Question 1

gains from trade are less obvious,

Accepted Answer

however, when one person is better at
producing every good. For example, suppose that Ruby is better at raising cat-tle and better at growing potatoes than Frank. In this case, should Ruby remain self-sufficient? Or is there still reason for her to trade

Question 2

the ability to produce a good using fewer inputs than another produce

Accepted Answer

absolute advantage

Question 3

whatever must be given up to obtain some item

Accepted Answer

Opportunity Cost

Question 4

The opportunity cost measures

Accepted Answer

the trade-off between the two goods that each producer faces.

Question 5

The ability to produce a good at a lower opportunity cost than another produce

Accepted Answer

comparative advantage

Question 6

Economists use the term comparative advantage

Accepted Answer

when describing the opportunity costs faced by two producers. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X and is said to have a comparative advantage in producing it

Question 7

it is impossible for

Accepted Answer

one person to have a comparative advantage in both goods. Because the opportunity cost of one good is the inverse of the opportunity cost of the other, if a person’s opportunity cost of one good is relatively high, the opportunity cost of the other good

Question 8

The gains from specialization and trade are

Accepted Answer

based not on absolute advantage but on comparative advantage. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy rises

Question 9

the gains from specialization and trade are

Accepted Answer

based not on absolute advantage but on comparative advantage. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy rises
this increase in the size of the economic pie can be us

Question 10

The story of Ruby the rancher and Frank the farmer has a simple moral, which should now be clear:

Accepted Answer

Trade can benefit everyone in society because it allows people to specialize in the activities in which they have a comparative advantage.

Question 11

The principle of comparative advantage

Accepted Answer

establishes that there are gains from specialization and trade,

Question 12

What determines the price at which trade takes place? How are the gains from trade shared between the trading parties?

Accepted Answer

The precise answers to these questions are beyond the scope of this chapter, but we can state one general rule: For both parties to gain from trade, the price at which they trade must lie between their opportunity costs.

Question 13

A mutually advantageous trade can be struck at a price between

Accepted Answer

2 and 4

Question 14

Each party can buy a good at a price that is

Accepted Answer

is lower than his or her opportunity cost of that good. In the end, each person specializes in the good in which he or she has a comparative advantage and, as a result, is better off.

Question 15

icardo’s theory is

Accepted Answer

the starting point of modern international economics, but his defense of free trade was not a mere academic exercise. Ricardo put his beliefs to work as a member of the British Parliament, where he opposed the Corn Laws, which restricted grain imports

Question 16

The conclusions of Adam Smith and David Ricardo on the gains from
trade have held up well over time

Accepted Answer

the central argument for free trade has not changed much in the past two centuries. Even though the field of economics has broadened its scope and refined its theories since the time of Smith and Ricardo, economists’ opposition to trade restrictions is st

Question 17

The principle of comparative advantage explains

Accepted Answer

interdependence and the gains from trade. Because interdependence is so prevalent in the modern world, the prin-ciple of comparative advantage has many applications

Question 18

goods produced abroad and sold domestically

Accepted Answer

imports

Question 19

goods produced domestically and sold abroad

Accepted Answer

exports

Question 20

as individuals can benefit from specialization and trade with one another, so can populations of people in different countries

Accepted Answer

Many of the goods that Americans enjoy are produced abroad, and many of the goods produced in the United States are sold abroad

Question 21

suppo Before Frank and ruby engage in trade, each of them

Accepted Answer

consumes at a point on his or her production possibilities frontier.

Question 22

After Frank and ruby engage in trade, each of them

Accepted Answer

consumes at a point outside his or her production possibilities frontier.

Question 23

in an hour, mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing

Accepted Answer

. Sophia in washing, neither in mowing

Question 24

Between mateo and Sophia, who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing

Accepted Answer

Sophia in washing, mateo in mowing

Question 25

When mateo and Sophia produce efficiently and make a mutually beneficial trade based on comparative advantage

Accepted Answer

mateo mows more and Sophia washes more.

