Question 1

Assume that yields on bonds (rate of return) begin to fall while the stock market is booming, what should we see happen to the demand and price of stocks and why? What can we say about the opportunity cost of holding on to bonds in this situation?

Accepted Answer

The answer of Assume that yields on bonds (rate of...

Question 2

Suppose that you have saved $100. You can spend it today or you can put it in your savings account for a year and earn 5% interest. What is the opportunity cost of spending the money today?

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The answer of Suppose that you have saved $100. You...

Question 3

If a comparative advantage implies that a country can produce a product at a lower opportunity cost than another country then why do we see two countries often trading the same goods? For instance, for most agricultural products the U.S. has a comparative advantage. Japan, one of America's largest trading partners has a comparative advantage in the production of most economy cars. Explain what is going on here when we still see the U.S. exporting cars to Japan and the U.S. importing some foods from Japan.

Accepted Answer

The answer of If a comparative advantage implies that a...

Question 4

Critically evaluate the following statement. "If a country can produce a good using fewer inputs than other country then that means that country enjoys a comparative advantage."

Accepted Answer

The answer of Critically evaluate the following statement. "If a...

Question 5

The following table shows output per hour for Fred and Barney who mow lawns and trim hedges:
  What is the opportunity cost of mowing a lawn for Fred? What is the opportunity cost of trimming a hedge for Fred? Who has a comparative advantage in mowing lawns? How can you tell?

Accepted Answer

The answer of The following table shows output per hour...

Question 6

Suppose that Rosie and Betty spend their free time making cakes and cookies. Is it possible for Betty to have an absolute advantage in the production of both cakes and cookies? Is it possible for Betty to have a comparative advantage in the production of both cakes and cookies? Explain.

Accepted Answer

The answer of Suppose that Rosie and Betty spend their...

Question 7

Suppose the CEO of a major corporation has five subsidiary companies. Only one of these companies is making better than the return on similar investments that the company could be making if it invested its financial capital outside the company. The CEO tells each of these subsidiary companies that the rate of return that they are earning is not acceptable and must rise to the level of these identified companies. He tells them if they can't come up with a plan in twelve months that their companies will be sold. If each of these companies was actually making money can you come up with an economic argument for why it is still rational for this CEO to sell them if they don't abide by his directive.

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The answer of Suppose the CEO of a major corporation...

Question 8

Critically evaluate the following statement. "If a country has an absolute advantage in the production of everything it necessarily follows that it will have a comparative advantage in the production of everything."

Accepted Answer

The answer of Critically evaluate the following statement. "If a...

Question 9

Define opportunity cost. Given the definition of opportunity cost, explain what is meant by the statement "There is no such thing as a free lunch."

Accepted Answer

The answer of Define opportunity cost. Given the definition of...

Question 10

Papa Ray owns a pizzeria. He is more efficient at making pizza than anyone he could hire. Does this mean that he should make all of the pizzas himself?

Accepted Answer

The answer of Papa Ray owns a pizzeria. He is...

Question 11

The following table shows output per hour for Martha and Stewart who make gift baskets and potholders:
  What is the opportunity cost of a gift basket for Martha? What is the opportunity cost of a gift basket for Stewart? Who has a comparative advantage in producing gift baskets? How can you tell?

Accepted Answer

The answer of The following table shows output per hour...

Question 12

What is the opportunity cost of producing capital goods such as a new road?

Accepted Answer

The answer of What is the opportunity cost of producing...

Question 13

How does an individual know whether or not an investment in education is worthwhile?

Accepted Answer

The answer of How does an individual know whether or...

Question 14

The following table shows output per hour for Martha and Stewart who make gift baskets and potholders:
  What is the opportunity cost of a potholder for Martha? What is the opportunity cost of a potholder for Stewart? Who has an absolute advantage in producing potholders? Who has a comparative advantage in producing potholders?

Accepted Answer

The answer of The following table shows output per hour...

Question 15

Explain the difference between absolute advantage and comparative advantage.

Accepted Answer

The answer of Explain the difference between absolute advantage and...

Question 16

The following table shows output per hour for Mexico and Canada, two countries that produce beer and T-shirts:
  What is the opportunity cost of a bottle of beer for Mexico? What is the opportunity cost of a T-shirt for Mexico? Who has a comparative advantage in producing beer? How can you tell?

Accepted Answer

The answer of The following table shows output per hour...

Question 17

Assume that a lawyer and a secretary have been working together for two years. The lawyer suddenly realizes that he prepares legal briefs and types faster than the secretary. Upon learning this he decides to let his secretary go. Why might this be a mistake?

Accepted Answer

The answer of Assume that a lawyer and a secretary...

Question 18

In economic terminology, what is the meaning of investment?

Accepted Answer

The answer of In economic terminology, what is the meaning...

Question 19

What is the difference between capital goods and consumer goods?

Accepted Answer

The answer of What is the difference between capital goods...

Question 20

Suppose that the opportunity cost of a student's time is greater when he studies than when he works. What mistake is he making and why?

Accepted Answer

The answer of Suppose that the opportunity cost of a...

Quiz 2: The Economic Problem: Scarcity and Choice

Assume that yields on bonds (rate of return) begin to fall while the stock market is booming, what should we see happen to the demand and price of stocks and why? What can we say about the opportunity cost of holding on to bonds in this situation?

Suppose that you have saved $100. You can spend it today or you can put it in your savings account for a year and earn 5% interest. What is the opportunity cost of spending the money today?

Critically evaluate the following statement. "If a country can produce a good using fewer inputs than other country then that means that country enjoys a comparative advantage."

The following table shows output per hour for Fred and Barney who mow lawns and trim hedges: What is the opportunity cost of mowing a lawn for Fred? What is the opportunity cost of trimming a hedge for Fred? Who has a comparative advantage in mowing lawns? How can you tell?

Suppose that Rosie and Betty spend their free time making cakes and cookies. Is it possible for Betty to have an absolute advantage in the production of both cakes and cookies? Is it possible for Betty to have a comparative advantage in the production of both cakes and cookies? Explain.

Critically evaluate the following statement. "If a country has an absolute advantage in the production of everything it necessarily follows that it will have a comparative advantage in the production of everything."

Define opportunity cost. Given the definition of opportunity cost, explain what is meant by the statement "There is no such thing as a free lunch."

Papa Ray owns a pizzeria. He is more efficient at making pizza than anyone he could hire. Does this mean that he should make all of the pizzas himself?

The following table shows output per hour for Martha and Stewart who make gift baskets and potholders: What is the opportunity cost of a gift basket for Martha? What is the opportunity cost of a gift basket for Stewart? Who has a comparative advantage in producing gift baskets? How can you tell?

What is the opportunity cost of producing capital goods such as a new road?

How does an individual know whether or not an investment in education is worthwhile?

Explain the difference between absolute advantage and comparative advantage.

The following table shows output per hour for Mexico and Canada, two countries that produce beer and T-shirts: What is the opportunity cost of a bottle of beer for Mexico? What is the opportunity cost of a T-shirt for Mexico? Who has a comparative advantage in producing beer? How can you tell?

Assume that a lawyer and a secretary have been working together for two years. The lawyer suddenly realizes that he prepares legal briefs and types faster than the secretary. Upon learning this he decides to let his secretary go. Why might this be a mistake?

In economic terminology, what is the meaning of investment?

What is the difference between capital goods and consumer goods?

Suppose that the opportunity cost of a student's time is greater when he studies than when he works. What mistake is he making and why?