Econ 101 Umich Exam 2 Caldwell Questions
and Answers 100% Pass
gains from trade - Answer--benefits from reallocating resources to better uses
absolute advantage - Answer--ability to do a task using fewer inputs
comparative advantage - Answer--ability to do a task at a lower opportunity cost
(compares how much you can produce with one task vs a different one) (most efficient =
most comparative advantage)
opportunity cost of doing a task - Answer--(time to do task)/(time to produce alternative
output)
the person who has the lowest ___ ___ has the highest comparative advantage for that
task and is the (most/least) efficient - Answer--opportunity cost, most
specialization - Answer--focusing on specific tasks and building a higher comparative
advantage
prices can act as ___, ___, and ___ - Answer--signals, incentives, information
prediction markets - Answer--markets whose payoffs are linked to whether an uncertain
event occurs (shows what people think will happen -- markets aggregate information)
internal markets - Answer--markets within a company that buy and sell scarce
resources
, knowledge problem - Answer--knowledge needed to make a good decision is not
available to the decision maker (everyone knows their personal info, but not the whole
picture)
companies solve the knowledge problem by creating ___ ___ to allocate resources to
their most efficient uses - Answer--internal markets
import - Answer--buy goods/services from foreign sellers
export - Answer--sell goods/services to foreign buyers
countries should (import/export) goods when their comparative advantage in producing
them is low, and (import/export) goods when their comparative advantage in producing
them is high - Answer--import, export
trade costs - Answer--extra costs from buying/selling internationally instead of
domestically (determines how important international trade is in that sector)
examples of trade costs (4) - Answer--taxes, shipping costs, language barriers, time
zones, etc.
globalization - Answer--increasing economic, political, and cultural integration of
different countries (lower trade costs = more global connection)
factors that shape comparative advantage (3) - Answer--abundant inputs, specialized
skills, mass production
countries should (import/export) products made with abundant inputs - Answer--export
learning by doing - Answer--developing a specialized skill over time by doing that thing
over and over
mass production increases comparative advantage because... (3) - Answer--specialized
production techniques, develop relationships with frequent trade partners, lower
marginal and opportunity costs
world price - Answer--price a product sells for in the global market (determined by world
supply and demand) (individual companies are small in the world market so they are
price takers)
and Answers 100% Pass
gains from trade - Answer--benefits from reallocating resources to better uses
absolute advantage - Answer--ability to do a task using fewer inputs
comparative advantage - Answer--ability to do a task at a lower opportunity cost
(compares how much you can produce with one task vs a different one) (most efficient =
most comparative advantage)
opportunity cost of doing a task - Answer--(time to do task)/(time to produce alternative
output)
the person who has the lowest ___ ___ has the highest comparative advantage for that
task and is the (most/least) efficient - Answer--opportunity cost, most
specialization - Answer--focusing on specific tasks and building a higher comparative
advantage
prices can act as ___, ___, and ___ - Answer--signals, incentives, information
prediction markets - Answer--markets whose payoffs are linked to whether an uncertain
event occurs (shows what people think will happen -- markets aggregate information)
internal markets - Answer--markets within a company that buy and sell scarce
resources
, knowledge problem - Answer--knowledge needed to make a good decision is not
available to the decision maker (everyone knows their personal info, but not the whole
picture)
companies solve the knowledge problem by creating ___ ___ to allocate resources to
their most efficient uses - Answer--internal markets
import - Answer--buy goods/services from foreign sellers
export - Answer--sell goods/services to foreign buyers
countries should (import/export) goods when their comparative advantage in producing
them is low, and (import/export) goods when their comparative advantage in producing
them is high - Answer--import, export
trade costs - Answer--extra costs from buying/selling internationally instead of
domestically (determines how important international trade is in that sector)
examples of trade costs (4) - Answer--taxes, shipping costs, language barriers, time
zones, etc.
globalization - Answer--increasing economic, political, and cultural integration of
different countries (lower trade costs = more global connection)
factors that shape comparative advantage (3) - Answer--abundant inputs, specialized
skills, mass production
countries should (import/export) products made with abundant inputs - Answer--export
learning by doing - Answer--developing a specialized skill over time by doing that thing
over and over
mass production increases comparative advantage because... (3) - Answer--specialized
production techniques, develop relationships with frequent trade partners, lower
marginal and opportunity costs
world price - Answer--price a product sells for in the global market (determined by world
supply and demand) (individual companies are small in the world market so they are
price takers)
