2-41According to Table 2-2 (point here to open in a new window), which producer would have the greatest comparative advantage in producing zort?

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

B. Incorrect. A producer has a comparative advantage if he is the lowest cost producer of the good. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. For Maurice, each zort costs four narf (160 narf divided by 40 zort). This is not the lowest cost for zort, so Maurice does not have a comparative advantage in producing zort.

 

 

 

 

 

 

 

C. Correct. A producer has a comparative advantage if he is the lowest cost producer of the good. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. For Pinky, each zort costs two narf (50 narf divided by 25 zort). This is the lowest cost for zort, so Pinky has a comparative advantage in producing zort.

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

2-42According to Table 2-2 (point here to open in a new window), which producer would have the greatest absolute advantage in producing narf?

 

 

 

 

 

 

 

A. Correct. Absolute advantage is the ability to produce the most. Larry can produce more narf in a day than either of the other producers. Thus, Larry has an absolute advantage in producing narf.

 

 

 

 

 

 

 

B. Incorrect. Absolute advantage is the ability to produce the most. Maurice can produce less narf in a day than Larry. Thus, Maurice does not have an absolute advantage in producing narf.

 

 

 

 

 

 

 

C. Incorrect. Absolute advantage is the ability to produce the most. Pinky can produce less narf in a day than Larry. Thus, Pinky does not have an absolute advantage in producing narf.

 

 

 

 

 

 

 

D. Incorrect. Absolute advantage is the ability to produce the most.

 

 

 

 

 

 

 

E. Incorrect. Absolute advantage is the ability to produce the most.

 

 

 

 

 

 

 

2-43According to Table 2-2 (point here to open in a new window), which producer would specialize in producing narf?The interest rate is 8%. What can you conclude?

 

 

 

 

 

 

 

A. Incorrect. A producer will specialize in narf only if he is the lowest cost producer of narf. 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 will specialize in narf only if he is the lowest cost producer of narf. 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 will specialize in narf only if he is the lowest cost producer of narf. 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 will specialize in narf only if he is the lowest cost producer of narf. 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 will specialize in narf only if he is the lowest cost producer of narf. 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.

 

 

 

 

 

 

 

2-44According to Table 2-2 (point here to open in a new window), which producer would specialize in producing zort?The interest rate is 6%. What can you conclude?

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

B. Incorrect. A producer will specialize in zort only if he is the lowest cost producer of zort. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. For Maurice, each zort costs four narf (160 narf divided by 40 zort). This is not the lowest cost for zort, so Maurice does not have a comparative advantage in producing zort.

 

 

 

 

 

 

 

C. Correct. A producer will specialize in zort only if he is the lowest cost producer of zort. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. For Pinky, each zort costs two narf (50 narf divided by 25 zort). This is the lowest cost for zort, so Pinky has a comparative advantage in producing zort.

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

2-45According to Table 2-2 (point here to open in a new window), if the consumers in the town consumed some zort and some narf each day, what can you say about the price of zort relative to that of narf?

 

 

 

 

 

 

 

A. Incorrect. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. Thus, the cost of zort (in terms of narf) is somewhere between 2 narfs (if Pinky produces it) and 4 narfs (if Maurice produces it). To get producers to be willing to produce a zort, consumers must be willing to pay producers at least as much as the producers would get paid to make at least 2 narfs. If people are only paying as much for a zort as for a narf, producers are giving up more to make a zort than they would get paid to make one.

 

 

 

 

 

 

 

B. Correct. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. Thus, the cost of zort (in terms of narf) is somewhere between 2 narfs (if Pinky produces it) and 4 narfs (if Maurice produces it). To get producers to be willing to produce a zort, consumers must be willing to pay producers at least as much as the producers would get paid to make at least 2 narfs.

 

 

 

 

 

 

 

C. Incorrect. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. Thus, the cost of zort (in terms of narf) is somewhere between 2 narfs (if Pinky produces it) and 4 narfs (if Maurice produces it). To get producers to be willing to produce a zort, consumers must be willing to pay producers at least as much as the producers would get paid to make at least 2 narfs. If people are only paying half as much for a zort as for a narf, producers are giving up more to make a zort than they would get paid to make one.

 

 

 

 

 

 

 

D. Incorrect. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. Thus, the cost of zort (in terms of narf) is somewhere between 2 narfs (if Pinky produces it) and 4 narfs (if Maurice produces it). If people are paying more than four times as much for a zort as for a narf, producers would never have any reason to make a narf, since they could make more money by producing zort.

 

 

 

 

 

 

 

E. Incorrect. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. Thus, the cost of zort (in terms of narf) is somewhere between 2 narfs (if Pinky produces it) and 4 narfs (if Maurice produces it). To get producers to be willing to produce a zort, consumers must be willing to pay producers at least as much as the producers would get paid to make at least 2 narfs. If people are only paying one-fourth as much for a zort as for a narf, producers are giving up more to make a zort than they would get paid to make one.

