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ECON101 Lecture Notes - Lecture 3: Comparative Advantage, Opportunity Cost, Absolute Advantage

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limesheep206
13 Dec 2017
School
University of Alberta
Department
Economics
Course
ECON101
Professor
Alexander Gainer

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Document Summary

Today"s society, we rely on many people around the world whom we have not met in order to acquire the goods and services we use. Getting it a lot cheaper than if it had to be made in canada. One of ten principles: trade can make everyone better off. In canada: 50 000 hours of labour for production per month: 100 hours for computer, 10 hours for one ton of wheat. 30 000 hours of labour per month, 125 hours to make one computer and 25 hours to make one ton of wheat. Canada: 250 computers and 2500 tons of wheat. Japan: 120 computers and 600 tons of wheat. Japan puts 30,000 hours of work into the computer industry. Japan to make 1 computer = 240 computers. Amount of computers produced = total hours / hours to make one computer (30 000 hours / 125 hours per computer = 240 computers)

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Related Questions

The opportunity cost of one more slice of pizza in terms of sodas is the

   

the total number of pizza slices that we have divided by the total number of sodas that we have.
   

the number of sodas we have to give up to get one extra pizza slice.
   

the number of pizza slices we have to give up to get one extra soda.
   

the total number of sodas that we have divided by the total number of pizza slices that we have.

1 point

QUESTION 2

A production possibilities frontier shows

   

how money can be allocated among two kinds of goods.
   

the limits to the future growth of a nation.
   

the various combinations of output a nation can produce at a certain time, given its available resources and technology.
   

that if the price of one good decreases, the price of the other has to increase.

1 point

QUESTION 3

When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost

   

remains constant.
   

might increase, decrease, or remain constant depending on how much people value the additional units of the good.
   

increases.
   

decreases.

1 point

QUESTION 4

When all of the available factors of production are being efficiently employed, the

   

the economy is producing at a point within its PPF.
   

PPF disappears.
   

the economy is producing at a point beyond its PPF.
   

the economy is producing at a point on its PPF.

1 point

QUESTION 5

If a nation devotes a larger share of its current production to consumer goods, then

   

its PPF will shift inward.
   

its economic growth will slow down.
   

its PPF will shift outward.
   

some productive factors will become unemployed.

1 point

QUESTION 6

A point on the production possibilities frontier reflects an

   

the attainable point with full employment of all resources.
   

attainable point without full employment of all resources.
   

unattainable point without full employment of all resources.
   

the unattainable point with full employment of all resources.

1 point

QUESTION 7

When drawing a production possibilities frontier, which of the following is held constant?

   

the available factors of production and the state of technology
   

the amount of money in the economy
   

the prices of goods and services
   

the quantity of the goods and services that are produced

1 point

QUESTION 8

As we move along the production possibilities frontier,

   

more of both goods can be produced.
   

the possibilities of tradeoffs diminish.
   

a tradeoff is not possible because nations need all goods.
   

the production of one good increases as the production of the other good decreases.

1 point

QUESTION 9

Which of the following is an assumption used when drawing a production possibilities frontier?

i.Human wants and desires are limited to what is available.

ii. Only two goods are considered.

iii. The level of technology is fixed and unchanging.

   

I and iii
   

ii only
   

I, ii, and iii
   

I only

1 point

QUESTION 10

To achieve gains from trade, a country

   

needs to have an absolute advantage in the production of all goods.
   

specializes in producing a good in which it has a lower opportunity cost.
   

must produce at a point beyond its PPF.
   

should produce at the midpoint of its PPF.

1 point

QUESTION 11

Relative to Al, Joe has ________ if Joe can produce a good at a lower opportunity cost than Al.

   

a comparative advantage
   

more production efficiency
   

a marginal benefit
   

a comparative benefit

1 point

QUESTION 12

Does economic growth depend upon which of the following?

i.Improving the quality of labor

ii. Technological advancement

iii. Increasing the amount of capital

   

iii only
   

ii only
   

I only
   

I, ii, and iii

1 point

QUESTION 13

In one hour John can produce 20 loaves of bread or 18 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true?

