Assume the United States has an absolute advantage in the production of everything compared to the African nation of Berundi. Can you think of any reason why both nations would still find it to their mutual advantage to trade with each other?
What will be an ideal response?
Comparative advantage is the driving force behind why nations trade, not absolute advantage. What that means is that even though one nation has an absolute advantage in everything compared to another it can't possibly have a comparative advantage in everything. Likewise, even though in this case Berundi has an absolute disadvantage in the production of everything it will have a comparative advantage in at least one thing.
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Paul Romer, an economist at Stanford University, is most closely associated with what economic theory?
A) the process of creative destruction B) the Communist Manifesto C) new growth theory D) labor productivity theory
Imagine the inflation rate begins to rise rapidly, the FOMC meets and it is believed that the target interest rate needed to stem the inflation could easily exceed 20 percent. Many members of the committee believe the Fed cannot announce this high of a target for political reasons. Discuss what the FOMC could do in terms of targets and what change occurred in 2002 that is going to make their job a bit more difficult.
What will be an ideal response?
Suppose a business firm dumps its used car batteries into a river.
A. The company's actions constitute an external cost. B. The company's actions constitute an external benefit. C. The company's actions would be an example of the market system efficiently allocating resources. D. The company's actions damage no one but itself.
The difference between what you earn, say $1 million, and what you would be willing to work for, say, $80 thousand, is called your ______________.
Fill in the blank(s) with the appropriate word(s).