CT Chapter 2 - TA Quiz 9/8/22

Question 1

Chaos, conflict, and war may dominate the news, but it’s heartening to know that there is also an astounding amount of world what?

Answer 1

cooperation

Question 2

three of the benefits of trade:

Answer 2

1. Trade makes people better off when preferences differ.
2. Trade increases productivity through specialization and the division of knowledge.
3. Trade increases productivity through comparative advantage.

Question 3

Trade creates value by moving goods from people who value them less to people who what?

Answer 3

value them more

Question 4

Sam sells it on eBay to Jen who pays $65.50. What had been worth nothing is now worth at least $65.50.Value has been created. Trade makes who better off?

Answer 4

It makes Sam better off, Jen better off, and it makes eBay, the market maker who brought Sam and Jen together, better off. Trade makes people with different preferences better off.

Question 5

Simple trades of the kind found on eBay create value, but the true power of trade is discovered only when people take the next step, which is what?

Answer 5

specialization. In a world without trade, no one can afford to specialize.

Question 6

People will specialize in the production of a single good only when they are confident that they will be able to trade that good for the many other goods that they want and need. Thus, as trade develops, so does specialization, and specialization does what?

Answer 6

turns out to vastly increase productivity.

Question 7

The what? increases with specialization and trade. Economic growth in the modern era is primarily due to the creation of new knowledge. Thus, one of the most momentous turning points in the division of knowledge happens when trade is extensive enough to support large numbers of scientists, engineers, and entrepreneurs, all of whom specialize in what?

Answer 7

division of knowledge, producing new knowledge.

Question 7

Why can we get so much more food through trade than through personal production?

Answer 7

The reason is that specialization greatly increases productivity. Farmers, for example, have two immense advantages in producing food compared to economics professors or students: Because they specialize, they know more about farming than other people, and because they sell large quantities, they can afford to buy large-scale farming machines

Question 8

The human brain is limited and there is much to know. Thus, it makes sense to what? across many brains and then trade

Answer 8

divide knowledge

Question 9

Knowledge increases what? so specialization increases what? All of this knowledge is possible, however, only because each person can specialize in the production of one good and then what? for all other desired goods. Without trade, specialization is impossible

Answer 9

productivity, total output, trade

Question 10

A third reason to trade is to take what?. Brazil, for example, has a climate ideally suited to growing sugar cane, China has an abundance of low-skill workers, and the United States has one of the best educated workforces in the world. Taking advantage of these differences suggests that what? when Brazil produces sugar, China assembles iPads, and the United States devotes its efforts to designing the next generation of electronic devices.

Answer 10

advantage of differences, world production can be maximized

Question 11

We say that a country has an what? in production if it can produce the same good using fewer inputs than another country. But to benefit from trade, a country need not have an absolute advantage. For example, even if the United States did have the world’s best climate for growing sugar, it might still make sense for Brazil to grow sugar and for the United States to design iPads, if the United States had a what? in designing iPads than it did in growing sugar.

Answer 11

absolute advantage, bigger advantage

Question 12

Here’s another example of what economists call what?. Martha Stewart doesn’t do her own ironing. Why not? Martha Stewart may, in fact, be the world’s best ironer but she is also good at running her business. If Martha spent more time ironing and less time running her business, her blouses might be pressed more precisely but that would be a what?. It’s better for Martha if she specializes in running her business and then trades some of her income for other goods, such as ironing services, and of course many other goods and services as well.

Answer 12

comparative advantage, small gain compared with the loss from having someone else run her business

Question 12

Here’s another example of what economists call what?. Martha Stewart doesn’t do her own ironing. Why not? Martha Stewart may, in fact, be the world’s best ironer but she is also good at running her business. If Martha spent more time ironing and less time running her business, her blouses might be pressed more precisely but that would be a what?. It’s better for Martha if she specializes in running her business and then trades some of her income for other goods, such as ironing services, and of course many other goods and services as well.

Answer 12

comparative advantage, small gain compared with the loss from having someone else run her business

Question 13

The idea of comparative advantage is subtle but important. In order to give a precise definition, let’s explore comparative advantage using a simple model. Suppose that there are just two goods, computers and shirts, and one input, labor. Assume that in Mexico, it takes Absolute advantage is the ability to produce the same good using fewer inputs than another producer. A production possibilities frontier, shows all the combinations of goods that a country can produce given its productivity and supply of inputs.
12 units of labor to make one computer and 2 units of labor to produce one shirt, and suppose that Mexico has 24 units of labor. Mexico, therefore, can produce 2 computers and 0 shirts or 0 computers and 12 shirts, or they can have any combination of computers and shirts along the line. Mexico’s PPF, short for Mexico’s production possibilities frontier, shows all the combinations of computers and shirts that Mexico can produce given its productivity and supply of inputs. Mexico cannot produce outside of its PPF.
Similarly, assume that there are 24 units of labor in the United States but that in the United States it takes 1 unit of labor to produce either good. The United States therefore can produce 24 computers and 0 shirts, or 0 computers and 24 shirts, or any combination along the U.S. PPF. A PPF illustrates what?. If Mexico wants to produce more shirts, it must produce fewer computers, and vice versa: It moves along its PPF. That’s just another way of restating the fundamental principles of scarcity and opportunity cost.