   

John has a comparative advantage in producing cakes.
   

Phyllis has an absolute advantage in both goods.
   

Phyllis has a comparative advantage in producing cakes.
   

John has an absolute advantage in both goods.

1 point

QUESTION 14

As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?

   

It decreases.
   

It might increase, decrease, or remain constant depending on how much people value the additional units of the good.
   

It remains constant.
   

It increases.

1 point

QUESTION 15

The production possibilities frontier illustrates the

   

goods and services that people want.
   

maximum combinations of goods and services that can be produced.
   

resources the economy possesses, but not it is the level of technology.
   

limits to people's wants.

1 point

QUESTION 16

The United States produced approximately ________ worth of goods and services in 2007.

   

$14 billion
   

$14 trillion
   

$140 billion
   

$140 trillion

1 point

QUESTION 17

The fact of increasing opportunity cost when moving on the PPF means that

   

to increase the production of one product requires smaller and smaller sacrifices of the other good.
   

to decrease the production of one product requires smaller and smaller sacrifices of the other good.
   

to increase the production of one product requires larger and larger sacrifices of the other good.
   

when the government forces a movement from one point on the PPF to another point, no production is lost.

1 point

QUESTION 18

Other things equal, if India devotes more resources to educate its population than China,

   

China will grow faster than India.
   

India will be able to eliminate scarcity faster than China.
   

India will be able to eliminate opportunity cost faster than China.
   

India will grow faster than China.

1 point

QUESTION 19

For Ireland to grow more potatoes, wool production must decrease. This situation is an example of

   

zero opportunity cost.
   

producing at a point that lies beyond the PPF.
   

opportunity benefit.
   

a tradeoff.

1 point

QUESTION 20

Moving from one point to another on a production possibilities frontier implies

   

increasing the production of both goods.
   

increasing the production of one good and decreasing the production of another.
   

holding the production levels of both goods constant.
   

decreasing the production of both goods.

1 point

QUESTION 21

The United States is one of the richest nations in the world,

   

but it can still benefit from specialization and trade.
   

so does not need to trade with poor nations to achieve any gains from trade.
   

so might not have a comparative advantage in producing any goods.
   

so it must have a comparative advantage in the production of all goods.

1 point

QUESTION 22

"Comparative advantage" is defined as a situation in which one person can produce

   

more of all goods than another person.
   

a good for a lower opportunity cost than another person.
   

a good for a lower dollar cost than another person.
   

more of a good than another person.

1 point

QUESTION 23

The idea of increasing opportunity cost is reflected in the

   

the linear shape of the production possibilities frontier.
   

bowed in the shape of the production possibilities frontier.
   

bowed out the shape of the production possibilities frontier.
   

the positive slope of the production possibilities frontier.

1 point

QUESTION 24

Suppose that after specializing according to comparative advantage, a country is trading with another nation that also specializes according to its comparative advantage. Which of the following statements are true for the first country?

i)It enjoys gains from trade.

ii)It must have an absolute advantage in the production of the good it produces.

iii)It is producing at a point beyond its PPF.

   

I only.
   

I and ii.
   

I and iii.
   

ii and iii.

1 point

QUESTION 25

If society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will

   

shift rightward.
   

not shift because the society moves from one point on the frontier to a point inside the frontier.
   

not shift because the society moves from a point inside the frontier to a point on the frontier.
   

shift leftward.

1 point

1. The cost-benefit approach to deciding whether or not to undertake any activity argues that you should engage in the activity if:
a. The marginal cost of the activity exceeds the marginal benefit of the activity.
b. The marginal benefit of the activity exceeds the marginal cost of the activity.
c. There are benefits associated with the activity
d. There are costs associated with the activity

2. In the circular flow model, the household sector:
a. Demand goods and services in output markets, while the business sector supplies them.
b. Supplies goods and services in output markets, while the business sector demands them.
c. Demands and supplies goods and services in output markets.
d. Neither demands nor supplies goods and services in output markets.


