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ECON 101 Lecture Notes - Lecture 3: Comparative Advantage, Federal Open Market Committee, Inferior Good

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crimsonmacaw448
5 Feb 2017
School
SDSU
Department
Economics
Course
ECON 101
Professor
hilmer

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Document Summary

Federal open market committee conducts the monetary policy. Output= consumptions+ investment+ government (fiscal policy) + (x-m) (trading with other countries. Absolute advantage: the ability to produce a good using fewer inputs than another producer. Look at the endpoints of the chart or when all resources are used to make one thing in order to identify absolute advantage. Comparative advantage: the ability to produce a good at a lower relative opportunity cost than another producer. One person can make just fish and the other can supply coconuts but in the end both want some coconuts and some fish and in order to make both producers happy, we trade. Terms of trade are bounded by opportunity costs. Econ 101 l4 the market forces of supply and demand. Market: a group of buyers and sellers of a particular product. Competitive market: one with many buyers and sellers and each has a negligible effect on price.

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Related Questions

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


A bowed out PPF reflects which of the following ideas?

i.increasing opportunity cost

ii. resources are not equally productive in all activities

iii. prices of goods increase over time

   

I only
   

I and iii
   

ii and iii
   

I and ii

1 point

QUESTION 2

With no international trade, a country ________ consume at a point outside of its PPF; with international trade, a country ________ consume at a point outside of its PPF.

   

can; cannot
   

cannot; can
   

cannot; cannot
   

can; can

1 point

QUESTION 3

If the production possibilities frontier between two goods is a straight line, then the

   

the line does not qualify as a production possibilities frontier because the unattainable production points are too close to the inefficient production points.
   

opportunity cost is not a ratio.
   

increasing opportunity costs.
   

resources are equally productive in both goods.

1 point

QUESTION 4

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

It decreases.
   

It increases.
   

It remains constant.

1 point

QUESTION 5

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

   

more of a good than another person.
   

a good for a lower dollar cost than another person.
   

a good for a lower opportunity cost than another person.
   

more of all goods than another person.

1 point

QUESTION 6

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

   

increases.
   

decreases.
   

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

remains constant.

1 point

QUESTION 7

A bowed out production possibility frontier shows that the

   

opportunity cost relationship is linear.
   

the opportunity cost of a good is constant as more of the good is produced.
   

the opportunity cost of a good increase as more of the good is produced.
   

the opportunity cost of a good decrease as more of the good is produced.

1 point

QUESTION 8

Which of the following statements is correct?

   

The production possibilities frontier shows that there are no limits to production.
   

Any point on or within the PPF is production efficient.
   

If capital is idle, the economy is producing at its full potential.
   

A tradeoff is a limit that forces an exchange or a substitution of one thing for something else.

1 point

QUESTION 9

A major earthquake occurs in the central part of the United States. What impact would this have on the nation's production possibilities frontier and why?

   

A tradeoff would occur to replace the resources and goods destroyed.
   

It would shift inward because some of the nation's resources, such as capital and labor, would be destroyed.
   

It would shift outward because unemployment would be reduced.
   

Nothing would happen because the nation would still have the same capabilities.

1 point

QUESTION 10

When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods

   

must increase.
   

must decrease.
   

must remain the same.
   

must change but they might increase or decrease.

1 point

QUESTION 11

Moving along a country's PPF, a reasonable opportunity costs increase is that

   

unemployment increases as a country produce more and more of one good.
   

unemployment decreases as a country produces more and more of one good.
   

some resources are better suited for producing one good rather than the other.
   

technology declines as a country produce more and more of one good.

1 point

QUESTION 12

A reason the production possibilities frontier exists is

   

scarcity of resources and unlimited technology.
   

unemployment.
   

scarcity of resources.
   

unlimited resources and technology.

1 point

QUESTION 13

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

   

increasing the production of one good and decreasing the production of another.
   

increasing the production of both goods.
   

decreasing the production of both goods.
   

holding the production levels of both goods constant.

1 point

QUESTION 14

Specialization and trade make a country better off because with trade the country can consume at a point

   

outside its production possibilities frontier.
   

on its trading partner's production possibilities frontier.
   

inside its production possibilities frontier.
   

on its production possibilities frontier.

