Absolute Advantage & Trade – Principles of Macroeconomics

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Absolute Advantage, Trade, Output, Opportunity Cost – Macroeconomics Quiz

The key terms in this Macroeconomics course include Absolute Advantage, Trade, Output, Opportunity Cost, public transportation, Principles of Macroeconomics.


Austin, Jensen, Matthew, and Walker can all produce matches, brushes, cans, and shirts.  The table below identifies how many of each good they can make in a day if they devote themselves to producing only that good.

 MatchesBrushesCansShirts
Austin100504020
Jensen90554515
Matthew95452040
Walker55605025


Who has the absolute advantage in producing brushes?

Jensen

Walker – correct

Austin

Matthew

Explanation: The person with the absolute advantage is the one who can produce the most output. In this case, Walker can produce more brushes than anyone else, so he has the absolute advantage.

What is the term for the voluntary exchange of goods and services between two or more parties?

trade-offs

specialization

trade – correct

opportunity cost

Explanation: Trade is the voluntary exchange of goods and services between two or more parties.


Suppose a student has 3 hours of time to spend at her apartment before afternoon classes. She has the option of doing laundry, studying for a test, or watching television. If she decides to do laundry, then her opportunity cost is

watching television.

either watching television or studying for the test, whichever would have been her second choice to doing laundry. – correct

studying for the test.

watching television and studying for the test.

Explanation: Opportunity cost is the highest-valued alternative that must be sacrificed in order to get something else. In this case, we can't say which activity will be her opportunity cost since we don't know which activity the student prefers between watching television and studying for the test.

A recent study shows the benefits of using public transportation. Government officials have hired your consulting firm to increase the demand for public transportation. They come to you with three of their suggestions.

Suggestion 1. Reduce the price of public transportation.
Suggestion 2. Increase the price of private transportation by increasing tolls.
Suggestion 3. Offer monthly and yearly passes that reduce the price paid per ride of public transportation.

Which suggestion(s) does your firm recommend?

1 and 3

3

1

2 – correct

Explanation: Increasing the price of private transportation, a substitute good, will increase demand for public transportation. Your recommendations should be made on the basis of demand increasing, not quantity demanded increasing. Ask yourself, which variable(s) changes quantity demanded and which variable(s) changes demand?

Austin, Jensen, Matthew, and Walker can all produce matches, brushes, cans, and shirts.  The table below identifies how many of each good they can make in a day if they devote themselves to producing only that good.

 MatchesBrushesCansShirts
Austin100504020
Jensen90554515
Matthew95452040
Walker55605025


Who has the absolute advantage in producing brushes?

Jensen

Walker – correct

Austin

Matthew

Explanation: The person with the absolute advantage is the one who can produce the most output. In this case, Walker can produce more brushes than anyone else, so he has the absolute advantage.

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