Exam 2: The Economic Problem

A country possesses a comparative advantage in the production of a good if

Production possibilities -In the above table, the production of 3 pizzas and 35 cases of soda is

-In the above figure, once on PPF₂, a country would grow slowest by producing at point

While producing on the production possibilities frontier, if additional units of a good could be produced at a constant opportunity cost, the production possibilities frontier would be

Sarah and her boyfriend Mike want to save some money to pay for their wedding. So they decided to help people in the neighborhood by cleaning their garages and mowing lawns. Sarah takes 60 minutes to clean a garage and 80 minutes to mow a lawn. Mike takes 80 minutes to clean a garage and 80 minutes to mow a lawn. Sarah and Mike devote 10 hours per week each to these activities and get paid $25 for each garage they clean and $25 for each lawn they mow. Sarah says to Mike: "I have an absolute advantage in cleaning and we are equally productive in mowing. Therefore I should do both cleaning and mowing but you should only mow lawns." Mike disagrees. He thinks Sarah should specialize in cleaning garages and he should specialize in mowing lawns. Help Sarah and Mike to resolve their dispute. a) Who has an absolute advantage in cleaning garages? In mowing lawns? Explain. b) Draw Sarah's and Mike's production possibilities frontiers. What are each individual's opportunity costs? c) Who has a comparative advantage in cleaning garages? In mowing lawns? Explain. d) Is Sarah right when she says that she should do both cleaning and mowing while Mike should only mow lawns? Or may be Mike is right when he suggests that Sarah specializes in cleaning and he specializes in mowing? Illustrate and substantiate your answer with a numerical example.

The social arrangement that gives John Grisham, the writer of best-selling novels, the ownership of his novels is

If a society is operating at a point inside its production possibilities frontier, then this society's

A marginal cost curve

What is comparative advantage? Give an example.

An economy produces only food and shelter. There are two individuals in the economy: Bill and Mary. Mary's opportunity cost of producing 1 unit of shelter is 2 units of food. Bill's opportunity cost of producing 1 unit of shelter is 4 units of food.

-Based on the above table, as the production of pizza increases, the opportunity cost of pizza in terms of forgone cases of soda

In one day, Brandon can either plow 10 acres or plant 20 acres. In one day, Christopher can either plow 14 acres or plant 14 acres. Brandon and Christopher can

A situation in which some resources are NOT fully utilized is represented in a production possibilities frontier diagram by

If Tom and Di specialize in producing the goods in which he and she have a comparative advantage and they exchange goods, then

Moving downward along a PPF, the opportunity cost of another unit of the good measured along the horizontal axis decreases.

Suppose the United States discovers a way to produce clean nuclear fuel. The effect of this discovery would be to

Which of the following is NOT true concerning a society's production possibilities frontier (PPF)?

-Using the values for the marginal benefit and the marginal cost of a bushel of apples given in the table above, what is the allocatively efficient quantity of apples? Suppose 10 million bushels of apples are produced. Should the quantity be increased or deceased? What if 20 million bushels are produced; should the quantity be increased or decreased?

Sam's production possibilities frontier has good A on the horizontal axis and good B on the vertical axis. If Sam is producing at a point inside his frontier, then he

"Allocative efficiency in the production of cherries means that consumers can eat all of the cherries they desire." Is this statement true or false?