2-31Gilligan 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 Skipper have a comparative advantage?

 

 

 

 

 

 

 

A. 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.

 

 

 

 

 

 

 

B. 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

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

E. 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. Cost will tell you who has a comparative advantage in what.

 

 

 

 

 

 

 

2-32Gilligan 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 Skipper have an absolute advantage?

 

 

 

 

 

 

 

A. Incorrect. Absolute advantage means the ability to produce more in the same amount of time. Skipper can produce more fish and coconuts than Gilligan.

 

 

 

 

 

 

 

B. Incorrect. Absolute advantage means the ability to produce more in the same amount of time. Skipper can produce more fish and coconuts than Gilligan.

 

 

 

 

 

 

 

C. Correct. Skipper can produce more fish and coconuts than Gilligan.

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

2-33Miss Tweeter buys hi-fi speakers from an electronics store for $1500. Mr. Woofer buys the same speakers directly from the manufacturer for $1250. This implies thatIf the interest rate at which the owner can borrow (or invest) funds is 12%

 

 

 

 

 

 

 

A. Incorrect. Miss Tweeter is being cheated only if she is not getting what she thinks she is buying.

 

 

 

 

 

 

 

B. Incorrect. Retail stores often provide consumers with a chance to compare products from many different manufacturers (at lower transactions costs than visiting the producers themselves). Perhaps that is the case here.

 

 

 

 

 

 

 

C. Incorrect. We cannot conclude that Miss Tweeter is not economizing. Perhaps she values being able to test several makers' products in one location. Mr. Woofer may already have information that does not require him to have that opportunity.

 

 

 

 

 

 

 

D. Correct. Miss Tweeter may not know or want to know where the manufacturers are and what their products are like. Perhaps paying a little more to see the products demonstrated (and to compare several products in one location) is worth a little extra to her.

 

 

 

 

 

 

 

E. Incorrect. Miss Tweeter may have had to actually locate and visit several manufacturers to make her purchase decision if she could not use the retail store. For her, having a retail store to visit may have reduced her transactions costs.

 

 

 

 

 

 

 

2-34If people are allowed to trade freely, and trade between two people does not harm anybody else, people will trade until the point is reached at whichIf the interest rate at which the owner can borrow (or invest) funds is 10%

 

 

 

 

 

 

 

A. Incorrect. This statement is true, but the other statements are also true.

 

 

 

 

 

 

 

B. Incorrect. This statement is true, but the other statements are also true.

 

 

 

 

 

 

 

C. Incorrect. This statement is true, but the other statements are also true.

 

 

 

 

 

 

 

D. Incorrect. This statement is true, but the other statements are also true.

 

 

 

 

 

 

 

E. Correct.

 

 

 

 

 

 

 

2-35If the price of Pizza Hut pizza is $12.00 and the price of Swensen's Ice Cream is $2.00, a person should adjust his or her consumption of ice cream and pizza until

 

 

 

 

 

 

 

A. Incorrect. The consumer will buy pizza and ice cream to the point at which "trading" some of one to get the other no longer seems attractive. Since the price of pizza is six times the price of ice cream, this would involve "giving up" six ice creams to get a pizza.

 

 

 

 

 

 

 

B. Correct.The consumer will buy pizza and ice cream to the point at which "trading" some of one to get the other no longer seems attractive. Since the price of pizza is six times the price of ice cream, this would involve "giving up" six ice creams to get a pizza.

 

 

 

 

 

 

 

C. Incorrect. Comparative advantage tells us about production. Unless the consumer is making pizza or ice cream, the decision about consuming these goods does not involve comparative advantage.

 

 

 

 

 

 

 

D. Incorrect. The consumer will buy pizza and ice cream to the point at which "trading" some of one to get the other no longer seems attractive.

 

 

 

 

 

 

 

E. Incorrect. The consumer will buy pizza and ice cream to the point at which "trading" some of one to get the other no longer seems attractive.

 

 

 

 

 

 

 

2-36Table 2-1 (point here to open in new window) suggests that

 

 

 

 

 

 

 

A. Incorrect. Trade is based on comparative advantage (low cost). To find the costs to each country of producing beef, divide the amount of automobiles the country can produce by the amount of beef that the same country could instead produce. To find the costs to each country of producing automobiles, divide the amount of beef the country can produce by the amount of automobiles that the same country could instead produce. The U.S. has a comparative advantage in only one of the goods.

 

 

 

 

 

 

 

B. Incorrect. Trade is based on comparative advantage (low cost). To find the costs to each country of producing beef, divide the amount of automobiles the country can produce by the amount of beef that the same country could instead produce. To find the costs to each country of producing automobiles, divide the amount of beef the country can produce by the amount of automobiles that the same country could instead produce. Japan has a comparative advantage in only one of the goods.

 

 

 

 

 

 

 

C. Incorrect. Trade is based on comparative advantage (low cost). To find the costs to each country of producing beef, divide the amount of automobiles the country can produce by the amount of beef that the same country could instead produce. Each beef costs Japan .25 of an automobile (5 million automobiles divided by 20 million beef), but each beef costs the U.S. only .05 automobiles (5 million automobiles divided by 100 million beef), so Japan is a high-cost producer of beef.