3. In resource markets, households operate on the ________ side and business firms operate on the ______ side; these activities represent ______for households and _______ for business firms.
a. Demand; supply; income; revenue
b. Demand; supply; expenditures; revenue
c. Supply; demand; expenditures; costs
d. Supply; demand; income; costs


4. Ice cream sales and the incidence of polio were strongly correlated prior to the development of the polio vaccine. Assuming that eating ice cream caused polio is an example of the:
a. Fallacy of composition
b. Fallacy of division
c. Fallacy of false cause
d. Fallacy of ceteris paribus


5. Assuming that everyone is better off when a bridge is built in Alaska to serve a small community is an example of the:
a. Fallacy of composition
b. Fallacy of division
c. Fallacy of false cause
d. Fallacy of ceteris paribus

6. A production possibilities frontier for two outputs is drawn assuming that:
a. Opportunity cost is fixed, but the quantity and quality of resources changes
b. Both outputs use the same quantity of each resource, but the technology differs
c. The amount of resources currently available for production is fixed
d. The technology available can only be applied to producing one of the outputs


7. When wants and needs exceed the resource available to satisfy them:
a. Scarcity exists and society must rely on the government to allocate resources.
b. Scarcity exists and society must rely on free markets to allocate resources.
c. Scarcity exists and decisions must be made about how to allocate limited resources among competing uses.
d. Scarcity does not exist so it is not necessary to allocate resources.


8. If Carl is able to produce a greater number of baskets per hour than Sheila, then:
a. Carl cannot have a comparative advantage in the production of baskets
b. Carl has an absolute advantage in the production of baskets
c. Sheila has an absolute advantage in the production of baskets
d. Sheila has a comparative advantage in the production of baskets


9. If Carl's opportunity cost per basket is 4 bowls, but Sheila's opportunity cost per basket is 3 bowls, then:
a. Carl has a comparative advantage in the production of baskets
b. Carl has an absolute advantage in the production of baskets
c. Sheila has an absolute advantage in the production of baskets
d. Sheila has a comparative advantage in the production of baskets


10. Which of the following is not an example of the factor of production or economic resource referred to as capital?
a. An office building
b. Computers used by a tax preparation business
c. Lawnmowers owned by a landscaping firm
d. Money used to start a new business.

Need help revising, and recommendation for a conclusion.

Throughout this paper is my understanding of what I have learned in class chapters 1-4, expressing my understanding and opinions. Economics is the study of how we deal with scarce resources. Microeconomics specially deals with business in the home country exclusively. This type of economics affects small businesses in the home country only. On the other hand, macroeconomics concerns our national welfare concerning trade and international business.

I believe that many things affect our economy on a microeconomics level. Things such as our understanding of our country in reflection to the world are very important. That is why we study ourselves before we study the macroeconomic principle of the world. Understanding ourselves is what microeconomics teaches us. Working from the inside out. The world is a place where there are differences in our wants and what we get. That is what makes items scarce. That is what positive economics is. Positive economics deals with what is and what we have. The other type of economics is called normative statements. This deals with what we should receive instead of what is and deserved to some extent. It's our scarce resources that determine our allocation of resources and how we use our resources and time. This is where opportunity costs come in, giving up something to do something. A successful business or country never ignores opportunity costs. We must ensure that we have a comparative advantage instead of the absolute advantage. Our resources must be used to achieve maximum output. Comparative is met when we have fewer opportunity costs to make some certain products than the other person or entity.

My initial understanding was scarcity was oil potentially running out, but we have so much of it that you can always find more with techniques such as fracking. Now it's obvious to me, one of our most scarce resources is time. You cannot avoid the 8,760 hours in a year. I understand that people have unlimited wants but limited resources. Everything has a cost and we must make a choice as we don't have unlimited farms, factories workers, etc. scarcity forces choices and this ties in with opportunity cost, for every gun made, a theft from the hungry is made.€ The opportunity cost not being used to feed the poor, but to make guns. And I find it easy to understand no one can have everything choices must be made on benefits. If I'm going to school, imp giving up making cash, as I'm giving up money for an education, I value education more. Scarcity is also related to the invisible hand. As it's an achievement that leads free markets and capitalism through competition for scarce resources.

