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Economics Homework 2 Spring 2014 Assignment




Question;Spring 2014 Homework 2 (100 points)Due: Check Syllabus for due dateMultiple Choice (3 pts each)1. ____B_____ is output per hour in the business sector.BA. Net exportsB. ProductivityC. InvestmentD. Per Capita GDP2. A country will roughly double its GDP in twenty years if its annual growth rate is:cA. 12 percent.B. 7.5 percent.C. 3.5 percent.D. 2.5 percent.3. When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) ____________b______ in producing that product.A. relative advantageB. absolute advantageC. economy of scaleD. production efficiency4. The idea behind comparative advantage reflects the possibility that one party: BA. may be able to produce everything relatively more efficiently than another party.B. may be able to produce something at a lower dollar cost than another party.C. with an absolute advantage in producing two different may export goods both of those goods to the other party.D. may be able to produce something at a lower opportunity cost than another party.5. In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true? CA. India has a comparative advantage in the production of rice.B. China has a comparative advantage in the production of rice.C. China has both an absolute and comparative advantage in the production of rice.D. India has an absolute advantage in the production of rice.6. Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. The opportunity cost of producing 1 orange for Alpha and Beta, respectively, are:DA. 0.25 apples, 0.5 apples.B. 9 apples, 4 apples.C. 0.5 apples, 0.25 apples.D. 2 apples, 4 apples7. Which of the following is true? DA. A nation can have a comparative advantage in the production of a good only if it also has an absolute advantage.B. A nation can have a comparative advantage in the production of every good, but not an absolute advantage.C. A nation cannot have an absolute advantage in the production of every good.D. A nation cannot have a comparative advantage in the production of every good.8. The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower _______a_________.A. opportunity costB. absolute costC. relative costD. comparative cost9. A tariff differs from a quota in that a tariff is: DA. levied on imports, whereas a quota is imposed on exports.B. levied on exports, whereas a quota is imposed on imports.C. a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported.D. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.10. The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that: AA. firms will be protected from subsidized foreign competition.B. domestic producers can attain the economies of scale to allow them to compete in world markets.C. there will be adequate supplies of crucial resources in case they are needed for national defence.D. it will not be subjected to a takeover from a foreign competitor.11. ______B____ means selling goods below their cost of production.A. ProtectionismB. DumpingC. Import quotasD. Non-tariff barriers12. Low-wage U.S. workers suffer from protectionism in all the industries that they don?t work in, because: DA. protectionism provides a barrier to entry to the job markets that the low-wage earners want entry to.B. protectionism forces them to pay higher prices for basic necessities like clothing and food.C. protectionism will envourage foreign workers to apply for American jobs.D. protectionism will prevent them from applying for those jobs in other industries.13. The race to the bottom scenario of global environmental degradation is explained roughly like this: AA. Companies seek to reduce their costs of operations on plant and equipment design and this results in higher levels of pollution.B. Companies seek the lowest market prices on products in order to gain market share, resulting in inferior goods and increased waste and pollution.C. Profit-seeking multinational companies shift their production from countries with strong environmental standards to countries with weak standards, thus reducing their costs and increasing their profits.D. Companies seek to influence environmental legislation standards are set to the lowest possible standards in the USA in order to maximize profits.14. People or firms use one currency to purchase another currency at the ____________C___.A. international currency exchangeB. foreign exchange marketC. foreign currency exchangeD. international parity market15. If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to CA. a hard peg policy.B. purchasing power parity.C. depreciation.D. a floating exchange rate.16. For firms engaged in international lending and borrowing, _______________A_____ can have an enormous effect on profits.A. swings in exchange ratesB. trade-offs and risksC. foreign portfolio investmentD. foreign direct investment17. If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then AA. the dollar depreciated against the yenB. the dollar appreciated against the yenC. the yen depreciated against the dollarD. the yen weakened against the dollar18. If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then CA. the U.S. dollar appreciated against the Canadian dollarB. the Canadian dollar weakened against the Canadian dollarC. the U.S. dollar strengthened against the Canadian dollarD. the Canadian dollar appreciated against the U.S. dollar19. In 2008, 1 Swiss franc cost.56 British pounds and in 2010 it cost.51 British pounds in 2010. How much would 1 British pound purchase in Swiss francs in 2008 and 2010? BA. 2008: 1.79 francs, 2010: 1.96 francsB. 2008: 1.78 francs, 2010: 1.98 francsC. 2008: 1.71 francs, 2010: 2.00 francsD. 2008: 1.73 francs, 2010: 1.97 francs20. Which of the following is an example of a pegged currency? AA. U.S. dollarB. British poundC. EuroD. Chinese yuan21. A stronger euro is less favorable for BA. German tourists traveling abroad.B. American tourists traveling in France.C. Canadian firms selling in Germany.D. Canadian investors with money investments in Germany.22. If the U.S. dollar weakens, which of the following parties will benefit? CA. countries exporting to the U.S.B. Australian firms selling in the U.S.C. U.S firms selling in EuropeD. Japanese investors who have money in the U.S.23. Using the term "spillover" is a less formal means of describing AA. an externality.B. social costs.C. private costs.D. market failure.24. Market failure describes a situation in which the market itself _______________c_______ in a way that balances social costs and benefits.A. remains outside the transactionB. incurs the costs outside the production processC. fails to allocate resources efficientlyD. avoids externalities25. Market-oriented environmental tools _______c________ for firms to take the social costs of pollution into account and _______________c_____ in reacting to these incentives.A. draw distinctions, lower the social costs incurredB. lack incentives, prohibit firms from having flexibilityC. create incentives, allow firms some flexibilityD. specify particular technology, lower the social costs incurred26. The supply and demand conditions facing a firm that makes widgets and generates a negative externality by dumping a highly toxic sludge in a nearby river is given in the table below.Price Quantity Demanded Quantity Supplied without Paying Social Costs Quantity Supplied after Paying Social Costs100 0 120 7580 10 100 5055 30 90 3040 55 85 2530 80 80 2020 100 65 15The equilibrium price and quantity when social costs are taken into account are AA. Price = $55, Quantity = 30B. Price = $40, Quantity = 55C. Price = $30, Quantity = 20D. Price = $30, Quantity = 8027. ___________D____ include both the private costs incurred by firms and also costs incurred by third parties outside the production process.A. Social costsB. Private costsC. Market costsD. External costsShort Answers (19 points)3. What is comparative advantage, and why is it important in international trade?4. Steve and Craig have been shipwrecked on a deserted island in the South Pacific. Their economic activity consists of either gathering pineapples or fishing. We know Steve can catch four fish in one hour or harvest two baskets of pineapples. In the same time Craig can reel in two fish or harvest two baskets of pineapples.Assume Craig and Steve both operate on straight-line production possibilities curves. What is Steve's opportunity cost of producing a basket of pineapples? 0.5 fish Of a producing a fish? 2 Pineapples What is Craig's opportunity cost of producing a basket of pineapples? 1 fishOf a producing a fish? (5 points)7. Identify the exchange rate that equalizes the prices of internationally traded goods across countries and briefly discuss the main functions this exchange rate serves. (3 points)10. Briefly discuss the shortcomings of environmental command-and-control regulations. (3 points)12. Briefly explain what is meant by the term "externality" and how it occurs (4 points)


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