answerkey ch2 3ed

answerkey ch2 3ed - Answers to Text Questions and Problems...

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Answers to Text Questions and Problems Chapter 2 Answers to Review Questions 1. An individual has a comparative advantage in the production of a particular good if she can produce it at a lower opportunity cost than other individuals. An individual has an absolute advantage in the production of a good if she can produce more of that good than another individual, using comparable amounts of time, raw materials, and effort. 2. A reduction in the number of hours worked each day will shift all points on the production possibilities curve inward, toward the origin. 3. Technological innovations that boost labour productivity will shift all points on the production possibilities curve outward, away from the origin. 4. Failure to specialize means failure to exploit the wealth-creating possibilities of the principle of comparative advantage. Wealthy people buy most of their goods and services from others not because they can afford to do so, but because the high opportunity cost of their time makes performing their own services too expensive. Sugar cane (kg/day) PPC 1 PPC 2 Nuts (kg/day) Sugar cane (kg/day) PPC 2 PPC 1 Nuts (kg/day)
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5. Canada’s forests and hydroelectric power gave it a comparative advantage in pulp and paper, and in the early 1900s, the provincial governments placed embargoes on the export of pulpwood to the United States in order to encourage the U.S. to import pulp and paper from Canada. 6. Canada has one of the world’s highest per-capita endowments of farm land. 7. The emergence of English as the de facto world language gives English-speaking regions a comparative advantage over non-English-speaking regions in the production of movies, books, and popular music.
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Answers to Problems 1. 2. Point a is unattainable. Point b is efficient and attainable. Point c is inefficient and attainable. 3a. True: since Kyle and Toby face the same opportunity cost of producing a litre of cider, they cannot gain from specialization and trade. b. False: suppose the doctor takes half an hour to vacuum her office thoroughly, and 15 minutes to consult with a patient. She must forgo 2 consultations with patients to vacuum her office. A commercial cleaner generally forgoes less valuable opportunities to vacuum a waiting room, so a cleaner will generally have a lower opportunity cost of vacuuming. The doctor should therefore hire a cleaner to vacuum her office. c. False: this principle implies that as the quantity of the good on the horizontal axis increases, the resources transferred to its production will be less and less suitable to its production, and more and more suitable in the production of the other good. Thus, the opportunity cost of producing the good on the horizontal axis increases as its production increases. In the process, the production possibilities curve becomes steeper. 4.
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This note was uploaded on 06/11/2011 for the course ECON 102 taught by Professor Lemche during the Winter '08 term at UBC.

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answerkey ch2 3ed - Answers to Text Questions and Problems...

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