My understanding of the invisible hand is a person neither intends to promote public interest and does not know how much he is promoting it. Only intending on his own gain. Without being his intention a person can be lead by the invisible hand to do good for society by pursuing one's own self-interest. Going into equity and efficiency the invisible hand does ensure both equity and efficiency. People work in their selfish ways to maximize profit while also contributing to the economy as a whole. It can also be argued that as the invisible hand wants to ensure efficiency, it cannot guarantee efficiency, because it can fail to produce an efficient allocation of resources, which in turn lead to a market failure. It can also be argued that it can't guarantee equity because not everyone gets a fair price. The way I like to remember efficiency is with a real-life example, like a reduction in the number of workers needed to produce a particular good for a particular amount. Equity refers to the ownership interest in an asset, for example, if a person owns a house with a market value of $800,000 and owes $100,000 on the mortgage leaving a $700,000 equity in the home.

It can be predicted that if the price of beef increases - ceteris paribus-the quantity of beef demanded by buys will decrease. In other words, if the price of beef increases, then the quantity of beef increases, then the quantity of beef demanded will decrease because all things have to be equal. In-class lecture thought me all other things remaining the same.€ Economists use ceteris paribus to determine the effect of a factor when all other factors have been held the same and helps simplify the study and get a more refined data set.

Economists deal with many issues that pertain to assuring that both a countries domestic output is efficient and that there is an effective trade balance. This means that there are a balance and limit on the amount of imports. Also, this means home production must be able to meet export demands. There are many factors that affect the production of goods and their effect on shifting the production possibilities frontier. This involves evaluating every detail including knowing the products and any close substitutes and compliments. It also involves knowing how an action or other external force will affect demand. This is called price elasticity; Substitutes are products that can replace any given product or service. An example of this would be Coke and Pepsi. The presence of substitutes affects price elasticity because if there are other options, then any change to the price or quality of the product will cause a shift of the demand curve. O course, price is a huge reason why the demand for a product decreases or increases yet it doesn't shift the curve because of the price only. This price change will cause a domino effect that will end with the shifting of the demand curve because it will cause an increase or decrease in demand of the substitute good if the price change is either lower or higher respectively. This price change serves as a catalyst that will change people's desire to spend more money on a more expensive product and that will instead choose to buy the substitute good for cheaper or buy more of the desired product. The change in the price of actual products will not shift the demand curve yet the change of the price of substitutes will because it serves to change people's purchasing behavior. On the other hand, compliments serve to boost demand when there is a decrease in price. The use of complementary goods is dependent upon another product. An example of this would be hot dogs and buns. If the price of hotdogs decreases then, conversely, the demand for hot dog buns will increase because of this change in price. In this scenario, the decrease in price will cause a positive shift in the demand curve because of people's desire and willingness to buy more buns. This is an example of a demand shifter. There are a few other demand shifters. The shifters of the demand curve are changes in expectations, disposable income, price of substitute goods and complements, tastes and preferences, and population size and composition. Changes in income affect the demand curve because if income is lower then people tend to save any extra income instead of wasting it. Disposable income is minimized and spending is lower. This also causes people to see a perceived value of things and distinguishing between what is necessary and what is a relative luxury. The lower the income, the higher the saving and avoidance to spend. An example of this would be if someone needs to buy some medication and it is relatively expensive, that doesn't mean that someone won't buy the medication just because it is expensive. It is necessary. Other factors that contribute to spending and demand are having a price ceiling and price floor. Having a price ceiling is a limit on the price of the product this is a government-imposed idea that is meant to protect consumers from unfair pricing and other conditions that may be malicious or obscure. This affects demand because if there is a price ceiling there is a limit on profit on a unit-to-unit basis. The other factor is the price floor. This price floor was created to encourage competition and affect consumers' willingness to pay because sometimes this new price may be higher than the original price. This causes a negative impact on a product that has a less than wanted perceived value. Many factors contribute to economic prosperity and certainly do help assure that information is analyzed and implemented into an economic and business plan.