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

If the opportunity cost of producing more of one good remains the same as more of that good is produced, then the production method is inefficient.

Figure 2-10 -Refer to Figure 2-10. If the economy is currently producing at point C, what is the opportunity cost of moving to point B?

An outward shift of a nation's production possibilities frontier represents

An increase in population shifts the production possibility frontier inwards over time.

All of the following are considered intellectual property except

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 China's opportunity cost of producing one digital camera?

In 18th century Europe, governments gave guilds legal authority to limit production of goods. This authority obstructed the market mechanism because the guilds' actions prevented the forces of ________ from coordinating the self-interested decisions of producers and consumers.

Figure 2-13 Figure 2-13 shows the production possibilities frontiers for Tahiti and Bora Bora. Each country produces two goods, milk and honey. -Refer to Figure 2-13. Which country has a comparative advantage in the production of milk?

Table 2-18 Table 2-18 shows the output per week of two people, Minnie and Mickey. They can either devote their time to making hats or making umbrellas. -Refer to Table 2-18. What is Minnie's opportunity cost of making an umbrella?

What is meant by the term opportunity cost?

The natural resources used in production are made available in the

Firms

The resource income earned by those who supply labor services is called

Which of the following is a factor of production?

Table 2-19 Table 2-19 shows the output per month of two people, Wilma and Betty. They can either devote their time to making marble statues or making marble benches. -Refer to Table 2-19. What is Betty's opportunity cost of making a statue?

Table 2-14 Table 2-14 shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. -Refer to Table 2-14. If the two countries specialize and trade, who should export guitars?

Table 2-26 -Refer to Table 2-26. This table shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. a. If each country has a total of 2,700 labor hours to devote to the production of the two goods, 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% its labor hours to guitar production and 45% to the production of motorcycles. Complete Table 2-27 below to show each country's output of the two products. Table 2-27: 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. Who should produce motorcycles and who should produce guitars? Explain your answer. e. Complete Table 2-28 below to show each country's output with specialization. Table 2-28: 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 2-29 below to show each country's consumption bundle after trade. Table 2-29: 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.

In a production possibilities frontier model, a point inside the frontier is

Table 2-30 -Suppose in Belgium, the opportunity cost of producing a trombone is 8 clarinets. In Denmark, the opportunity cost of producing a trombone is 6 clarinets. a. What is the opportunity cost of producing a clarinet for Belgium? b. What is the opportunity cost of producing a clarinet for Denmark? c. Which country has a comparative advantage in the production of clarinets? d. Which country has a comparative advantage in the production of trombones?

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 Finland's opportunity cost of producing one board foot of lumber?