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Unformatted text preview: Answers to Text Questions and Problems 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. LO: 1 AACSB: Analytical Skills Blooms: Understanding 2. A reduction in the number of hours worked each day will shift all points on the production possibilities curve inward, toward the origin. The graph below illustrates this situation. LO: 3 AACSB: Analytical Skills Blooms: Application 2 Coffee (lb/day) Nuts (lb/day) PPC 1 PPC 3. Technological innovations that boost labor productivity will shift all points on the production possibilities curve outward, away from the origin. The graph below illustrates this situation. LO: 3 AACSB: Analytical Skills Blooms: Application 2 Coffee (lb/day) Nuts (lb/day) PPC 1 PPC 4. According to Principle of Comparative Advantage, people will perform their own services when the opportunity cost of doing so is low. This implies that performing services yourself is not a matter of whether you are rich or poor but is a matter of whether the opportunity cost of your time is high or low. LO: 1 AACSB: Analytical Skills Blooms: Analysis 5. The fact that English has become the de facto international language has done much to stimulate international demand for American-made books, movies and popular music. The large size of the American market has given the United States an additional advantage over other English-speaking countries, like England, Canada, and Australia. LO: 4 AACSB: Analytical Skills Blooms: Analysis Answers to Problems 1. In time it takes Ted to wash a car he can wax one-third of a car. So his opportunity cost of washing one car is one-third of a wax job. In the time it takes Tom to wash a car, he can wax one-half of a car. So his opportunity cost of washing one car is one- half of a wax job. Because Teds opportunity cost of washing a car is lower than...
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