 

 

 

 

 

 

 

D. Correct. Trade is based on comparative advantage (low cost). To find the costs to each country of producing automobiles, divide the amount of beef the country can produce by the amount of automobiles that the same country could instead produce.Each automobile costs Japan 4 beef (20 million beef divided by 5 million automobiles), but each automobile costs the U.S. 20 beef (100 million beef divided by 5 million automobiles), so Japan is a low-cost producer of automobiles.

 

 

 

 

 

 

 

E. Incorrect, although the lessons of history should not be forgotten (remember the Lusitania as well, I guess).

 

 

 

 

 

 

 

2-37Table 2-1 (point here to open in new window) suggests that

 

 

 

 

 

 

 

A. Incorrect. Absolute advantage means being able to produce more. The U.S. can produce more beef than Japan, but not more automobiles.

 

 

 

 

 

 

 

B. Incorrect. Absolute advantage means being able to produce more. Japan cannot produce more automobiles than Japan.

 

 

 

 

 

 

 

C. Incorrect. To find the costs to each country of producing beef, divide the amount of automobiles the country can produce by the amount of beef that the same country could instead produce. To find the costs to each country of producing automobiles, divide the amount of beef the country can produce by the amount of automobiles that the same country could instead produce. Each beef costs Japan .25 of an automobile (5 million automobiles divided by 20 million beef), but each beef costs the U.S. only .05 automobiles (5 million automobiles divided by 100 million beef), so Japan is a high-cost producer of beef.

 

 

 

 

 

 

 

D. Correct. To find the costs to each country of producing automobiles, divide the amount of beef the country can produce by the amount of automobiles that the same country could instead produce.Each automobile costs Japan 4 beef (20 million beef divided by 5 million automobiles), but each automobile costs the U.S. 20 beef (100 million beef divided by 5 million automobiles), so Japan is a low-cost producer of automobiles.

 

 

 

 

 

 

 

E. Incorrect.

 

 

 

 

 

 

 

2-38Which of the following is the clearest example of a middleman?

 

 

 

 

 

 

 

A. Incorrect. A plumber actually provides a service, rather than selling a service produced by another.

 

 

 

 

 

 

 

B. Incorrect. An attorney actually provides a service, rather than selling a service produced by another.

 

 

 

 

 

 

 

C. Correct. A stock broker specializes in selling and buying on behalf of other people.

 

 

 

 

 

 

 

D. Incorrect. A surgeon actually provides a service, rather than selling a service produced by another.

 

 

 

 

 

 

 

E. Incorrect. An accountant actually provides a service, rather than selling a service produced by another.

 

 

 

 

 

 

 

2-39Middlemen

 

 

 

 

 

 

 

A. Correct.

 

 

 

 

 

 

 

B. Incorrect. Middlemen provide services that make trading easier.

 

 

 

 

 

 

 

C. Incorrect. Middlemen often lower the cost of finding and obtaining goods to buy.

 

 

 

 

 

 

 

D. Incorrect. Middlemen are part of the system that sets prices, but ultimately producers and consumers influence the price as much as middlemen.

 

 

 

 

 

 

 

E. Incorrect. Middlemen make it easier for consumers to find goods they want to consume and make it easier for producers to sell the products they produce.

 

 

 

 

 

 

 

2-40According to Table 2-2 (point here to open in a new window), which producer would have the greatest comparative advantage in producing narf?

 

 

 

 

 

 

 

A. Incorrect. A producer has a comparative advantage if he is the lowest cost producer of the good. The cost of producing narf for each producer is the amount of zort the producer can produce in a day divided by the amount of narf the same producer could have produced instead. For Larry, each narf costs one-third of a zort (70 zort divided by 210 narf). This is not the lowest cost for narf, so Larry does not have a comparative advantage in producing narf.

 

 

 

 

 

 

 

B. Correct. A producer has a comparative advantage if he is the lowest cost producer of the good. The cost of producing narf for each producer is the amount of zort the producer can produce in a day divided by the amount of narf the same producer could have produced instead. For Maurice, each narf costs one-fourth of a zort (40 zort divided by 160 narf). This is the lowest cost for narf, so Maurice has a comparative advantage in producing narf.

 

 

 

 

 

 

 

C. Incorrect. A producer has a comparative advantage if he is the lowest cost producer of the good. The cost of producing narf for each producer is the amount of zort the producer can produce in a day divided by the amount of narf the same producer could have produced instead. For Pinky, each narf costs one-half of a zort (25 zort divided by 50 narf). This is not the lowest cost for narf, so Pinky does not have a comparative advantage in producing narf

 

 

 

 

 

 

 

D. Incorrect. A producer has a comparative advantage if he is the lowest cost producer of the good. The cost of producing narf for each producer is the amount of zort the producer can produce in a day divided by the amount of narf the same producer could have produced instead.

 

 

 

 

 

 

 

E. Incorrect. A producer has a comparative advantage if he is the lowest cost producer of the good. The cost of producing narf for each producer is the amount of zort the producer can produce in a day divided by the amount of narf the same producer could have produced instead.