Explain the principle of comparative advantage in nontechnical terms.
What will be an ideal response?
If two nations do not have identical costs of production, then each nation should specialize in production of the good or goods which it can produce at the relatively lower cost. The key term is “relative” since one nation may be able to produce everything at an absolutely lower cost.
It is sometimes easier to explain in terms of individuals. If a doctor is a very good house painter, and can paint her house twice as fast as any professional painter, this does not mean she should paint her own house from the standpoint of comparative advantage. A doctor’s time is worth substantially more than a painter’s time, so from a relative standpoint, it makes sense to hire the painter to paint the house even if it takes him twice as long as the doctor. The doctor stands to gain economically by practicing medicine during the time it would take her to paint the house.
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Economies of scale
A. require inputs’ MPP to fall as output increases (everything else equal). B. pertain to the long run only. C. refer to increased output generalized by an increase in the quantity of a single input. D. imply that the AC curve will fall continuously as output increases in the short run.
Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?
a. Accounting profit is zero. b. Marginal cost equals price. c. Long-run average cost is at a minimum. d. Economic profit is zero.
Which statement is true?
A. There are at least a dozen different theories of poverty. B. The liberals and conservatives are in basic agreement about the causes of poverty. C. The liberals and conservatives are in basic agreement about how to solve the poverty problem. D. None of these statements are true.
Refer to the accompanying figure. If this restaurant goes from producing 20 to 25 pizzas per hour, then which of the following statements is true?
A. It has to give up exactly 25 salads. B. It has to give up fewer than 12.5 salads. C. It has to give up exactly 12.5 salads. D. It has to give up more than 12.5 salads.