Answer 13

trade-offs

Question 14

A what?, shows all the combinations of goods that a country can produce given its productivity and supply of inputs.

Answer 14

production possibilities frontier

Question 15

any situation where making one choice means losing something else, usually forgoing a benefit or opportunity.

Answer 15

trade-off

Question 16

The (opportunity) cost of a shirt in the United States is one computer but the (opportunity) cost of a shirt in Mexico is just one-sixth of a computer. Thus, even though Mexico is less productive than the United States, Mexico has a lower cost of producing shirts! Mexico has the lowest opportunity cost of producing shirts, we say that Mexico has a what? in producing shirts.

Answer 16

comparative advantage

Question 17

A country has a what? in producing goods for which it has the lowest opportunity cost.

Answer 17

comparative advantage

Question 18

Now let’s look at the opportunity cost of producing computers. Again, the trade-off for the United States is easy to see: It can produce one additional computer by giving up one shirt so the cost of one computer is one shirt. But to produce one additional computer in Mexico requires giving up six shirts! Thus, the United States has the lowest cost of producing computers or, economists say, it has a what?

Answer 18

comparative advantage in producing computers

Question 19

The theory of comparative advantage says that to increase its wealth, a country should produce the goods it can make at low cost and buy the goods that it can make what?

Answer 19

only at high cost

Question 20

But with trade, countries are able to increase their what? beyond the range that was possible without trade.

Answer 20

consumption

Question 21

Thus, when each country produces according to its comparative advantage and then trades, what? increases. Importantly, both Mexico and the United States gain from trade even though the United States is more productive than Mexico at producing both computers and shirts.

Answer 21

total production and consumption

Question 22

The theory of comparative advantage not only explains trade patterns it also tells us something remarkable: A country (or a person) will always be the what? The reason is clear: The greater the advantage a country has in producing A, the greater the cost to it of producing B.

Answer 22

low-cost seller of some good

Question 23

The more productive the United States is at producing computers, the greater what? Thus, countries with high productivity can always benefit by trading with lower-productivity countries, and countries with lower productivity need never fear that higher-productivity countries will outcompete them in the production of all goods.

Answer 23

its demand will be to trade for shirts

Question 24

A producer has an what? over another producer if it can produce more output from the same input.

Answer 24

absolute advantage

Question 25

But what makes trade prof- itable is differences in comparative advantage, and a country will always have some what?

Answer 25

comparative advantage

Question 26

the ability of a country to produce a good or service for a lower opportunity cost than other countries.

Answer 26

comparative advantage

Question 27

so in this model there is just one wage in mexico by summing up the total value of what? in Mexico † and dividing by the number of workers. We can perform a similar calculation for the United States. To do this, we need only a price for computers and a price for shirts. Let’s suppose that computers sell for $300 and shirts for $100 (this is consistent with trading one computer for three shirts as we did earlier). Let’s look first at the situation with no trade (seeTable 2.2). The value of Mexican consumption is 1 × $300 plus 6 × $100 for a total of $900. Since there are 24 work- ers, the average wage is $37.50. The value of U.S. consumption is 12 × $300 + 12 × $100 = $4,800 so the U.S. wage is $200. Now consider the situation with trade (see Table 2.3).The value of Mexican consumption is now 1 × $300 + 9 × $100 = $1,200 for a wage of $50, while the U.S. wage is now $216.67 (check it!).Wages
in both countries have gone up, just as expected.

Answer 27

consumption

Question 28

In summary, workers in the United States often fear trade because they think that they cannot compete with what? in other countries. Meanwhile, workers in low-wage countries fear trade because they think that they cannot compete with high-productivity countries like the United States!

Answer 28

low-wage workers

Question 29

High-productivity countries have high wages; low-productivity countries have low wages. Trade means that workers in both countries can what?

Answer 29

raise their wages to the highest levels allowed by their respective productivities.

Question 30

Does everyone always benefit from increased trade?

Answer 30

no

Question 31

In the real world, workers in the sector with increased demand (computers in the United States, shirts in Mexico) will see their wages rise while workers in the sector with decreased demand (shirts in the United States, computers in Mexico) will see their wages fall. Workers in sectors with falling wages will what?

Answer 31

move to sectors with rising wages until wages in the sectors equalize,but the transition isn’t always easy or quick.

Question 32

Decreases in transportation costs, integration of world markets, and increased speed of communication have made the world a what?

Answer 32

smaller place

Question 33

But what? is not new; rather, it has been a theme in human history since at least the Roman Empire, which knit together different parts of the world in a common economic and political area.When these trade networks later fell apart, the subsequent era was named “The Dark Ages.” what? is the advance of human cooperation across national boundaries.”

Answer 33

globalization

Question 34

What does specialization do to productivity? Why?

Answer 34

It increases productivity because, as labor is divided amongst workers, workers are able to focus on a few or even one task. The more they focus on one task, the more efficient they become at this task, which means that less time and less money is involved in producing a good.

Question 35

How does trade let us benefit from the advantages of specialization?

Answer 35

when nations specialize, this exchange creates gains from trade. The benefits of specialization include a larger quantity of goods and services that can be produced, improved productivity, production beyond a nation’s production possibility curve, and finally, resources that can be used more efficiently.