Exam 2: The Economic Problem

"If Mexico is currently operating at a point beyond its production possibilities frontier, then there are unemployed resources in Mexico." Is this statement true or false? Briefly explain your answer.

-In 2012, Country X and Country Y had the same production possibilities, illustrated in the figure above. Country X chose to produce at point A, while country Y chose to produce at point B. In 2018, most likely, Country X will be at point such as ________ while Country Y will be at point such as ________.

In an hour, Andy can make either 5 pizzas or 12 pies and Chris can make either 6 pizzas or 18 pies. ________ advantage in making pizzas.

-Vicky currently produces at point a in the figure above. If Vicky moves from point a to point b to point c, her opportunity cost of a modem ________.

-Employees at Bank of America are good at providing banking services and workers at Ben & Jerry's are good at making ice cream. The figure above shows the marginal cost and marginal benefit curves for ice cream. As Ben & Jerry's increases production from 1 to 2 million gallons of ice cream, the

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

A point inside a production possibilities frontier

How do property rights help organize production and trade?

Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. Which of the following statements is TRUE?

-In the above figure, which of the following is TRUE regarding the movements from point A to B and from point C to D? I.The movement from point A to B shows that the economy has chosen to produce 100 more jets. II.The movement from point C to D shows that the economy has chosen to produce 100 more jets. III.The movement from point A to B and from point C to D have the same opportunity cost.

-According to the diagram in the above figure, what is the marginal benefit of consuming the 3 millionth gallon of gasoline per month?

-The above table shows production points on Sweet-Tooth Land's production possibilities frontier. A movement from ________ represents the greatest opportunity cost of increasing cola production.

A marginal benefit curve shows

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

If Sam is producing at a point on his production possibilities frontier, then he

The social arrangements that govern the ownership, use, and disposal of property are referred to as

A circular flow diagram shows the flows from the goods and resources markets.

-In the figure above, point A is undesirable because

Increasing opportunity cost while moving along a production possibilities frontier is the result of

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.