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

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15 Sep 2016

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Opportunity cost: the value of the next best alternative forgone when an action is taken: chose option a but option b is next best option and your opportunity cost. Production possibility frontier (ppf): table, graph, or equation that shows the different combinations of outputs that can be produced from a given set of resources (inputs) and technology: in our model: 2 countries (a and b: givens. Country a: 800 labor hours available (la = 800 hours) Country b: 800 labor hours available (lb = 800 hours) For country a: soybeans take 2 hours to produce one unit and textiles take 1 hour to produce one unit. For country b: soybeans take 8 hours to produce one unit and textiles take 2 hours to produce one unit. Derivation of each country"s ppf: trial-and-error approach. Thursday, march 31, 2016: 100 hours of output if labor hours only for soybeans and 400 hours of output if labor hours only for textiles, [footnote] math.

Related Questions

Q2. (35 points) The following table shows the output of textile and auto one unit of labor can produce in the U.K. and the U.S.:

	Textiles	Autos
United Kingdom	16	4
United States	6	3

A)Which country has an absolute advantage in textiles and which country has an absolute advantage in autos?

B)What is the autarky price ratio of autos relative to textiles in each country?

C)Which country has a comparative advantage in textiles and which country has a comparative advantage in autos?

D)Which product should each country export?

E)Suppose the United States has 300 units of labor available. Construct the production-possibilities frontier (PPF) and identify the optimal autarky equilibrium (using an indifference curve) for the United States.

F)Suppose the international price is set at 1 auto:3 units of textile and the U.S. decides to completely specialize at producing the product in which it has a comparative advantage. How would the above graph change? Use the graph to show the gains from trade and the export and import quantities. For each unit of export good, how much does the U.S. gain (measured in terms of the other good)?

G)Discussion: At what level of international price ratio will all the benefits from trade accrue to the United States?

Your answer:

raspberrymole776

Please answer all of the following multiple choice questions... Thank you!

Hours to Produce One Unit
	Worker hours to produce yarn	Worker hours to produce fabric	Additional worker hours to produce fabric instead of yarn
Country A	8	12	?
Country B	4	13	?

Based on the data in the chart, which of the following scenarios presents the most efficient use of resources? (5 points)

	Country A produces yarn and fabric, and Country B imports both
	Country A produces yarn, and Country B produces fabric
	Country B produces yarn, and Country A produces fabric
	Country B produces yarn and fabric, and Country A imports both

	Worker hours to produce one unit of oil	Worker hours to produce one unit of natural gas
Brazil	8	4
Argentina	10	2
Mexico	7	3
United States	6	1

According to the chart, which country has an absolute advantage over the other countries in oil production? (5 points)

	Brazil
	Mexico
	Argentina
	United States

10.

U.S. companies have made fewer manufacturing contracts with China in the last few years, preferring other countries in the region. Which of the following is a potential reason? (5 points)

	China has most-favored-nation trade status with the United States.
	China has large reserves of cheap labor and can produce inexpensive goods.
	China's standard of living has increased, and workers are requesting more pay.
	Shipping costs from China over the Pacific Ocean have decreased.

11.

The U.S. government wants to restrict Nation A's access to weapons-making materials. Which of the following actions will it most likely take? (5 points)

	Establish a free-trade zone with Nation A
	Impose tariffs on certain goods imported from Nation A
	Institute an embargo on trade in certain items with Nation A
	Place a quota on certain types of goods Nation A can export

12.

Because the United States has an embargo on Cuba, (5 points)

	the United States regularly increases the taxes on Cuban imports
	Cuba exports the majority of Cuban products to American companies
	virtually no Cuban products are legally available in the United States
	Cuba must sell products directly to state governments in the United States

13.

Globalization increases the interdependency of the world's countries. Inflation in one country would most likely (5 points)

	not impact inflation in other countries
	cause deflation in other countries
	result in stagflation in other countries
	relate to inflation in other countries

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.

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

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