ECON 1BB3 Lecture Notes - Lecture 3: Absolute Advantage, Comparative Advantage, Opportunity Cost

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rubyant278

24 Sep 2016

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes

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Martha can paint 20 rooms or wallpaper 5 rooms, stewart can paint 10 rooms or wall paper 8 rooms. Opportunity cost: whatever must be given up to obtain some item. M"s opp. cost of 20 painted rooms is 5 wallpapered rooms. M"s opp. cost of 1 painted room is wallpapered rooms. Absolute advantage: the ability to produce a good with a smaller quantity of inputs. Comparative advantage: the ability to produce a good with a smaller opportunity cost. Can"t have comparative advantage in both goods. Comparative advantage reflects the relative opportunity cost. There are 2 interior decorators who can paint & wallpaper. Martha can paint 20 rooms or wallpaper 5 rooms, stewart can paint 10 rooms or wallpaper 4 rooms. Martha has comparative advantage in paint (absolute in both) Stewart has a comparative advantage in wallpaper. (stewart will only produce wallpaper, martha will produce less wallpaper but still some) Stewart completely specializes in his compartitive advantage good.

Related Questions

You are given the following production possibilities table for country A and country B in bread and butter production.

	Bread	Butter
A	20	2
B	6	12

1) Which country has an absolute advantage in bread production?

2) Which country has an absolute advantage in butter production?

3) Make an opportunity cost table for the two countries.

4) Which country has a comparative advantage in bread production?

5) Which country has a comparative advantage in butter production?

6) Construct a table of production for the two countries with specialization. What is the total quantity of bread produced and what is the total quantity of butter produced?

7) Write the equation for the production possibility line for country A.

8) If country A chooses to produce 1 unit of butter, what quantity of bread can it produce?

9) Write the equation for the production possibility line for country B.

10) If country B chooses to produce 8 units of butter, what quantity of bread can it produce?

sapphiremarten574

The opportunity cost of one more slice of pizza in terms of sodas is the

		the total number of pizza slices that we have divided by the total number of sodas that we have.
		the number of sodas we have to give up to get one extra pizza slice.
		the number of pizza slices we have to give up to get one extra soda.
		the total number of sodas that we have divided by the total number of pizza slices that we have.

1 point

QUESTION 2

A production possibilities frontier shows

		how money can be allocated among two kinds of goods.
		the limits to the future growth of a nation.
		the various combinations of output a nation can produce at a certain time, given its available resources and technology.
		that if the price of one good decreases, the price of the other has to increase.

1 point

QUESTION 3

When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost

		remains constant.
		might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		increases.
		decreases.

1 point

QUESTION 4

When all of the available factors of production are being efficiently employed, the

		the economy is producing at a point within its PPF.
		PPF disappears.
		the economy is producing at a point beyond its PPF.
		the economy is producing at a point on its PPF.

1 point

QUESTION 5

If a nation devotes a larger share of its current production to consumer goods, then

		its PPF will shift inward.
		its economic growth will slow down.
		its PPF will shift outward.
		some productive factors will become unemployed.

1 point

QUESTION 6

A point on the production possibilities frontier reflects an

		the attainable point with full employment of all resources.
		attainable point without full employment of all resources.
		unattainable point without full employment of all resources.
		the unattainable point with full employment of all resources.

1 point

QUESTION 7

When drawing a production possibilities frontier, which of the following is held constant?

		the available factors of production and the state of technology
		the amount of money in the economy
		the prices of goods and services
		the quantity of the goods and services that are produced

1 point

QUESTION 8

As we move along the production possibilities frontier,

		more of both goods can be produced.
		the possibilities of tradeoffs diminish.
		a tradeoff is not possible because nations need all goods.
		the production of one good increases as the production of the other good decreases.

1 point

QUESTION 9

Which of the following is an assumption used when drawing a production possibilities frontier?

i.Human wants and desires are limited to what is available.

ii. Only two goods are considered.

iii. The level of technology is fixed and unchanging.

		I and iii
		ii only
		I, ii, and iii
		I only

1 point

QUESTION 10

To achieve gains from trade, a country

		needs to have an absolute advantage in the production of all goods.
		specializes in producing a good in which it has a lower opportunity cost.
		must produce at a point beyond its PPF.
		should produce at the midpoint of its PPF.

1 point

QUESTION 11

Relative to Al, Joe has ________ if Joe can produce a good at a lower opportunity cost than Al.

		a comparative advantage
		more production efficiency
		a marginal benefit
		a comparative benefit

1 point

QUESTION 12

Does economic growth depend upon which of the following?

i.Improving the quality of labor

ii. Technological advancement

iii. Increasing the amount of capital

		iii only
		ii only
		I only
		I, ii, and iii

1 point

QUESTION 13

In one hour John can produce 20 loaves of bread or 18 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true?

		John has a comparative advantage in producing cakes.
		Phyllis has an absolute advantage in both goods.
		Phyllis has a comparative advantage in producing cakes.
		John has an absolute advantage in both goods.

1 point

QUESTION 14

As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?

		It decreases.
		It might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		It remains constant.
		It increases.

1 point

QUESTION 15

The production possibilities frontier illustrates the

		goods and services that people want.
		maximum combinations of goods and services that can be produced.
		resources the economy possesses, but not it is the level of technology.
		limits to people's wants.

1 point

QUESTION 16

The United States produced approximately ________ worth of goods and services in 2007.

