Econ Chapter 2 Quiz & Flashcards: Transaction Benefits

Questions and Answers

Every increase in world trade is an opportunity to:

increase the division of knowledge.

A producer has an absolute advantage in the production of a good if:

it uses fewer resources than other producers.

Globalization:

has been a theme in human history since the Roman Empire.

_________ was the first item ever sold on eBay?

A broken laser pointer Signup and view all the answers

The total amount of knowledge in a society that has no trade or specialization is largely limited by:

the capacity of any one person's brain. Signup and view all the answers

Average wages in the textbook's trade model can be calculated by:

the value of a nation's total consumption by population. Signup and view all the answers

As trade changes demand, workers in sectors with falling wages will move to sectors with rising wages until:

wages in the sectors equalize. Signup and view all the answers

When might mutually beneficial trades be difficult to find?

if two individuals have identical preferences. Signup and view all the answers

Oliver sells a guitar to Tobey and both men feel that they benefitted from the transaction because:

Oliver and Tobey value the guitar differently. Signup and view all the answers

People will only bother to specialize if they feel confident that they can:

trade for the other goods that they choose not to produce. Signup and view all the answers

If Kyle voluntarily sells a guitar to Tona for $800, it must be that:

Tona values the guitar more than Kyle does. Signup and view all the answers

Most of us can earn in one day of confirmed work enough money to purchase more food than we could possibly grow ourselves in a year. One important reason for this is that farmers:

can afford to buy large-scale farming equipment because they sell large quantities of output. Signup and view all the answers

When two nations with different comparative advantages trade, they both benefit. This is due to:

differences in comparative advantage. Signup and view all the answers

If 100 people in society J all know the same 10 facts, but 100 people in society K specialize, what is true?

Each person in society J knows the same number of facts as each person in society K, but K has more knowledge in aggregate. Signup and view all the answers

Suppose that in Mexico it takes four labor hours to produce one shirt and 10 labor hours for one computer. What values of x will give Mexico the absolute advantage in the production of shirts?

No values of x will do this. Signup and view all the answers

Suppose the 100 people in society J all know the same 10 facts, but the 100 people in society K specialize. What is true?

There are 802 total facts known in society K. There are only 10 facts known in society J. Signup and view all the answers

If 100 people in society C all know the same 10 facts, but 10 people in society D specialize, how many times better is the standard of living in society D?

55 times better Signup and view all the answers

A change in which of the following would result in a change in a country's PFF?

supply of inputs or the productivity of inputs. Signup and view all the answers

Farmers in New Zealand wake at 5 AM to work hard in their fields growing kiwi because:

the value to them of their time and other resources is less than the value of the kiwi to kiwi consumers. Signup and view all the answers

In terms of shirts, what is the opportunity cost of a computer produced in Mexico?

3.00 Signup and view all the answers

What happens to value when a good is transferred from a person who does not value it very much to someone who values it a lot?

It increases. Signup and view all the answers

Suppose that in Mexico it takes four labor hours to produce one shirt and 10 labor hours to produce one computer. What values of x will give Mexico the comparative advantage in the production of shirts?

Any values for x that are less than 7.5 will do this. Signup and view all the answers

If both countries have 60 labor hours available, completely specialize according to comparative advantage, and trade 7.5 shirts for 7.5 computers, how much higher are average real wages in the United States after trade?

$4.17 higher Signup and view all the answers

Study Notes

Trade and Specialization

Every increase in world trade enhances the division of knowledge, allowing societies to expand their understanding collectively.
A producer has an absolute advantage if it uses fewer resources than competitors in the production of a good.
Globalization has been a continuous factor throughout human history, dating back to the Roman Empire.

Knowledge and Resources

In societies without trade or specialization, the breadth of knowledge is constrained by individual cognitive capacity.
Average wages in trade models are derived from the total consumption value in a nation divided by its population.
Workers migrate from sectors facing declining wages to those with rising wages, leading to wage equalization across sectors.

Value Creation and Trade Benefits

Mutually beneficial trades become challenging if two individuals share identical preferences.
Successful transactions, like Oliver selling a guitar to Tobey, indicate differing value perceptions between participants.
Specialization is motivated by the confidence that individuals can trade for goods they opt not to produce.

Opportunity Costs and Comparative Advantages

If Kyle sells a guitar to Tona for $800, it signifies that Tona values the guitar more than Kyle does.
Large-scale farming allows farmers to acquire equipment and produce more, enabling them to sell surplus food for greater profit.
Nations gain from trade when differences in comparative advantages are evident, enhancing mutual benefits.

Aggregated Knowledge

Societies lacking specialization have lower aggregate knowledge compared to those with unique expertise among individuals.
For example, society K with specialization displays a higher total knowledge pool than society J despite individual knowledge levels being equal.

Productivity Frontiers and Economic Increment

A change in a country’s production possibilities frontier (PFF) occurs with shifts in input supply or productivity.
Farmers in New Zealand prioritize kiwi cultivation knowing the reward outweighs the cost of their time and resources.

Opportunity Cost Calculations

Example: In Mexico, producing a computer costs 3 shirts in terms of opportunity cost.
The comparative advantage for shirts in Mexico occurs with values of x (time to produce a computer) less than 7.5 hours.

Economic Impact of Trade

Value increases when goods transfer to individuals who place higher value on them, enhancing overall welfare.
After trade, average real wages in the U.S. can increase by $4.17 if specialization and advantageous trading are implemented, compared to no-trade scenarios.

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Description

Test your knowledge with these flashcards from Economics Chapter 2. Focus on key concepts such as world trade, absolute advantage, and globalization. Ideal for students looking to reinforce their understanding of economic principles.

Econ Chapter 2 Flashcards