Log in
HomeClass Notes1,200,000US530,000

ECON 102 Lecture Notes - Lecture 4: Absolute Advantage, Opportunity Cost, Demand Curve

20 views3 pages
rosedolphin365
7 Sep 2017
School
PSU
Department
Economics
Course
ECON 102
Professor
Jadrian Wooten

For unlimited access to Class Notes, a Class+ subscription is required.

ECON 102 Full Course Notes
1
ECON 102 Full Course Notes
Verified Note
1 document

Document Summary

Different countries make different things better than other countries. Determined when one country can produce something cheaper and more efficiently than others. Ex) brazil makes better small jets and the us makes better big jets and then they trade. 40/30 = 1. 3333 4/3 s 30/10 = 3. Cheaper for brazil to make small jets because it only costs them 1/3. Cheaper for us to make large jets because it cost them 1 and 1/3 rather than 3. Us can make the most small and large jets if all resources are dedicated to it, thus us has absolute advantage. Not realistic, however, which is why we look at comparative advantage. *comparative advantage means there will be gains from trade (picture of table at the bottom - figure 1) Calculate gft (gains from trade) (exam question example at bottom - figure 2) Circular flow diagram (cfd) - helps to see how money and items flow through and used in the economy.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ECON 102 Chapter Notes - Chapter 2: Absolute Advantage, Comparative Advantage, Opportunity Cost
aquamarineminnow967
ECON 102
Final Exam
Study Guide
ECON 102 Study Guide - Final Guide: Table Tennis, Demand Curve, Economic Equilibrium
turquoisegnu128
ECON 1100 Chapter Notes - Chapter Chapter 2, part 2: Absolute Advantage, Boeing 787 Dreamliner, International Trade
champagneelk748

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


1 . In Zagora, a worker can produce either 5 books or 10 gadgets in an hour. In Plovdiv, a worker can produce either 3 books or 5 gadgets in an hour. Which statement about this situation is true?

A. Zagora has a comparative advantage in the production of books.

B. Zagora has a comparative advantage in the production of gadgets.

C. Zagora has the absolute advantage in both types of production, and workers in Plovdiv can't possibly compete against the super-productive workers in Zagora.

D. Plovdiv workers are clearly earning lower wages, and workers in Zagora can't be expected to compete against the low-wage workers in Plovdiv.

E. None of the above.

 

2. Free trade has the effect of:

A. making every individual in an economy better off.

B. decreasing an economy's production possibilities.

C. making all producers in an economy better off.

D. increasing the purchasing options of consumers in an economy.

E. making all workers in an economy worse off.

 

3. Protectionist measures are enacted because they:

A. allow countries to preserve culturally important ways of life at a very low cost.

B. typically benefit a large number of people at a cost to only a very small number.

C. typically benefit a small number of people greatly and impose small costs on a large number of people.

D. make everyone in an economy better off.

E. preserve a nation's critical natural resources.

 

4. Restrictions on imports of foreign steel into the U.S. will:

A. help both U.S. steel producers and U.S. automobile producers.

B. help U.S. steel producers and hurt U.S. automobile producers.

C. hurt U.S. automobile producers, but help U.S. automobile consumers.

D. hurt foreign steel producers and help U.S. steel consumers.

E. help both U.S. steel producers and foreign steel producers.

 

5. Suppose Bulgaria is accused of "dumping" milk on the Ukrainian market. As a result, the Ukrainian government is considering an embargo against milk from Bulgaria. As a result of this proposed embargo:

A. Ukrainian consumers of milk, such as small children, would be made better off, as would Ukrainian milk producers.

B. Ukrainian consumers of milk, such as small children, would be helped, but Ukrainian milk producers would be hurt.

C. Ukrainian consumers of milk, such as small children, would be hurt, as would milk producers in both Bulgaria and Ukraine.

D. milk producers in Bulgaria would be helped due to the resulting increase in milk prices.

E. Ukrainian consumers of milk, such as small children, would be made worse off, but Ukrainian milk producers would be made better off.

 

6. The term "balance of payments" refers to a nation's:

A. merchandise exports minus imports.

B. record of all international transactions.

C. capital inflows minus outflows.

D. official reserves inflows minus outflows.

E. capital outflows minus inflows.

 