		$14 billion
		$14 trillion
		$140 billion
		$140 trillion

1 point

QUESTION 17

The fact of increasing opportunity cost when moving on the PPF means that

		to increase the production of one product requires smaller and smaller sacrifices of the other good.
		to decrease the production of one product requires smaller and smaller sacrifices of the other good.
		to increase the production of one product requires larger and larger sacrifices of the other good.
		when the government forces a movement from one point on the PPF to another point, no production is lost.

1 point

QUESTION 18

Other things equal, if India devotes more resources to educate its population than China,

		China will grow faster than India.
		India will be able to eliminate scarcity faster than China.
		India will be able to eliminate opportunity cost faster than China.
		India will grow faster than China.

1 point

QUESTION 19

For Ireland to grow more potatoes, wool production must decrease. This situation is an example of

		zero opportunity cost.
		producing at a point that lies beyond the PPF.
		opportunity benefit.
		a tradeoff.

1 point

QUESTION 20

Moving from one point to another on a production possibilities frontier implies

		increasing the production of both goods.
		increasing the production of one good and decreasing the production of another.
		holding the production levels of both goods constant.
		decreasing the production of both goods.

1 point

QUESTION 21

The United States is one of the richest nations in the world,

		but it can still benefit from specialization and trade.
		so does not need to trade with poor nations to achieve any gains from trade.
		so might not have a comparative advantage in producing any goods.
		so it must have a comparative advantage in the production of all goods.

1 point

QUESTION 22

"Comparative advantage" is defined as a situation in which one person can produce

		more of all goods than another person.
		a good for a lower opportunity cost than another person.
		a good for a lower dollar cost than another person.
		more of a good than another person.

1 point

QUESTION 23

The idea of increasing opportunity cost is reflected in the

		the linear shape of the production possibilities frontier.
		bowed in the shape of the production possibilities frontier.
		bowed out the shape of the production possibilities frontier.
		the positive slope of the production possibilities frontier.

1 point

QUESTION 24

Suppose that after specializing according to comparative advantage, a country is trading with another nation that also specializes according to its comparative advantage. Which of the following statements are true for the first country?

i)It enjoys gains from trade.

ii)It must have an absolute advantage in the production of the good it produces.

iii)It is producing at a point beyond its PPF.

		I only.
		I and ii.
		I and iii.
		ii and iii.

1 point

QUESTION 25

If society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will

		shift rightward.
		not shift because the society moves from one point on the frontier to a point inside the frontier.
		not shift because the society moves from a point inside the frontier to a point on the frontier.
		shift leftward.

1 point

ochresea-lion6

For which of the following nations does international trade account for the largest percentage of GDP?
A) Japan
B) The Netherlands
C) Germany
D) Great Britain
E) the United States

2. Suppose that workers in Transylvania can produce only two goods-- yo-yos or sweat socks. The Transylvanian currency is the dealer. In what unit is the opportunity cost of yo-yos measured?
A) dealers
B) dealers per yo-yo
C) dealers per sweat sock
D) yo-yos
E) sweat socks

3. For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?
A) The opportunity cost of producing watches is lower in Denmark.
B) The opportunity cost of producing cheese is lower in Denmark.
C) The opportunity cost of producing watches is identical in both countries.
D) It is impossible to compare opportunity costs because the two countries use different currencies.
E) In Germany the opportunity cost of producing one pound of cheese is one watch.

4. For each bow the Romans are producing, they give up the opportunity to make 10 arrows. The Dacians are giving up producing2 bows for every 40 arrows they are producing. Which of the following is true regarding comparative advantage?
A) The Romans have a comparative advantage in producing arrows
B) The Romans have a comparative advantage in producing bows
C) The Romans have a comparative advantage in producing arrows and bows
D) The Dacians have a comparative advantage in producing arrows and bows
E) The Dacians have a comparative advantage in producing bows

5. Which of the following is not a basis for trade between two nations?
A) different skill levels of the labor forces
B) one nation's absolute advantage
C) a difference in tastes between countries
D) economies of scale
E) different capital stocks

6. The opportunity cost of producing one car in Germany is 2,000bushels of wheat, and the opportunity cost of producing one car in Canada is 1,200 bushels of wheat. The two countries can realize mutual gains from trade if they agree on terms of trade that are
A) greater than 2,000 bushels of wheat per car
B) less than 1,200 bushels of wheat per car
C) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and Germany produces wheat
D) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and Germany produces cars
E) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and each country produces both goods

7. The rate at which two countries trade one good for another
A) is known as the foreign exchange rate
B) is known as the terms of trade
C) is known as the export line
D) equals the slope of the import line
E) equals the common slope of the countries' production possibilities frontiers

8. Which of the following is true?
A) International trade makes it possible for a country's consumption possibilities to exceed its production possibilities.
B) International trade requires that a country's production possibilities exceed its consumption possibilities.
C) A country's production possibilities always equal its consumption possibilities.
D) A country's consumption possibilities can never equal its production possibilities because of leakages in the system.
E) As long as there is full employment of resources, a country's production possibilities will exceed its consumption possibilities even with trade.

9. Which of the following is not a reason for international specialization?
A) some countries have educated, trained workers, while other countries have unskilled workers
B) tastes and preferences tend to be different in different countries
C) economies of scale can allow larger, specialized producers to operate at a lower average cost
D) mineral resources are often concentrated in particular countries
E) the world price of a good is determined by the world supply and demand for it

10. Ad valorem tariffs on imports are based on a percentage of an import's value; specific tariffs are based on a lump sum per physical unit imported.
A) True
B) False

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ECON 1BB3 Lecture Notes - Lecture 3: Absolute Advantage, Comparative Advantage, Opportunity Cost

ECON 1BB3 Full Course Notes

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