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ECON2302 - KC - Ch03

Ecomomics Chapter 3 review

QuestionAnswer
Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than buy. True or false? TRUE
Suppose Jim & Tom can both produce baseball bats. If Jim's opportunity cost of producing baseball bats is lower than Tom's opportunity cost of producing baseball bats, then Jim has comparative advantage in the production of baseball bats.
Suppose the US & Mexico produce semiconductors & auto parts and US has comparative advantage in conductors & Mexico has comparative advantage in auto parts. If the US exports conductors and imports auto parts, then both countries, as a whole, will be better off.
Regan & Jayson both grow flowers and makes ceramic vases. Regan is better at producing both goods. In this case, trade could benefit both Jayson & Regan.
Unless two people who are producing two goods have exactly the same opportunity costs, then one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good. True or false? TRUE
Harry makes $200/hr managing the company and producing products. His daughter makes $6/hr. Harry can repair his computer in 1 hr, Quinn can repair in 10 hrs. Harry has the lower opportunity cost. True or false? FALSE
If labor in Mexico is less productive than the labor in the US in all areas of production, then both Mexico and the US can still benefit from trade.
Interdependence among individuals and interdependence among nations are both based on the gains from trade. True or false? TRUE
Economists are generally united in their support of free trade. True or false? TRUE
One axis of the production possibilities frontier is the number of term papers written in one week. The other is the number of homework assignments completed. The production possibilities frontier is a straight line if you can switch between writing term papers and completing homework assignments at a constant rate.
Possibilities frontier line slopes downward if you face a tradeoff between producing one good or the other.
Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both gain from the exchange. We can conclude that, for Barney, the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes. True or false? FALSE
Tom Brady should probably NOT mow his own lawn because his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for him.
The principal of comparative advantage states that,regardless of the price at which trade takes place, everyone will benefit from trade if they specialize in the production of the good for which they have comparative advantage. True or false? FALSE
A country that currently does not trade with other countries could benefit by not restricting trade.
The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make. TRUE
An economy can produce at any point on or inside it's production possibilities frontier, but it cannot produce at points outside its production possibilities frontier. True or false? TRUE
Suppose a gardener produces both green beans and corn. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is 2.8 bushels of corn.
Opportunity cost measures the trade-off between 2 goods that each producer faces. True or false? TRUE
Interdependence among individuals and interdependence among nations are both based on the gains from trade. True or false? TRUE
The most obvious benefit of specialization and trade is that they allow us to consume more goods than we otherwise would be able to consume.
Trade allows a country to consume outside its production possibilities frontier. True or false? TRUE
When each person specializes in producing the good in which he or she has comparative advantage, each person can gain from trade but total production in the economy is unchanged. True or false? FALSE
Created by: debra473
 

 



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