ch3

Question 1

two strands of consumer theory

Answer 1

1. Budget constraints
2. Tastes/preferences

Question 2

Budget constraint

Answer 2

the limited amount of income available to consumers to spend on goods and services

Question 3

Utility

Answer 3

the enjoyment or satisfaction that people receive from consuming goods and services

Question 4

Total Utility (TU)

Answer 4

the total utility a person receives from consuming a good or service

Question 5

Marginal Utility (MU)

Answer 5

the additional utility a person receives from consuming one additional unit of a good or service

Question 6

Law of diminishing marginal utility

Answer 6

consumers experience diminishing additional satisfaction as the consume more of a good or service during a given period of time

Question 7

Indifference curve

Answer 7

a curve that shows the combinations of consumption bundles that give the consumer the same utility

Question 8

Heckscher-Ohlin Theory/ factor endowment theory

Answer 8

A countries resources determine its comparative advantage

Question 9

Endowment

Answer 9

how much of a given resource a country has to use as part of its production process

Question 10

factor endowment theory example

Answer 10

canada has a relative abundance of arable land, japan has an abundance of capital. Therefore; wheat from canada is cheaper and robots from japan are cheaper

Question 11

Looking at figure on slide 2, what does the graph tell us about what canada should specialize in?

Answer 11

PPC canada, because in autarky, canada can produce more wheat compared to japan

Question 13

Looking at figure on slide 2, which of the 2 curves should be labeled japans transformation schedule (PPC) why?

Answer 13

PPC japan, because in autarky Japan can produce more robots compared to canada

Question 14

Looking at figure on slide 3, what does this tell you that japan and canada should specialize in?

Answer 14

japan -robots
canada -wheat

Question 15

Looking at figure on slide 3, what do A, A’, B, and B’ represent

Answer 15

A- Canada Autarky
A’- Japan Autarky
B- Canada w/ light trade
B’- Japan w/ light trade

Question 16

Looking at figure on slide 3, what does tt (terms of trade) represent?

Answer 16

the line that is simultaneously tangent to each PPC

Question 17

Looking at figure on slide 4, what does C represent?

Answer 17

Post-trade consumption of each country

Question 18

what should happen to demand for land in canada when wheat production increases

Answer 18

Demand ↑

Question 19

looking at figure on slide 5, consider the supply of land… in which graph should supply be relatively farther to the right?

Answer 19

S canada should be positioned farther to the right than S japan, since land is relatively more abundant in canada

Question 20

Stolper-Samuel Theorum

Answer 20

In a counrty as demand for what is the relatively abundant resource increases with specialization, not only does the price rise, but also the income flowing to the owners of this resource.

wolfgang stolper & Paul samuelson

Question 21

magnification Effect

Answer 21

the change in the price of a resource is greater than the change in the price of the good that uses the resource relatively intensively in its production

Question 22

Suppose we observe that the price of chemicals made by high skilled workers in the US increases by 7%

Answer 22

under the magnification effect, the wage rate of high skilled workers will increase by more than 7%

Question 23

what factors have held down wages for unskilled american workers?

Answer 23

increased international trade
technological changes
differences in educational attainment
immigration
labor union weakness

Question 24

Labor ratio =

Answer 24

quantity of skilled workers
/
quantity of unskilled workers

Question 25

wage ratio =

Answer 25

wage of skilled workers
/
wage of unskilled workers

Question 26

Leontief paradox

Answer 26

a countries exports do not reflect its most abundant commodity

Question 27

interindustry trade

Answer 27

based on interindustry specialization according to comparative advantage

Question 28

intra-industry trade

Answer 28

focus on production of particular products within industry, generally doesnt result in the elimination of entire industries within a nation but may lead to changes in the range of products being produced and sold by each nation

Question 29

Krugman Models of International Trade

Answer 29

Explain how trade patterns between counries are influenced by economies of scale and consumer preferences

Question 30

5 stages of The Product Life Cycle Theory

Answer 30

1. R&D in domestic market, new good introduced
2. domestic industry shows export strength
3. foreign production begins
4. domestic industry loses competitive advantage
5. Import competition begins