Question 1

The flows in the market economy that go from firms to households are ________. The flows in the market economy that go from households to firms are ________.

Accepted Answer

In a market economy, the flows from firms to households consist of the real flows of goods and services and the income flows of wages, rent, interest, and profits. Conversely, the flows from households to firms include the real flows of labor, land, capital, and entrepreneurship and the flow of expenditure on goods and services. This reflects the circular flow of economic activity where households provide factors of production to firms and spend their income on goods and services produced by firms, while firms pay households for the use of factors of production and supply goods and services to households.

Question 2

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Both individuals gain if

Accepted Answer

The answer of Tom takes 20 minutes to cook an...

Question 3

Use the information below to answer the following questions.
Fact 2.4.1
In one hour, Sue can produce 50 caps or 10 jackets, and Tessa can produce 70 caps or 7 jackets.
-Refer to Fact 2.4.1. ________ has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 caps, ________.

Accepted Answer

Tessa has a comparative advantage in producing caps because she can produce more caps per hour than Sue. If they trade 1 jacket for 7 caps, both benefit because they are trading at a rate that is better than their opportunity cost.

Question 4

The main functions of markets include

Accepted Answer

Markets enable buyers and sellers to get information about each other, facilitating transactions. While promoting the self-interest of individuals, markets also facilitate the efficient allocation of resources, which ultimately benefits society as a whole. Therefore, option A and E are incorrect. Option B is incorrect because markets also sell factors of production such as labor and capital. Option D is incorrect because markets can exist in physical as well as virtual (online) locations.

Question 5

To gain from comparative advantage, countries must not only trade, they must also

Accepted Answer

Countries must specialize in the production of goods and services for which they have a comparative advantage, allowing them to trade efficiently and benefit from the exchange.

Question 6

Tom and Don have different opportunity costs of producing two goods. If Tom and Don specialize in producing the goods in which each has a comparative advantage and they exchange goods, then

Accepted Answer

By specializing in producing the goods in which each has a comparative advantage and exchanging goods, both Tom and Don can consume a combination of goods that is outside their production possibility frontier. This is because they can each obtain the goods that they are not as efficient at producing through exchange, leading to a more efficient allocation of resources and an increase in overall consumption. Thus, each will gain from trade.

Question 7

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. If Tom and Jerry specialize and trade eggs and sandwiches with each other,

Accepted Answer

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich, which means he spends 25 minutes in total for one egg and sandwich. On the other hand, Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich, which means he spends 18 minutes in total for one egg and sandwich.

If they specialize and trade, Tom can focus on cooking eggs, which takes him 20 minutes, while Jerry focuses on making sandwiches, which takes him only 3 minutes. Once they finished, they exchange the items. Therefore, it would take them a total of 23 minutes for one egg and one sandwich in total.

This way, they both benefit as they can save a total of 2 minutes per set, compared to if they did everything themselves. So choice E, both of them benefit, is the best answer.

Question 8

Which of the following describes comparative advantage?

Accepted Answer

Comparative advantage refers to the ability of a producer to produce a good or service at a lower opportunity cost than another producer. In this scenario, Farmer John gives up less corn (2 baskets) than Farmer Ben (3 baskets) to produce one basket of wheat. Therefore, Farmer John has a comparative advantage in producing wheat, and Farmer Ben has a comparative advantage in producing corn.

Question 9

There are two goods, X and Y. If the opportunity cost of producing good X is lower for Pam than for Gino, then

Accepted Answer

The answer of There are two goods, X and Y....

Question 10

Intellectual property ________.

Accepted Answer

Intellectual property refers to the intangible creations of the human intellect, such as inventions, literary and artistic works, and symbols, names, and images used in commerce. It is protected by copyrights and patents. Therefore, option C and D are correct.

Question 11

Markets I. enable buyers and sellers to get information.
II. are defined by economists as geographical locations where trade occurs.
III. have evolved because they facilitate trade.
Which of the above statements are correct?

Accepted Answer

Statement I is correct because markets provide information to buyers and sellers, which helps them decide what to produce, sell and purchase. 
Statement II is incorrect because economists define markets as the interaction between buyers and sellers, not just geographical locations. 
Statement III is correct because markets have evolved to facilitate trade, by bringing buyers and sellers together to exchange goods and services. Therefore, option C ("I and III only") is the correct answer.

Question 12

A property right is

Accepted Answer

A property right is a social arrangement that governs the ownership, use, and disposal of anything that people value. It is the right to use and control property and its benefits, such as the right to earn income from it or sell it.

Question 13

Mexico and Canada produce both oil and apples using labour only. A barrel of oil is produced with 4 hours of labour in Mexico and 8 hours of labour in Canada. A bushel of apples is produced with 8 hours of labour in Mexico and 12 hours of labour in Canada. Canada has

Accepted Answer

Canada has a comparative advantage in apple production because it has a lower opportunity cost for producing apples compared to oil, relative to Mexico.

Question 14

Trade is organized using the social institutions of all of the following except

Accepted Answer

The social institution of labor unions may have an impact on the terms and conditions of employment, but they do not directly organize or facilitate trade. The other options listed (firms, property rights, money, and markets) are all essential components of organized trade.

Question 15

Use the information below to answer the following questions.
Fact 2.4.1
In one hour, Sue can produce 50 caps or 10 jackets, and Tessa can produce 70 caps or 7 jackets.
-Refer to Fact 2.4.1. Sue's opportunity cost of producing a cap is ________ jackets and Tessa's opportunity cost of producing a cap is ________ jackets.

Accepted Answer

Sue's opportunity cost of producing a cap is 10/50 or 0.2 jackets. 
Tessa's opportunity cost of producing a cap is 7/70 or 0.1 jackets. 
Therefore, the best choice is to have Tessa produce caps and Sue produce jackets since Tessa has a lower opportunity cost for producing caps.

Question 16

The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta per hour. Which is the manager's best choice?

Accepted Answer

The answer of The kitchen manager at an Italian restaurant...

Question 17

Property rights

Accepted Answer

Property rights provide individuals with incentives to invest in capital by giving them the assurance that they will be able to retain the value of their investment. This, in turn, contributes to economic growth. Additionally, property rights encourage individuals to engage in the exchange of resources and goods, which leads to specialization and increased efficiency in the economy. Therefore, property rights have a positive effect on economic growth.

Question 18

In an economy lacking property rights, it would be ________ to realize the gains from trade, and there would be ________ specialization compared to an economy with property rights.

Accepted Answer

Property rights provide individuals with incentives to specialize in the production of goods they have a comparative advantage in, and then engage in trade. Without property rights, individuals cannot be certain they will reap the rewards of their specialization efforts, which makes it more difficult to realize the gains from trade. Additionally, because individuals are less likely to specialize without property rights, there will be less overall specialization in the economy.

Question 19

In Portugal, the opportunity cost of a bale of wool is 3 bottles of wine. In England, the opportunity cost of 1 bottle of wine is 3 bales of wool. Given this information,

Accepted Answer

The answer of In Portugal, the opportunity cost of a...

Quiz 2: The Economic Problem

The flows in the market economy that go from firms to households are . The flows in the market economy that go from households to firms are .