2-21The wages of house painters have increased about as rapidly as those of other workers, even though the productivity of other workers has increased, while that of house painters has not. Perhaps the best explanation for this is

 

 

 

 

 

 

 

A. Incorrect. Productivity determines what labor can produce and the value of that production determines how much labor gets paid.

 

 

 

 

 

 

 

B. Correct. Even if the technology of house painting has not changed, if labor in general has become more productive, then the opportunity cost of using labor to paint a house has gone up.

 

 

 

 

 

 

 

C. Incorrect. Specialization involves production based on low cost. If labor becomes more productive, the (opportunity) cost of using labor for all purposes will be affected.

 

 

 

 

 

 

 

D. Incorrect. House painters are paid based on the value of what they produce and what it costs (in opportunity cost terms) to use their labor.

 

 

 

 

 

 

 

E. Incorrect.

 

 

 

 

 

 

 

2-22Which statement is false?

 

 

 

 

 

 

 

A. Correct. The opportunity cost of her time needs to be considered in determining the economical (economizing) use of her time.

 

 

 

 

 

 

 

B. Incorrect. The statement is true. An avid football fan would probably find the opportunity cost of going for a drive during the Super Bowl game quite high, since he or she would be missing the "big game."

 

 

 

 

 

 

 

C. Incorrect. The statement is true. The United States, which has much land which is good for growing grain, but very little land which is good for growing sugar cane, can gain from exporting wheat to other countries and buying sugar from them. The U.S. is a low-cost producer of wheat, but a high-cost producer of sugar.

 

 

 

 

 

 

 

D. Incorrect. The statement is true. All economies face scarcity.

 

 

 

 

 

 

 

E. Incorrect. The statement is true. The principle of comparative advantage implies that individuals and nations specialize in production of those things for which they are the lower-cost producers.

 

 

 

 

 

 

 

2-23Property rights

 

 

 

 

 

 

 

A. Incorrect. Property rights protect the poor from the rich and powerful, because property rights mean that only by offering people something they regard as valuable can what they have be taken from them..

 

 

 

 

 

 

 

B. Incorrect. Since property and ownership is a necessary prerequisite for trade, property rights encourage the flow of resources into their highest-valued uses.

 

 

 

 

 

 

 

C. Incorrect. Property rights are primarily the rights to use or sell something, but usually those rights are not absolute.

 

 

 

 

 

 

 

D. Correct. Property owners have an interest in preserving what they own.

 

 

 

 

 

 

 

E. Incorrect. A property owner has an incentive to consider whether and when to use his or her property and how best to preserve its value.

 

 

 

 

 

 

 

2-24Swashbuckler Barbieª and galley slave Ken are stranded on Barbie'sª Deserted Fashion Island¨.Both have supplies of (dolphin-safe) canned tuna fish and coconuts. Ken places the same value on two cans of fish as he does on one coconut, while Barbieª places the same value on one can of fish as she does on two coconuts.What can you say?

 

 

 

 

 

 

 

A. Incorrect. The differences they see in the value of fish and coconuts is the basis for them to trade.

 

 

 

 

 

 

 

B. Incorrect. Barbieª likes fish more than Ken does. Ken values one can of fish the same as half a coconut, but Barbie values the same can of fish as much as two coconuts. In other words, Barbie places four times as great a (coconut) value on fish as Ken does.

 

 

 

 

 

 

 

C. Correct. Barbie values fish more than coconuts and Ken values each coconut more than a can of fish.

 

 

 

 

 

 

 

D. Incorrect. Ken likes coconuts more than Barbie does. Barbie values one coconut as much as she values half a can of tuna. Ken values one coconut as much as two cans of tuna.In other words, Ken places four times as much (tuna) value on a coconut as Barbie does.

 

 

 

 

 

 

 

E. Incorrect.

 

 

 

 

 

 

 

2-25Efficiency in production and distribution of goods requires that

 

 

 

 

 

 

 

A. Incorrect. While production efficiency requires that there is no way to make more of any good without also making less of some other good, the other answers are also correct.

 

 

 

 

 

 

 

B. Incorrect. While distribution efficiency requires that there is no way to distribute goods so as to make one person better off without also making some other person worse off, the other answers are also correct.

 

 

 

 

 

 

 

C. Incorrect. While production efficiency requires that each good is being produced in a way that minimizes the opportunity cost of producing it., the other answers are also correct.

 

 

 

 

 

 

 

D. Incorrect. While production efficiency requires that goods are produced on the basis of comparative advantage, the other answers are also correct.

 

 

 

 

 

 

 

E. Correct.

 

 

 

 

 

 

 

2-26Efficiency in production means that

 

 

 

 

 

 

 

A. Incorrect. Even if resources are used efficiently, they are still limited in amount, so scarcity still exists.

 

 

 

 

 

 

 

B. Incorrect. If resources are being used efficiently, more of one good can be produced, but it requires that a smaller amount of some other good be produced.

 

 

 

 

 

 

 

C. Correct.

 

 

 

 

 

 

 

D. Incorrect. Efficiency in production means that the only way to produce more of one good is to give up production of some of another good.

