Macroeconomics chapter one

Question 1

Think of the last time you bought or sold something. Why did you make the trade?

Answer 1

You probably traded because you preferred what you got over what you gave up.

Question 2

What are the 3 benefits of trade

Answer 2

1.) trade makes people better off when preference differ
2.) trade increase productivity through specialization and the division knowledge
3.) Trade increases productivity through comparative advantage

Question 3

What does trade create

Answer 3

value

Question 4

trade moves goods from people who value them ______ to people who value them _____

Answer 4

less; more

Question 5

does trade make people with different preferences worse or better off

Answer 5

better off

Question 6

without trade there would be no what?

Answer 6

specialization

Question 7

People will specialize in the production of a single good only when what?

Answer 7

only when they can trade for other goods

Question 8

What 2 things does specialization do in relation to trade?

Answer 8

Increased productivity and division of knowledge

Question 9

increased productivity in relation to trade

Answer 9

we can produce more through trade than by induvial production.

Question 10

what advantages to people who specialize have in trade

Answer 10

they have more knowledge about their field.
Because they sell large quantities, people who specialize can take advantage of large-scale equipment.

Question 11

division of knowledge

Answer 11

without specialization, each person produces their own food, clothing, and so on.

Question 12

with specialization, much more knowledge is used than what?

Answer 12

than what could exist in a single brain

Question 13

knowledge increases productivity therefore specialization increases total what?

Answer 13

total output

Question 14

every increase in world trade is an opportunity to increase what?

Answer 14

the division of knowledge

Question 15

One of the benefits of specialization is:
a.) less pollution
b.) more equality.
c.) increased productivity

Answer 15

c.) increased productivity

Question 16

absolute advantage

Answer 16

The ability to produce the same good using fewer inputs than another producer

Question 17

comparative advantage

Answer 17

Producing goods at the lowest opportunity cost.

Question 18

If country A is able to produce Funiture at a lower cost than country B, we would say that country A as a:
a.) absolute advantage
b.) comparative advantage
c.) No advantage

Answer 18

a.) absolute advantage

Question 19

to benefit from trade does a country have to have absolute advantage.

Answer 19

No, it can still benefit from comparative advantage.

Question 20

production possibilities frontier

Answer 20

shows all the combinations of goods that a country can produce given its productivity and supply of inputs.

Question 21

what makes trade profitable

Answer 21

differences in comparative advantage, countries will always have some comparative advantages therefore everyone can benefit from trade

Question 22

differences in wages reflect what?

Answer 22

difference in productivity

Question 23

Would wages be higher in higher-productivity countries or in low productivity countries?

Answer 23

higher-productive companies

Question 24

Globalization and wages

Answer 24

Wages will rise in high-demand industries and fall in low-demand industries.
* Workers will move from low-wage industries to high-wage industries until wages equalize.
* The transition isn’t always quick or easy.