Question 26

A nation will typically import those goods in which

Accepted Answer

nations have a comparative advantage

Question 27

Suppose that in the united States, producing an

Accepted Answer

china will export shirts, and the united States will export aircraft

Question 28

Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. her roommate takes twice as long to do each task. how should the roommates allocate the work?

Accepted Answer

. there are no gains from trade in this situation.

Question 29

Trade between countries

Accepted Answer

allows each country to consume at a point outside its production possibilities frontier.

Question 30

Total output in an economy increases when each person specializes because

Accepted Answer

each person spends more time producing that product in which he or she has a comparative advantage.

Chapter 3 micro

book notes

Term	Definition
gains from trade are less obvious,	however, when one person is better at producing every good. For example, suppose that Ruby is better at raising cat-tle and better at growing potatoes than Frank. In this case, should Ruby remain self-sufficient? Or is there still reason for her to trade
the ability to produce a good using fewer inputs than another produce	absolute advantage
whatever must be given up to obtain some item	Opportunity Cost
The opportunity cost measures	the trade-off between the two goods that each producer faces.
The ability to produce a good at a lower opportunity cost than another produce	comparative advantage
Economists use the term comparative advantage	when describing the opportunity costs faced by two producers. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X and is said to have a comparative advantage in producing it
it is impossible for	one person to have a comparative advantage in both goods. Because the opportunity cost of one good is the inverse of the opportunity cost of the other, if a person’s opportunity cost of one good is relatively high, the opportunity cost of the other good
The gains from specialization and trade are	based not on absolute advantage but on comparative advantage. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy rises
the gains from specialization and trade are	based not on absolute advantage but on comparative advantage. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy rises this increase in the size of the economic pie can be us
The story of Ruby the rancher and Frank the farmer has a simple moral, which should now be clear:	Trade can benefit everyone in society because it allows people to specialize in the activities in which they have a comparative advantage.
The principle of comparative advantage	establishes that there are gains from specialization and trade,
What determines the price at which trade takes place? How are the gains from trade shared between the trading parties?	The precise answers to these questions are beyond the scope of this chapter, but we can state one general rule: For both parties to gain from trade, the price at which they trade must lie between their opportunity costs.
A mutually advantageous trade can be struck at a price between	2 and 4
Each party can buy a good at a price that is	is lower than his or her opportunity cost of that good. In the end, each person specializes in the good in which he or she has a comparative advantage and, as a result, is better off.
icardo’s theory is	the starting point of modern international economics, but his defense of free trade was not a mere academic exercise. Ricardo put his beliefs to work as a member of the British Parliament, where he opposed the Corn Laws, which restricted grain imports
The conclusions of Adam Smith and David Ricardo on the gains from trade have held up well over time	the central argument for free trade has not changed much in the past two centuries. Even though the field of economics has broadened its scope and refined its theories since the time of Smith and Ricardo, economists’ opposition to trade restrictions is st
The principle of comparative advantage explains	interdependence and the gains from trade. Because interdependence is so prevalent in the modern world, the prin-ciple of comparative advantage has many applications
goods produced abroad and sold domestically	imports
goods produced domestically and sold abroad	exports
as individuals can benefit from specialization and trade with one another, so can populations of people in different countries	Many of the goods that Americans enjoy are produced abroad, and many of the goods produced in the United States are sold abroad
suppo Before Frank and ruby engage in trade, each of them	consumes at a point on his or her production possibilities frontier.
After Frank and ruby engage in trade, each of them	consumes at a point outside his or her production possibilities frontier.
in an hour, mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing	. Sophia in washing, neither in mowing
Between mateo and Sophia, who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing	Sophia in washing, mateo in mowing
When mateo and Sophia produce efficiently and make a mutually beneficial trade based on comparative advantage	mateo mows more and Sophia washes more.
A nation will typically import those goods in which	nations have a comparative advantage
Suppose that in the united States, producing an	china will export shirts, and the united States will export aircraft
Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. her roommate takes twice as long to do each task. how should the roommates allocate the work?	. there are no gains from trade in this situation.
Trade between countries	allows each country to consume at a point outside its production possibilities frontier.
Total output in an economy increases when each person specializes because	each person spends more time producing that product in which he or she has a comparative advantage.

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