Question 1

Explain Ricardo's theory of comparative advantage.

Accepted Answer

Specialization and free trade will benefit all trading partners, including those that may be absolutely more efficient producers.

Question 2

Comment on the following statement: "I decided to buy a car from a dealer in a town 100 miles away because he was offering a price that was $100 lower than the dealer in my hometown. Therefore, I saved $100."

Accepted Answer

Assuming that the individual had no other reason to travel the 100 miles, the savings from the purchase of the car is less than $100. Travel costs should be taken into account, including the opportunity cost of time.

Question 3

Explain the economic concept of opportunity cost.

Accepted Answer

The opportunity cost of something is the best alternative that we give up when we make a choice or a decision.

Question 4

At which time is the opportunity cost likely to be higher to go to war, during a recession or during an economic boom? Explain your answer fully.

Accepted Answer

The answer of At which time is the opportunity cost...

Question 5

What critical resource is likely to be the culprit for the impending doom of Social Security regarding tax collection? Explain.

Accepted Answer

The answer of What critical resource is likely to be...

Question 6

Explain why some researchers conclude that Americans are becoming more obese because of the existence of fast-food restaurants. If fast-food restaurants have been around for over 50 years why is the trend toward obesity only a recent one? Explain.

Accepted Answer

The answer of Explain why some researchers conclude that Americans...

Question 7

Suppose that a local government decides to provide more funds to the local police department in order for the department to hire additional police officers. Is there an opportunity cost of this action? If so, how would you measure it?

Accepted Answer

The answer of Suppose that a local government decides to...

Question 8

Because of the quantity and quality of its resources, the U.S. has an absolute advantage in the production of many goods and services. Does this imply that the U.S. cannot benefit from trading with a developing country that has less productive ability? Why or why not?

Accepted Answer

The answer of Because of the quantity and quality of...

Question 9

Critically evaluate the following statement. "Only poor nations face scarcity. Rich nations have everything they need and have therefore conquered scarcity."

Accepted Answer

The answer of Critically evaluate the following statement. "Only poor...

Question 10

What are resources? Describe two different types of resources.

Accepted Answer

The answer of What are resources? Describe two different types...

Question 11

List the three basic economic questions that all societies must answer.

Accepted Answer

The answer of List the three basic economic questions that...

Question 12

Suppose there is a new technological invention that will allow you to put any resource into a special black box and in an instant anything that you program it to produce will be produced? Does this invention end scarcity? Why or why not?

Accepted Answer

The answer of Suppose there is a new technological invention...

Question 13

Suppose you could measure the value in monetary terms for the following three things that you could do with your time this Friday evening: a) doing your homework - $50, 2) spending time with your friends - $40 or c) taking a nap - $30. Armed with only this information which activity has the lowest opportunity cost? Which two activities have the same opportunity cost? Based on what you have discovered what is the best use of your time and why?

Accepted Answer

The answer of Suppose you could measure the value in...

Question 14

What is the opportunity cost of attending class today?

Accepted Answer

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

Question 15

Assume that two countries are considering trading with each other for the first time. Also assume that one of the countries has an absolute disadvantage in producing everything compared to the other country. How would it still be possible for these two nations to benefit from trade with each other?

Accepted Answer

The answer of Assume that two countries are considering trading...

Question 16

Suppose you have saved $300. You can spend it on a new stereo or on a weekend skiing trip. What is the opportunity cost of going on the skiing trip?

Accepted Answer

The answer of Suppose you have saved $300. You can...

Question 17

Explain how it might be possible to discuss costs of production of a good or service without using monetary values.

Accepted Answer

The answer of Explain how it might be possible to...

Question 18

Evaluate the following statement. "The nation of Berundi has an absolute disadvantage in the production of everything compared to the United States. Therefore, the United States will have no reason to trade with Berundi".

Accepted Answer

The answer of Evaluate the following statement. "The nation of...

Question 19

Mexico has lower wages than the United States. Does this necessarily mean that it will have a comparative advantage in the production of everything compared to the United States?

Accepted Answer

The answer of Mexico has lower wages than the United...

Question 20

Michael Jordan has more athletic ability than most individuals. Thus, he is more productive at most tasks involving physical skill. Explain why then, it is more efficient for Michael Jordan to pay someone else to mow his lawn.

Accepted Answer

The answer of Michael Jordan has more athletic ability than...

Quiz 2: The Economic Problem: Scarcity and Choice