 

 

 

 

 

 

 

E. Incorrect. This is the requirement for distribution (or allocation) efficiency.

 

 

 

 

 

 

 

2-27Prohibiting a trade between two people

 

 

 

 

 

 

 

A. Incorrect. If a trade is prevented, transfer of a good from someone who values it little to someone who values it more will be prevented. This will prevent allocation efficiency.

 

 

 

 

 

 

 

B. Correct. Preventing trade may keep some producers from specializing in producing those goods for which they are low cost producers (since they won't be able to trade what they produce).

 

 

 

 

 

 

 

C. Incorrect. Some sort of trade or redistribution of produced goods is necessary if producers are to specialize in producing according to comparative advantage.

 

 

 

 

 

 

 

D. Incorrect. Even those who might not otherwise trade in the goods affected will see some changes in their abilities to use resources. The resources may thus be used by other producers to produce items at high cost or items of low value..

 

 

 

 

 

 

 

E. Incorrect. Some high-cost producers may benefit if low cost producers are unable to sell what they make. Also, the resources not used to produce the prohibited goods will be available to make other goods.Producers and consumers of these other goods may personally benefit.

 

 

 

 

 

 

 

2-28Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, is there a potential for trade between them?

 

 

 

 

 

 

 

A. Incorrect. To find the costs to each person of producing fish, divide the number of coconuts the person can produce by the number of fish that the same person could instead produce. Each fish costs Gilligan 1.5 coconuts to produce (75 coconuts divided by 50 fish), while each fish costs Skipper 1.25 coconuts to produce (125 coconuts divided by 100 fish). Thus, Gilligan is a high cost producer of fish. Skipper is the low cost producer of fish, so that is what Skipper will produce.

 

 

 

 

 

 

 

B. Correct. To find the costs to each person of producing fish, divide the number of coconuts the person can produce by the number of fish that the same person could instead produce. Each fish costs Gilligan 1.5 coconuts to produce (75 coconuts divided by 50 fish), while each fish costs Skipper 1.25 coconuts to produce (125 coconuts divided by 100 fish). Thus, Gilligan is a high cost producer of fish. Skipper is the low cost producer of fish, so that is what Skipper will produce.

 

 

 

 

 

 

 

C. Incorrect. To find the costs to each person of producing fish, divide the number of coconuts the person can produce by the number of fish that the same person could instead produce. Each fish costs Gilligan 1.5 coconuts to produce (75 coconuts divided by 50 fish), while each fish costs Skipper 1.25 coconuts to produce (125 coconuts divided by 100 fish). Thus, Gilligan is a high cost producer of fish. Skipper is the low cost producer of fish, so that is what Skipper will produce.

 

 

 

 

 

 

 

D. Incorrect. To find the costs to each person of producing fish, divide the number of coconuts the person can produce by the number of fish that the same person could instead produce. Each fish costs Gilligan 1.5 coconuts to produce (75 coconuts divided by 50 fish), while each fish costs Skipper 1.25 coconuts to produce (125 coconuts divided by 100 fish). Thus, Gilligan is a high cost producer of fish.Skipper is the low cost producer of fish, so that is what Skipper will produce.

 

 

 

 

 

 

 

E. Incorrect. It is cost that determines specialization, not ability to produce more.

 

 

 

 

 

 

 

2-29Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, for which good(s) does Gilligan have a comparative advantage?

 

 

 

 

 

 

 

A. Incorrect. To find the costs to each person of producing fish, divide the number of coconuts the person can produce by the number of fish that the same person could instead produce. Each fish costs Gilligan 1.5 coconuts to produce (75 coconuts divided by 50 fish), while each fish costs Skipper 1.25 coconuts to produce (125 coconuts divided by 100 fish). Thus, Gilligan is a high cost producer of fish. Skipper is the low cost producer of fish.

 

 

 

 

 

 

 

B. Correct. To find the costs to each person of producing coconuts, divide the number of fish the person can produce by the number of coconuts that the same person could instead produce. Each coconut costs Gilligan .67 of a fish (50 fish divided by 75 coconuts), while each coconut costs Skipper .8 of a fish (100 fish divided by 125 coconuts). Thus, Gilligan is the low cost producer of coconuts.

 

 

 

 

 

 

 

C. Incorrect. Gilligan only has a comparative advantage in producing the good that he can produce at lowest cost.

 

 

 

 

 

 

 

D. Incorrect. If Gilligan can produce either good at a lower opportunity cost than Skipper, he has a comparative advantage.

 

 

 

 

 

 

 

E. Incorrect. To find the costs to each person of producing coconuts, divide the number of fish the person can produce by the number of coconuts that the same person could instead produce. This will tell you who has a lower cost (comparative advantage) in producing coconuts. Perform a similar calculation to determine who has a lower cost of producing fish.

 

 

 

 

 

 

 

2-30Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, for which good(s) does Gilligan have an absolute advantage?

 

 

 

 

 

 

 

A. Incorrect. Absolute advantage means the ability to produce more in the same amount of time.

 

 

 

 

 

 

 

B. Incorrect. Absolute advantage means the ability to produce more in the same amount of time.

 

 

 

 

 

 

 

C. Incorrect. Absolute advantage means the ability to produce more in the same amount of time.

 

 

 

 

 

 

 

D. Correct.

 

 

 

 

 

 

 

E. Incorrect. Absolute advantage means the ability to produce more in the same amount of time.