1 point

QUESTION 15

The production possibilities frontier is the

   

the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing.
   

the minimum output that can be produced when resources are used inefficiently.
   

the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.
   

maximum output that can be produced at an opportunity cost of zero.

1 point

QUESTION 16

The opportunity cost of economic growth is ________ and the benefit of economic growth is ________.

   

decreased current consumption; decreased future consumption
   

decreased current consumption; increased future consumption
   

increased current consumption; increased future consumption
   

increased current consumption; decreased future consumption

1 point

QUESTION 17

In terms of a nation's production possibilities frontier, what impact does international trade have?

   

International trade shifts the nation's production possibilities frontier outward.
   

International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported.
   

International trade shifts the nation's production possibilities frontier inward.
   

International trade allows the nation to consume at a point outside its production possibilities frontier.

1 point

QUESTION 18

The production possibilities frontier illustrates the

   

goods and services that people want.
   

limits to people's wants.
   

resources the economy possesses, but not it is the level of technology.
   

maximum combinations of goods and services that can be produced.

1 point

QUESTION 19

As we move along the production possibilities frontier,

   

the possibilities of tradeoffs diminish.
   

the production of one good increases as the production of the other good decreases.
   

more of both goods can be produced.
   

a tradeoff is not possible because nations need all goods.

1 point

QUESTION 20

What is the opportunity cost of economic growth?

   

Eliminate scarcity
   

Land.
   

Capital goods.
   

Consumption of goods.

1 point

QUESTION 21

Which of the following statements is correct?

i.As the economy grows, the opportunity costs of economic growth decrease.

ii. Economic growth has no opportunity cost.

iii. The opportunity cost of economic growth is current consumption forgone.

   

ii only
   

iii only
   

I only
   

I and iii

1 point

QUESTION 22

Does economic growth depend upon which of the following?

i. Increasing the quantity of labor.

ii. Lowering the prices of goods and services.

iii. Advancing technology.

   

ii only.
   

I only.
   

I and iii.
   

iii only.

1 point

QUESTION 23

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

   

the amount of money in the economy
   

the prices of goods and services
   

the quantity of the goods and services that are produced
   

the available factors of production and the state of technology

1 point

QUESTION 24

To increase its economic growth, a nation should

   

encourage spending on goods and services.
   

increase in current consumption.
   

encourage education because that increases the quality of labor.
   

limit the number of people in college because they produce nothing.

1 point

QUESTION 25

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

   

some 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.
   

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.

Need help revising, and recommendation for a conclusion.

Throughout this paper is my understanding of what I have learned in class chapters 1-4, expressing my understanding and opinions. Economics is the study of how we deal with scarce resources. Microeconomics specially deals with business in the home country exclusively. This type of economics affects small businesses in the home country only. On the other hand, macroeconomics concerns our national welfare concerning trade and international business.

I believe that many things affect our economy on a microeconomics level. Things such as our understanding of our country in reflection to the world are very important. That is why we study ourselves before we study the macroeconomic principle of the world. Understanding ourselves is what microeconomics teaches us. Working from the inside out. The world is a place where there are differences in our wants and what we get. That is what makes items scarce. That is what positive economics is. Positive economics deals with what is and what we have. The other type of economics is called normative statements. This deals with what we should receive instead of what is and deserved to some extent. It's our scarce resources that determine our allocation of resources and how we use our resources and time. This is where opportunity costs come in, giving up something to do something. A successful business or country never ignores opportunity costs. We must ensure that we have a comparative advantage instead of the absolute advantage. Our resources must be used to achieve maximum output. Comparative is met when we have fewer opportunity costs to make some certain products than the other person or entity.

My initial understanding was scarcity was oil potentially running out, but we have so much of it that you can always find more with techniques such as fracking. Now it's obvious to me, one of our most scarce resources is time. You cannot avoid the 8,760 hours in a year. I understand that people have unlimited wants but limited resources. Everything has a cost and we must make a choice as we don't have unlimited farms, factories workers, etc. scarcity forces choices and this ties in with opportunity cost, for every gun made, a theft from the hungry is made.€ The opportunity cost not being used to feed the poor, but to make guns. And I find it easy to understand no one can have everything choices must be made on benefits. If I'm going to school, imp giving up making cash, as I'm giving up money for an education, I value education more. Scarcity is also related to the invisible hand. As it's an achievement that leads free markets and capitalism through competition for scarce resources.

