chap 6 - 10 weaknesses Flashcards
Which of these statements is FALSE regarding economic efficiency?
a. Efficient outcomes will not make everyone happy.
b. If it is efficient, it is also equitable.
c. Efficient outcomes can make everyone better off.
d. The most efficient outcome is the one with the greatest economic surplus
b. If it is efficient, it is also equitable.
Positive analysis involves identifying _____ and _____.
a. values; judgments
b. facts; relationships
c. beliefs; options
d. priorities; scruples
b. facts; relationships
Here’s why:
Positive analysis is about studying what actually IS, not what SHOULD be
It involves:
Finding and studying FACTS (what can be observed and measured)
Understanding RELATIONSHIPS (how different economic variables affect each other)
Key distinction:
Positive analysis = objective, scientific, descriptive
Normative analysis = values, judgments, prescriptive
Explain the differences between equity and efficiency
Equity concerns fairness, for example, how economic benefits are distributed across a population. Efficiency refers to an economic
state in which the maximum possible economic surplus is achieved, without regard to how it is distributed. An economic outcome
could be efficient but not equitable or, alternatively, equitable but not efficient.
The economic burden of a tax on a good falls entirely on producers if only the:
a. price paid by consumers for the good declines by the amount of the tax.
b. price paid by consumers for the good increases by the amount of the tax.
c. price paid by consumers does not change.
d. wages received by workers who produce the good increase by the amount of the tax.
c. price paid by consumers does not change.
Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government
imposes a $25 tax on designer handbags and collects the tax from suppliers, the price of expensive handbags
will:
c. increase by less than $25.
A tax on sellers would not cause a decrease in quantity sold if:
a. supply is inelastic.
b. there are few competing products.
c. demand is perfectly inelastic.
d. demand is perfectly elastic
c. demand is perfectly inelastic
Buyers bear all the economic burden of a tax if the demand curve is _____, given an upward sloping supply
curve.
a. perfectly elastic.
b. relatively inelastic.
c. perfectly inelastic.
d. downward sloping.
c. perfectly inelastic
What is the difference between incidence and Economic Burden?
Tax incidence describes the division of the economic burden of a tax between buyers and sellers.
Economic burden is The burden created by the change in after-tax prices faced by buyers and sellers.
Why would Emerald benefit from specializing based on comparative advantage?
a. She could enhance her living standards.
b. She would be doing what she loves most.
c. She would have a wide variety of skills.
d. She could save her income rather than spend it.
a. She could enhance her living standards
When people specialize based on comparative advantage and trade with others, they can produce more efficiently and trade for other goods, ultimately increasing their overall consumption and standard of living compared to producing everything themselves.
Nguyen manages a supply chain team. If she uses the concept of comparative advantage for assigning tasks
to members of her team, then:
a. the fewest inputs possible will be used.
b. the team’s output will vary more in quality.
c. more can be accomplished.
d. less will be accomplished.
c. more can be accomplished.
- Suppose that one hour of labor in Singapore can produce 20 computers or 40 cellphones. Further, suppose
that one hour of labor in Ireland can produce 10 computers or 15 cellphones. _____ has a comparative
advantage in the production of computers, and _____ has a comparative advantage in the production of
cellphones.
a. Singapore; Singapore
b. Ireland; Ireland
c. Singapore; Ireland
d. Ireland; Singapore
d. Ireland; Singapore
Comparative advantage goes to whoever gives up LESS to make each good. Looking at the opportunity costs:
Making 1 computer:
Singapore must give up 2 cellphones
Ireland must give up 1.5 cellphones
→ Ireland has comparative advantage in computers because they give up fewer cellphones (1.5 < 2)
Making 1 cellphone:
Singapore must give up 0.5 computers
Ireland must give up 0.67 computers
→ Singapore has comparative advantage in cellphones because they give up fewer computers (0.5 < 0.67)
- Which of these is a term economists use to explain why specific industries can become more efficient over
time?
a. cost-benefit principle
b. learning by doing
c. the marginal principle
d. opportunity cost
b. learning by doing
Learning by doing is the correct term because it specifically describes how industries become more efficient through experience and practice over time - workers and firms get better at their jobs simply by doing them repeatedly. The other options are general economic principles but don’t explain how industries specifically improve their efficiency through experience.
- Your company makes artistic protective cell-phone cases, which you decide to start exporting because the
world price of such cases is higher than the domestic equilibrium price. With trade, your _____, but the
domestic _____.
a. quantity supplied will rise; quantity demanded will fall
b. quantity supplied will fall; quantity demanded will fall
c. quantity demanded will rise; quantity supplied will fall
d. quantity demanded will fall; quantity supplied will rise
a. quantity supplied will rise; quantity demanded will fall
When we open to trade at a higher price:
- Domestic producers want to sell more (supply increases)
- Domestic consumers want to buy less at higher price (demand decreases)
Therefore:
- YOUR company’s quantity supplied will rise (to sell more at higher world price)
- DOMESTIC quantity demanded will fall (consumers buy less at higher price)
An industry that generates external benefits produces a quantity of output that is:
a. socially optimal.
b. less than the socially optimal quantity.
c. greater than the socially optimal quantity.
d. socially optimal if a subsidy is given to buyers
b. less than the socially optimal quantity.
A marginal external benefit is the:
a. extra benefit enjoyed by society as the result of consuming one extra unit.
b. additional gain to sellers when they profit from an extra unit of output.
c. extra benefit accruing to bystanders as a result of one extra unit of output.
d. additional gain that goes to buyers when they consume one additional unit of a good
c. extra benefit accruing to bystanders as a result of one extra unit of output.