7. If a bottle of French wine priced at 100 francs can be purchased for $50, the exchange rate is:

A. 0.50 francs per dollar.

B. 4.00 francs per dollar.

C. 0.50 dollars per franc.

D. 2.00 dollars per franc.

E. None of the above

Mexico's automobile industry is booming. Bolstered by $19 billion in new investment from foreign carmakers, including Nissan, Honda, Volkswagen, and Mazda, vehicle production doubled between 2009 and 2014 to an estimated 3.2 million vehicles. This investment surge has transformed Mexico into the eighth-largest automaker in the world, and it's not over yet. In 2014 and 2015, Toyota, Mercedes-Benz, Hyundai-Kia, BMW, and Volkswagen all outlined plans to build new state-of-the-art factories in Mexico. Audi is also constructing a $1.3 billion factory that is slated for producing luxury sport-utility vehicles. The Audi factory is scheduled to open in 2016. Taken together, these new factories represent another $20 billion in investment that will push Mexico past Brazil and South Korea to become the sixth-largest car producer in the world by 2020 with an annual output of 4.7 million vehicles (for comparison, the U.S. industry makes some 11.5 million autos a year). The initial stimulus for the dramatic growth of the Mexican auto industry was the establishment of the North American Free Trade Agreement (NAFTA) in 1994. Prior to NAFTA, Mexico's auto industry was small and protected from foreign competition by high tariff barriers. Car prices in Mexico were two to three times higher than in the United States. Not only were cars in Mexico more expensive, exporting or importing cars and parts was also very tough. Shipments got delayed at the border and were difficult to move around because of poor infrastructure, which is a major problem in an industry in which tight logistics is critical. NAFTA removed most tariff and nontariff barriers to trade between Mexico, the United States, and Canada. This initially led to a flood of low-priced auto imports into Mexico from the United States, but it also gave auto manufacturers based in Mexico duty-free access to the large U.S. market next door. With labor costs in Mexico just a fraction of those in the United States, auto manufacturers now had to consider Mexico when planning new plants to serve the North American market. Mexico's shift to free trade didn't stop with NAFTA. Mexico spent much of the 2000s hammering out free trade deals with over 40 other countries, including the 28 states of the European Union, Japan, and Brazil. These deals give auto factories based in Mexico duty-free access to markets that contain 60 percent of the world's economic output, and they have helped transform Mexico into the fourth-largest auto exporter in the world. Eighty percent of the cars now produced in Mexico are exported to other countries, two-thirds of them to the United States. This unprecedented network of regional trade agreements has given Mexico an important edge when it comes to attracting new investment. For example, when BMW ships cars to Europe from its 20-year-old plant in South Carolina, it is hit with a 10 percent import duty. For a $50,000 car, that amounts to $5,000, which is a much bigger factor than differences in labor costs. A factory in Mexico can supply both the U.S. and the EU markets with duty-free automobiles. This was a major factor behind BMWs 2014 decision to build a new factory in central Mexico rather than the United States, far outweighing the $500 a car labor cost advantage that Mexico currently enjoys over the United States. The new BMW factory will supply the U.S. and EU markets, as well as Latin America. Indeed, because of differences in trade barriers, a car exported from the United States to Brazil costs 55 percent more than one exported from Mexico. As Mexico's auto industry has grown, auto-part suppliers have also followed manufacturers to Mexico. The large auto parts supplier Delphi, for example, has 30 factories in Mexico and generates revenues of $3 billion in the country. Employment at Delphi's facilities doubled to 24,000 between 2007 and 2014. Infrastructure has also improved dramatically, and customs clearance at the border is now quick and efficient. All of this bodes well for the future of the Mexican auto industry. However, not everyone is happy with what has happened. Some argue that growth in Mexico has come at the expense of factories in the United States, which has had a negative impact on employment growth in the U.S. auto industry. When BMW decided to build a factory in central Mexico, for example, it meant that it would not be expanding its South Carolina plant. The South Carolina plant will continue to operate, and no plants have been closed as a result of the growth of production in Mexico, but it is true that new plants are increasingly being located south of the border. Sources: Joann Muller, America's Car Capital Will Soon Be... Mexico,€ Forbes, July 20, 2014; Dudley Althaus and William Boston, Trade Pacts Give Mexico an Edge,” The Wall Street Journal, March 18, 2015; Sonari Glinton, How NAFTA Drove the Auto Industry South, National Public Radio, December 8, 2013; Serena Maria Daniels, Twenty Years after NAFTA, a Mini Detroit Rises in Mexico,” Bridge, September 25, 2014. CASE DISCUSSION QUESTIONS

1. What was the initial impact of NAFTA on the U.S. and Mexican automobile markets? Who benefited most from this?

2. How did the impact of NAFTA start to change location decisions by automobile manufacturers over the years? How did this start to impact automobile production in Mexico and the United States?

3. Mexico has been very proactive in signing regional free trade deals in addition to NAFTA. How has this strategy impacted automobile consumers and producers in Mexico? How has it impacted automobile consumers and producers in the United States?

4. What lessons can United States policymakers draw from the growing success of the Mexican automobile industry that can be applied to future free trade deals, such as the deal currently being negotiated between the United States and the European Union?