Exam 2: Trade-Offs, Comparative Advantage, and the Market System

Figure 2-3 -Refer to Figure 2-3.Sergio Vignetto raises cattle and llamas on his land.His land is equally suitable for raising either animal.Which of the graphs in Figure 2-3 represent his production possibilities frontier?

Table 2-8 Table 2-8 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. -Refer to Table 2-8.If the two countries specialize and trade, who should export wheat?

Figure 2-10 Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora.Each country produces two goods, milk and honey. -Refer to Figure 2-10.What is the opportunity cost of producing one gallon of milk in Bora Bora?

What shape does a production possibilities frontier take if it displays increasing opportunity costs? What shape does a production possibilities frontier take if it displays constant opportunity costs? Which shape is most common in production situations?

The payment received by suppliers of entrepreneurial skills is called interest.

Table 2-17 -Refer to Table 2-17.This table shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. a.Assume each country has a total of 2,700 labor hours to devote to the production of the two goods and draw the production possibilities frontier for each country.Put "Motorcycle" on the horizontal axis and "Guitar" on the vertical axis.Be sure to identify the intercept values on your graphs. b.Suppose each country allocates 55% of its labor hours to guitar production and 45% to the production of motorcycles.Complete Table 2-18 below to show each country's output of the two products. Table 2-18: Production and Consumption with no Trade c.If the two countries do not trade and consume whatever they produce, identify the current production and consumption point for each country on their respective production possibilities frontiers.Label Ireland's consumption point "I" and Scotland's consumption point "S". d.Suppose the two countries specialize and trade.Which country should produce motorcycles and which should produce guitars? Explain your answer. e.Complete Table 2-19 below to show each country's output with specialization. Table 2-19: Output with Specialization f.Did specialization increase the combined output for the two countries without any increase in resources? If so, by how much? g.Suppose Ireland and Scotland agree to trade so that in exchange for 600 guitars, the exporter of guitars receives 140 motorcycles.Complete Table 2-20 below to show each country's consumption bundle after trade. Table 2-20: Consumption with Trade h.Show the consumption points after trade on each country's production possibilities frontier.Label these points "X" for Ireland and "Y" for Scotland. i.Has trade made the two countries better off? Explain your answer.

What is a circular flow diagram and what does it demonstrate?

Table 2-16 -Refer to Table 2-16.This table shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. a.Which country has an absolute advantage in the production of motorcycles? b.Which country has an absolute advantage in the production of guitars? c.What is Ireland's opportunity cost of producing one motorcycle? d.What is Scotland's opportunity cost of producing one motorcycle? e.What is Ireland's opportunity cost of producing one guitar? f.What is Scotland's opportunity cost of producing one guitar? g.If each country specializes in the production of the product in which it has a comparative advantage, which country should produce motorcycles? h.If each country specializes in the production of the product in which it has a comparative advantage, which country should produce guitars?

Figure 2-6 -Refer to Figure 2-6.If the economy is currently producing at point E, what is the opportunity cost of moving to point D?

Table 2-10 Table 2-10 shows the output per day of two pet groomers, Tammi and Horace.They can either devote their time to grooming dogs or bathing cats. -Refer to Table 2-10.What is Horace's opportunity cost of bathing a cat?

Table 2-7 Table 2-7 shows the output per month of two people, Fred and Barney.They can either devote their time to making pogo sticks or making unicycles. -Refer to Table 2-7.What is Barney's opportunity cost of making a unicycle?

The resource income earned by those who supply ________ is called wages.

Figure 2-10 Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora.Each country produces two goods, milk and honey. -Refer to Figure 2-10.What is the opportunity cost of producing one gallon of honey in Bora Bora?

"An Inquiry into the Nature and Causes of the Wealth of Nations" published in 1776 was written by

Figure 2-4 Figure 2-4 shows various points on three different production possibilities frontiers for a nation. -Refer to Figure 2-4.Consider the following events: A.an increase in the unemployment rate B.general technological advancement C.a decrease in consumer wealth Which of the events listed above could cause a movement from X to V?

If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is to produce less of the other.

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except

Figure 2-4 Figure 2-4 shows various points on three different production possibilities frontiers for a nation. -Refer to Figure 2-4.A movement from X to Y

Table 2-10 Table 2-10 shows the output per day of two pet groomers, Tammi and Horace.They can either devote their time to grooming dogs or bathing cats. -Refer to Table 2-10.What is Tammi's opportunity cost of grooming a dog?

Rayburn Reed is a highly talented photographer.He has chosen to specialize in photography because of all of the following except