages
Who is credited with first using the term "invisible hand" to describe this coordinating mechanism?
Adam Smith
True or False: Points inside the production possibilities frontier are achievable, but still make full use of all available resources
FALSE
Which of the following statements is true?
No producer has a comparative advantage at everything, and each producer has a comparative advantage at something.
True or False: Based on the assumption of efficiency, we can predict that an economy will choose to produce at a point on the frontier rather than inside it.
TRUE
A producer has a comparative advantage when they can produce
a good at a lower opportunity cost
If a producer can generate more output than others with a given amount of resources, that producer has an
absolute advantage
Points inside the production possibilities frontier are
achievable, but don't make full use of all available resources
The production possibilities frontier shows all the possible combinations of outputs that can be produced using
all available resources
A country has a BLANK advantage over another country if it can make a product at a lower opportunity cost than another country.
compartive
When opportunity costs are increasing, the shape of production possibilities frontier is a
concave curve
When opportunity costs are increasing, the shape of the production possibilities frontier is a
concave curve
The production possibilities frontier gives us a way to represent the
constraints on production.
When opportunity costs are increasing, the production possibilities frontier is
convex
When the country appears to be guided by an invisible hand,
no government intervention is required to coordinate production.
Based on the assumption of efficiency, we can predict that an economy will choose to produce at a point
on the frontier, rather than inside it
A problem with specialization is that each producer may end up with BLANK good
one
Points that lie BLANK the production possibilities frontier are unattainable
outside
When the technology improves the production of one good, the production possibilities frontier
pivots outword
The production possibilities frontier shows the
production constraint of two outputs that can be produced using all available resources