My understanding of the invisible hand is a person neither intends to promote public interest and does not know how much he is promoting it. Only intending on his own gain. Without being his intention a person can be lead by the invisible hand to do good for society by pursuing one's own self-interest. Going into equity and efficiency the invisible hand does ensure both equity and efficiency. People work in their selfish ways to maximize profit while also contributing to the economy as a whole. It can also be argued that as the invisible hand wants to ensure efficiency, it cannot guarantee efficiency, because it can fail to produce an efficient allocation of resources, which in turn lead to a market failure. It can also be argued that it can't guarantee equity because not everyone gets a fair price. The way I like to remember efficiency is with a real-life example, like a reduction in the number of workers needed to produce a particular good for a particular amount. Equity refers to the ownership interest in an asset, for example, if a person owns a house with a market value of $800,000 and owes $100,000 on the mortgage leaving a $700,000 equity in the home.

It can be predicted that if the price of beef increases - ceteris paribus-the quantity of beef demanded by buys will decrease. In other words, if the price of beef increases, then the quantity of beef increases, then the quantity of beef demanded will decrease because all things have to be equal. In-class lecture thought me all other things remaining the same.€ Economists use ceteris paribus to determine the effect of a factor when all other factors have been held the same and helps simplify the study and get a more refined data set.

Economists deal with many issues that pertain to assuring that both a countries domestic output is efficient and that there is an effective trade balance. This means that there are a balance and limit on the amount of imports. Also, this means home production must be able to meet export demands. There are many factors that affect the production of goods and their effect on shifting the production possibilities frontier. This involves evaluating every detail including knowing the products and any close substitutes and compliments. It also involves knowing how an action or other external force will affect demand. This is called price elasticity; Substitutes are products that can replace any given product or service. An example of this would be Coke and Pepsi. The presence of substitutes affects price elasticity because if there are other options, then any change to the price or quality of the product will cause a shift of the demand curve. O course, price is a huge reason why the demand for a product decreases or increases yet it doesn't shift the curve because of the price only. This price change will cause a domino effect that will end with the shifting of the demand curve because it will cause an increase or decrease in demand of the substitute good if the price change is either lower or higher respectively. This price change serves as a catalyst that will change people's desire to spend more money on a more expensive product and that will instead choose to buy the substitute good for cheaper or buy more of the desired product. The change in the price of actual products will not shift the demand curve yet the change of the price of substitutes will because it serves to change people's purchasing behavior. On the other hand, compliments serve to boost demand when there is a decrease in price. The use of complementary goods is dependent upon another product. An example of this would be hot dogs and buns. If the price of hotdogs decreases then, conversely, the demand for hot dog buns will increase because of this change in price. In this scenario, the decrease in price will cause a positive shift in the demand curve because of people's desire and willingness to buy more buns. This is an example of a demand shifter. There are a few other demand shifters. The shifters of the demand curve are changes in expectations, disposable income, price of substitute goods and complements, tastes and preferences, and population size and composition. Changes in income affect the demand curve because if income is lower then people tend to save any extra income instead of wasting it. Disposable income is minimized and spending is lower. This also causes people to see a perceived value of things and distinguishing between what is necessary and what is a relative luxury. The lower the income, the higher the saving and avoidance to spend. An example of this would be if someone needs to buy some medication and it is relatively expensive, that doesn't mean that someone won't buy the medication just because it is expensive. It is necessary. Other factors that contribute to spending and demand are having a price ceiling and price floor. Having a price ceiling is a limit on the price of the product this is a government-imposed idea that is meant to protect consumers from unfair pricing and other conditions that may be malicious or obscure. This affects demand because if there is a price ceiling there is a limit on profit on a unit-to-unit basis. The other factor is the price floor. This price floor was created to encourage competition and affect consumers' willingness to pay because sometimes this new price may be higher than the original price. This causes a negative impact on a product that has a less than wanted perceived value. Many factors contribute to economic prosperity and certainly do help assure that information is analyzed and implemented into an economic and business plan.