Ch 2

Question 1

What would cause a production possibilities froniter to be bowed out in oppose to a straight line?

Answer 1

Increasing opportunity costs

Question 2

What effect would an increase in available resources have on the PPF?

Answer 2

Shifts outwards

Question 3

What effect would an improvement in technology for one good have on the PPF?

Answer 3

Rotates outward

Question 4

A producer has the ___ if they can generate more output than others with a given amount of resources.

Answer 4

Absolute advantage

Question 5

A producer has the ___ if they can make a good at lower opportunity cost than other producers.

Answer 5

comparative advantage

Question 6

___ is when each country focuses on producing the good for which it has a comparative advantage and then trades with other countries.

Answer 6

Specialization

Question 7

Why do countries specialize?

Answer 7

Specialization increases the total production using the same number of workers and the same technology

Question 8

___ are the improvements in outcomes that occur when specialized producers exchange goods and services.

Answer 8

Gains from trade

Question 9

There is room for trade as long as which two conditions are satisfied?

Answer 9

1. The 2 countries differ in opportunity costs to produce a good.
2. They set favorable trading prices that benefit both parties. (Price must fall between their opportunity costs)