 

 

 

 

 

 

 

2-46According to Table 2-2 (point here to open in a new window), which good will Pinky specialize in producing?

 

 

 

 

 

 

 

A. Incorrect. A producer will specialize in narf only if he is the lowest cost producer of narf. 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 is not the lowest-cost producer of narf.

 

 

 

 

 

 

 

B. Correct. A producer will specialize in producing the good for which he has a comparative advantage (which means he is the lowest cost producer of the good). The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. For Pinky, each zort costs two narf (50 narf divided by 25 zort). This is the lowest cost for zort, so Pinky has a comparative advantage in producing zort.

 

 

 

 

 

 

 

C. Incorrect. A producer will specialize in that good for which he is the lowest cost producer. He cannot be the lowest cost producer of both goods.

 

 

 

 

 

 

 

D. Incorrect. Specializing means concentrating mostly on producing one of the goods. A producer will specialize in that good for which he is the lowest cost producer. Pinky is the lowest cost producer of one of the goods.

 

 

 

 

 

 

 

E. Incorrect. A producer will specialize in that good for which he is the lowest cost producer. Pinky is the lowest cost producer of one of the goods.

 

 

 

 

 

 

 

2-47According to Table 2-2 (point here to open in a new window), which good will Larry specialize in producing?

 

 

 

 

 

 

 

A. Incorrect. A producer will specialize in narf only if he is the lowest cost producer of narf. 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 specialize in producing narf.

 

 

 

 

 

 

 

B. Incorrect. A producer will specialize in zort only if he is the lowest cost producer of zort. The cost of producing zort for each producer is the amount of narf the producer can produce in a day divided by the amount of zort the same producer could have produced instead. For Larry, each zort costs three narf (210 narf divided by 70 zort). This is not the lowest cost for zort, so Larry does not specialize in producing zort.

 

 

 

 

 

 

 

C. Incorrect. A producer will specialize in that good for which he is the lowest cost producer. He cannot be the lowest cost producer of both goods.

 

 

 

 

 

 

 

D. Correct. Larry does not have a clear comparative (cost) advantage in producing either narf or zort. Thus, he will produce narf if consumers want more than Maurice can supply, and he will produce zort if consumers want more than Pinky can supply.

 

 

 

 

 

 

 

E. Incorrect. Larry can produce zort at a lower cost than Maurice can, and will produce narf at a lower cost than Pinky can. Thus, people who want these goods may still turn to Larry to produce them once their primary producer's supply is consumed.

 

 

 

 

 

 

 

2-48Specialization

 

 

 

 

 

 

 

A. Correct. Comparative advantage determines specialization.

 

 

 

 

 

 

 

B. Incorrect. Specialization is when low-cost producers of a good to concentrate on its production, thus leading to greater production using limited resources.

 

 

 

 

 

 

 

C. Incorrect. Specialization is based on comparative (cost) advantage.

 

 

 

 

 

 

 

D. Incorrect. Specialization lowers the cost of making goods and thus probably results in lower prices of goods.

 

 

 

 

 

 

 

E.Incorrect. Specialization is based on comparative (cost) advantage.

 

 

 

 

 

 

 

2-49Government-owned public housing is frequently run-down and poorly maintained. An economic explanation for this is that

 

 

 

 

 

 

 

A. Incorrect. Incentives explain this effect.

 

 

 

 

 

 

 

B. Correct. If a tenant does not own his or her dwelling, and is not held responsible for its upkeep, he or she has little reason to maintain it.

 

 

 

 

 

 

 

C. Incorrect. Incentives explain this effect.

 

 

 

 

 

 

 

D. Incorrect. Incentives explain this effect.

 

 

 

 

 

 

 

E. Incorrect. Incentives explain this effect.

 

 

 

 

 

 

 

2-50Which of the following is most likely to encourage private land owners to plant more trees?

 

 

 

 

 

 

 

A. Correct. The more products that people use which require trees, the greater the incentive to plant trees and harvest them.

 

 

 

 

 

 

 

B. Incorrect. This would reduce the value of planting and harvesting trees, since these products are an alternative to growing trees.

 

 

 

 

 

 

 

C. Incorrect. This would reduce the value of planting and harvesting trees, since these products are an alternative to growing trees.

 

 

 

 

 

 

 

D. Incorrect. This would reduce the value of planting and harvesting trees, since these products are an alternative to growing trees.

 

 

 

 

 

 

 

E. Incorrect. This would reduce the value of planting and harvesting trees, since these products are an alternative to growing trees.

 

 

 

 

 

 

 

2-51A private owner of an item of property (or resource) has a strong incentive to

 

 

 

 

 

 

 

A. Incorrect. Although this statement is true, so are the others.

 

 

 

 

 

 

 

B. Incorrect. Although this statement is true, so are the others.

 

 

 

 

 

 

 

C. Incorrect. Although this statement is true, so are the others.

 

 

 

 

 

 

 

D. Incorrect. Although this statement is true, so are the others..

 

 

 

 

 

 

 

E. Correct.