Think of a personal example similar to the one in the text where someone you know can perform many tasks better than others, but still should specialize in what he/she does best according to the principle of comparative advantage.
What will be an ideal response?
For example, one may know of a female doctor who is also better at cooking, sewing, and housework than most maids. However, in economic terms, she has a comparative advantage at being a doctor where her time may be worth $150 per hour, rather than doing her own cooking, cleaning, and sewing. Even if she is three times faster and better than a maid, she could hire the maid for probably $10 per hour, and the doctor still has a comparative advantage in practicing medicine over housework even if it takes the maid three hours to perform the work the doctor could do in one hour.
In this case the doctor has an absolute advantage in both areas, but a comparative advantage in being a doctor. When a person (or nation) can produce everything more efficiently than another, he/she has an absolute advantage in production. However, these examples show that it still is beneficial to total production if they specialize in what they do relatively or comparatively the best. The total value of production expands when specialization occurs.
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A monopolist can make an economic profit in the long run because of
A) the relatively elastic demand for its product. B) the relatively inelastic demand for its product. C) the firm's price setting behavior. D) barriers to entry.
Refer to Figure 10-7. Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged. What is her new optimal bundle?
A) still remains at bundle A. B) bundle B. C) bundle C. D) bundle D.
How does an economy represented by a straight-line production possibilities curve differ from one represented by a traditional production possibilities curve with a bowed shape?
A) In the economy represented by a straight-line production possibilities curve, there is no opportunity cost. B) In the economy represented by a straight-line production possibilities curve, neither good is scarce. C) In the economy represented by a straight-line production possibilities curve, the law of increasing relative cost does not apply. D) In the economy represented by a straight-line production possibilities curve, changing the amount of resources devoted to the production of each good will not alter the amount of each good actually produced.
Developing countries are usually unwilling to negotiate over labor standards because
A) the WTO always tends to rule in favor of industrialized nations. B) they fear that industrialized nations are trying to undermine their comparative advantage—production of agriculture and textiles/apparel—and close the markets of high-income countries in these areas. C) they fear that they may be unable to compete without some protection of their industries. D) organized labor would not allow them to negotiate with other countries.