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

In the circular flow model, households demand resources such as labor services in the product market.

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. Which of the following statements is true?

a. Draw a production possibilities frontier for a country that produces two goods, wine and cheese. Assume that resources are not equally suited to both tasks. b. Define opportunity costs. c. Use your production possibilities frontier graph to demonstrate the principle of opportunity costs.

Table 2-9 Table 2-9 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. -Refer to Table 2-9. What is Haley's opportunity cost of making a bracelet?

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. Which country has a comparative advantage in the production of cotton?

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. -An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a different point on the frontier.

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. -For each pound of salami that Hungary produces, it gives up the opportunity to make 10 bottles of beer. Slovakia can produce 1 pound of salami for every 8 bottles of beer it produces. Which of the following is true about the comparative advantage between the two countries?

Is it possible for a firm to have an absolute advantage in producing something without having a comparative advantage? Why or why not?

In a simple circular flow diagram, who supplies factors of production in markets and who buys these factors of production? Who supplies goods and services in markets and who buys these goods and services?

Which of the following is an examples of spending on factors of production in the circular flow model?

Figure 2-19 -Refer to Figure 2-19. Which two arrows in the diagram depict the following transaction: Stanley purchases the novel Night of Sorrows for his summer reading pleasure.

Suppose in Belize, the opportunity cost of producing a sailboat is 5 hang gliders. In Honduras, the opportunity cost of producing a sailboat is 8 hang gliders. a. What is the opportunity cost of producing a hang glider for Belize? b. What is the opportunity cost of producing a hang glider for Honduras? c. Which country has a comparative advantage in the production of hang gliders? d. Which country has a comparative advantage in the production of sailboats?

Figure 2-6 -Suppose your expenses for this term are as follows: tuition: $28,000, room and board: $9,000, books and other educational supplies: $2,500. Further, during the term, you can only work part-time and earn $16,000 instead of your full-time salary of $42,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?

If you can produce more of something than others with the same resources, you have

Table 2-32 -Suppose in the United States, the opportunity cost of producing a motor engine is 4 auto bodies. In Canada, the opportunity cost of producing a motor engine is 2 auto bodies. a. What is the opportunity cost of producing an auto body for the United States? b. What is the opportunity cost of producing an auto body for Canada? c. Which country has a comparative advantage in the production of auto bodies? d. Which country has a comparative advantage in the production of motor engines?

If a commercial dairy farm wants to raise funds to purchase feeding troughs, it does so in the

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 board foot of lumber?

The idea underlying Adam Smith's "invisible hand" is that people tend to behave in ways that go unnoticed in society.