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

To compete in the automobile market,BMW must make many strategic decisions such as whether to introduce a new car model,whether to produce alternative-fuel vehicles,and where to advertise.At BMW's Spartanburg,South Carolina plant,managers must decide on the monthly production quantities of their X3,X5 ,and X6 models.In making this decision,the managers

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.

Figure 2-7 Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. -Refer to Figure 2-7.If the two countries have the same amount of resources and the same technological knowledge,which country has an absolute advantage in the production of both pineapples and coconuts?

In a free market there are virtually no restrictions,or at best few restrictions,on how a good or service can be produced or sold.

Table 2-3 Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. -Refer to Table 2-3.What is Jack's opportunity cost of mowing a lawn?

If opportunity costs are ________,the production possibilities frontier would be graphed as a negatively sloped straight line.

It is not possible to have a comparative advantage in producing a good or service without having an absolute advantage.

If the price of a good or service rises,households have to choose whether to buy less of that good or service or spend less on other goods and services.Studies have shown that when the price of health care rises,

Which of the following statements is true about a simple circular flow model?

Figure 2-1 -Refer to Figure 2-1. ________ is (are)unattainable with current resources.

For each watch that Switzerland produces,it gives up the opportunity to make 50 pounds of chocolate.Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

When you purchase a new surfboard you do so in the

In 18th century Europe,governments gave guilds legal authority to limit production of goods.This authority obstructed the market mechanism because the guild's actions prevented the forces of ________ from coordinating the self-interested decisions of producers and consumers.

Table 2-1 Production Choices for Dina's Diner -Refer to Table 2-1.Assume Dina's Diner only produces sliders and hot wings.A combination of 40 sliders and 25 hot wings would appear

The payment received by suppliers of entrepreneurial skills is called profit.

The ability to exercise control over one's own resources within the confines of the law refers to

Figure 2-4 Figure 2-4 shows various points on three different production possibilities frontiers for a nation. -Refer to Figure 2-4. Consider the following events: a.an increase in the unemployment rate b.a decrease in a nation's money supply c.a war that kills a significant portion of a nation's population Which of the events listed above could cause a movement from Z to X ?

If property rights are not well enforced,all of the following are likely to occur except

Table 2-2 -Refer to Table 2-2. The Nut House produces only cashews and almonds. The table above shows the maximum possible output combinations of the two nuts using all resources and currently available technology. a.Graph The Nut House's production possibilities frontier. Put almonds on the horizontal axis and cashews on the vertical axis.Be sure to identify the output combination points on your diagram. b.Suppose The Nut House is currently producing at point C.What is the opportunity cost of producing an additional 12,000 pounds of almonds? c.Suppose The Nut House is currently producing at point C.What happens to the opportunity cost of producing more and more almonds? Does it increase,decrease or remain constant? Explain your answer. d.Suppose The Nut House is currently producing at point F.What happens to the opportunity cost of producing more and more cashews? Does it increase,decrease or remain constant? Explain your answer. e.Suppose The Nut House is plagued by a variety of white root-rot disease,which destroys cashew trees but not almond trees. Show in a graph what happens to its PPF.

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