Chapter 2 Homework

What effect has globalization had on the ability of firms to specialize? How has this affected the competitive process?
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What effect has globalization had on the ability of firms to specialize? How has this affected the competitive process?
Globalization increases competition by giving domestic producers access to foreign markets and foreign producers access to domestic markets, allowing firms to generalize production.
If workers in China and India become as productive as U.S. workers, what adjustments will allow the United States to regain its competitiveness?
It is possible that there will be development in areas of production/services that will allow U.S. wages to remain high, but in all likelihood either U.S. nominal wages will grow slowly and foreign nominal wages will grow rapidly and catch up or U.S. exchange rates will decline to equalize wages. Some combination of the two is most likely.
Which of the production possibility information shown in the tables below embodies the principle of rising trade-off?
History Economics
40 100
60 90
80 70
Does the fact that the production possibility model tells us that trade is good mean that in the real world free trade is necessarily the best policy? Explain.
No, because the model does not take into account the importance of institutions and government in trade and takes no other societal goals into account besides maximum total output.
If neither of two countries has a comparative advantage in either of two goods, what are the gains from trade?
There are no gains from trade.
A) In two hours JustBorn Candies can produce 30,000 Peeps or 90,000 Mike and Ikes or any combination in between. What is the trade-off between Peeps and Mike and Ikes?

B) Draw a production possibility curve that reflects this trade-off.

C) Identify the placement of the following points on the production possibility curve:
1) An efficient production point is
2) An inefficient production point is
3) An impossible point is

D) Illustrate what would happen if JustBorn candies developed a technology that increased productivity by one third for both products.
A) For every Peep, 3 Mike and Ikes can be produced.

B) y-axis: 30 -- x-axis: 90

C)
1)on the production possibility curve
2)inside the production possibility curve
3)outside the production possibility curve

D) y-axis: moves from 30 to 40 -- x-axis: moves from 90 to 120
State the law of one price. How is it related to the movement of manufacturing out of the United States?
The law of one price states that the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country. Wages adjusted for productivity differences are lower in other countries, so firms choose to use workers in foreign countries.
A country has the following production possibility table:

1) Draw the country's production possibility curve.

2) What's happening to the trade-off between food and clothing?

3) Assume the country gets better at the production of food. What will happen to the production possibility curve?

4) Assume the country gets equally better at producing both food and clothing. What will happen to the production possibility curve?
1) (0,20), (5,16), (9,12), (8,12), (14,4), (15,0)

2) The trade-off between food and clothing is increasing.

3) Shifts out along the food axis

4) Shifts out along both axes
Show how a production possibility curve would shift if a society became more productive in its output of widgets but less productive in its output of wadgets.
moves down on wadgets and out on widgets.
Show how a production possibility curve would shift if a society became more productive in the output of both widgets and wadgets.
moves up on wadgets and out on widgets.