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

Table 2-16 Table 2-16 shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland. -Refer to Table 2-16. What is Estonia's opportunity cost of producing one cell phone?

A welding machine is an example of a factor of production if it is being used to produce automobiles.

Which of the following statements about a simple circular flow model is false?

Table 2-1 Production choices for Tomaso's Trattoria -Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of 24 pizzas and 30 calzones would appear

All of the following are critical functions of the government in facilitating the operation of a market economy except

The basis for trade is absolute advantage, not comparative advantage.

Table 2-11 Table 2-11 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 2-11. What is South Korea's opportunity cost of producing one pound of wheat?

Table 2-12 Table 2-12 shows the number of labor hours required to produce a canoe and a sailboat in Guatemala and Honduras. -If the best surgeon in town is also the best at cleaning swimming pools, then according to economic reasoning, this person should

Table 2-12 Table 2-12 shows the number of labor hours required to produce a canoe and a sailboat in Guatemala and Honduras. -Refer to Table 2-12. Guatemala has a comparative advantage in the production of

Table 2-20 Table 2-20 shows the number of labor hours required to produce a wristwatch and a pound of rice in Japan and Thailand. -Refer to Table 2-20. What is Japan's opportunity cost of producing one wristwatch?

Figure 2-12 Figure 2-12 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. -Refer to Figure 2-12. What is the opportunity cost of producing 1 pound of cashews in Indonesia?

Table 2-32 -Refer to Table 2-32. This table shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland. a. If each country has a total of 3,600 labor hours to devote to the production of the two goods, draw the production possibilities frontier for each country. Put "Cell Phone" on the horizontal axis and "Lumber" on the vertical axis. Be sure to identify the intercept values on your graphs. b. Suppose each country allocates 55% its labor hours to lumber production and 45% to the production of cell phones. Complete Table 2-33 below to show each country's output of the two products. Table 2-33: 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 Estonia's consumption point "E" and Finland's consumption point, "F." d. Suppose the two countries specialize and trade. Who should produce cell phones and who should produce lumber? Explain your answer. e. Complete Table 2-34 below to show each country's output with specialization. Table 2-34: 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 Estonia and Finland agree to trade so that in exchange for 400 board feet of lumber, the exporter of lumber receives 90 cell phones. Complete Table 2-35 below to show each country's consumption bundle after trade. Table 2-35: Consumption with Trade h. Show the consumption points after trade on each country's production possibilities frontier. Label these points "X" for Estonia and "Y" for Finland. i. Has trade made the two countries better off? Explain your answer.

The basis for trade is comparative advantage, not absolute advantage.

Table 2-4 Production Choices for Dina's Diner -The recession of 2007-2009 would most likely be represented in a production possibilities frontier graph 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. a decrease in the unemployment rate B. an increase in a nation's money supply C. an influx of immigrant workers Which of the events listed above could cause a movement from X to Z?

The production possibilities frontier model assumes all of the following except

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?

Table 2-21 -Refer to Table 2-25. 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, who should produce motorcycles? h. If each country specializes in the production of the product in which it has a comparative advantage, who should produce guitars?

In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it must also have a comparative advantage in the production of both goods.

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