Exam 2: The Economic Problem

-The table above lists six points on the production possibilities frontier for grain and cars. From this information you can conclude that production is inefficient if this economy produces

-In the production possibilities frontier depicted in the figure above, what is the opportunity cost of increasing the production of bananas from two million pounds to three million pounds?

-The above figure illustrates that if this country wishes to move from its current production point (labeled "Current") and have 10 more tons of food, it can do this by producing

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

Country A Country B -In the table above, country B is producing 4 units of X and 6 units of Y. For country B, the opportunity cost of producing an additional unit of Y is

Technological progress makes the production possibilities frontier

-The figure above shows Prakash's and Gail's production possibilities frontiers for writing books and magazine articles. a) What is Prakash's opportunity cost of a book? What is Gail's opportunity cost? Who has the comparative advantage in writing books? b) Who has the comparative advantage in writing magazine articles? c) According to their comparative advantages, who should write books and who should write magazine articles?

Marginal cost is the opportunity cost

-The above table shows production combinations on a country's production possibilities frontier. Which of the following is an example of a point that is unattainable?

A country has a comparative advantage in the production of a good if its opportunity cost is lower compared to another country.

After Hurricane Katrina devastated parts of Mississippi and New Orleans in 2005, we can be sure that the production possibilities frontier for that area temporarily

Opportunity cost is best defined as

-In the above figure, in order for this country to move from production possibilities frontier PPF₁ to PPF₂, it might

Suppose that the United States and Cuba decide to open up trade. If each country specializes in the good in which it has a comparative advantage, ________ will gain from that trade because ________.

If property rights are not clearly defined and enforced, then

-Suppose a factory can be designed to produce either trucks or cars. The figure above shows the marginal cost and marginal benefit of producing trucks in terms of the forgone cars. a) What is the marginal benefit of the 25th truck? b) What is the marginal cost of the 25th truck? c) Should the 25th truck be produced? Why or why not. d) What is the marginal benefit of the 75th truck? e) What is the marginal cost of the 75th truck? f) Should the 75th truck be produced? Why or why not? g) What is the allocatively efficient quantity of trucks?

A tradeoff is illustrated by

Why is it likely that the United States has an absolute advantage in goods and yet it still ends up importing them from other countries?

When a nation is producing the allocatively efficient quantity of a product, the marginal benefit of producing the good equals the marginal cost of producing that good.

-The figure above represents the production possibilities frontier for a country. a) The nation is currently producing at point B and wants to move to point C. What is the opportunity cost of the move? b) The nation is currently producing at point B and wants to move to point A. What is the opportunity cost of the move?