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

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. an increase in consumer wealth Which of the events listed above could cause a movement from Z to V ?

A guild is

Table 2-17 Table 2-17 shows the output per week of two people, James and Lucy. They can either devote their time to making wagons or making tricycles. -Refer to Table 2-17. What is Lucy's opportunity cost of making a tricycle?

In a free market there are significant restrictions on how a good or service can be produced or sold.

When you purchase a new surfboard, you do so in the

An example of a factor of production is

Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. -Refer to Figure 2-2. If Mendonca chooses to produce 120 pounds of meat, how much vegetables can it produce to maximize production?

Figure 2-11 Mercedes Benz produces a full line of luxury automobiles, including coupes, sedans, and SUVs, at a variety of manufacturing plants across the globe. Assume Mercedes Benz produces both coupes and SUVs at its Tuscaloosa, Alabama factory. Figure 2-11 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions at this factory. -To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage. These facts suggest that a negative relationship exists between safety and gas mileage.

Table 2-31 -Refer to Table 2-31. 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. Which country has an absolute advantage in the production of cell phones? b. Which country has an absolute advantage in the production of lumber? c. What is Estonia's opportunity cost of producing one cell phone? d. What is Finland's opportunity cost of producing one cell phone? e. What is Estonia's opportunity cost of producing one board foot of lumber? f. What is Finland's opportunity cost of producing one board foot of lumber? g. If each country specializes in the production of the product in which it has a comparative advantage, who should produce cell phones? h. If each country specializes in the production of the product in which it has a comparative advantage, who should produce lumber?

Figure 2-7 Mercedes Benz recently decided to introduce its B-class automobile in the U.S. market, an electric car that is has designed and developed in a partnership with Tesla Motors. Assume Mercedes Benz chooses to produce both electric-engine vehicles and gasoline-engine vehicles. Figure 2-7 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions. -Sarita can bake either a combination of 25 cakes and 15 pies or a combination of 10 cakes and 20 pies. If she now bakes 10 cakes and 20 pies, what is the opportunity cost of baking an additional 15 cakes?

Any output combination along a production possibility frontier is associated with fully utilized resources.

Consider a country that produces only two goods: pineapples and tractors. Suppose it is possible for this country to increase its production of pineapples without producing fewer tractors. In this case, its current output combination is inefficient.

As women's wages have risen relative to men's wages, the opportunity cost to women of doing housework has ________ than has the opportunity cost to men.

The circular flow model demonstrates

A successful market economy requires

In the circular flow model, producers

Table 2-6 -Refer to Table 2-6. The Fruit Farm produces only apples and pears. The table above shows the maximum possible output combinations of the two fruits using all resources and currently available technology. a. Graph The Fruit Farm's production possibilities frontier. Put apples on the horizontal axis and pears on the vertical axis. Be sure to identify the output combination points on your diagram. b. Suppose The Fruit Farm is currently producing at point D. What is the opportunity cost of producing an additional 8,000 pounds of pears? c. Suppose The Fruit Farm is currently producing at point D. What happens to the opportunity cost of producing more and more pears? Does it increase, decrease or remain constant? Explain your answer. d. Suppose The Fruit Farm is currently producing at point G. What happens to the opportunity cost of producing more and more apples? Does it increase, decrease or remain constant? Explain your answer. e. Suppose The Fruit Farm is plagued by the apple maggot infestation which destroys apple trees but not pears. Show in a graph what happens to its PPF.

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

Table 2-10 Table 2-10 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 2-10. Which of the following statements is true?

In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it can still benefit by trading with the other country.