Question

You will be evaluating each of the questions as you will need to make sure to use relevant economic terms and content development in your work.

REMEMBER TO WRITE THE QUESTION FIRST AND THEN PROVIDE YOUR RESPONSE.

Questions:

1. Why does comparative advantage matter more than absolute advantage for trade?

2. Draw a production possibilities frontier curve. Illustrate the set of points that is feasible, the set of points that is efficient, the set of points that is inefficient, and the set of points that is not feasible. If you prefer not to draw then explain.

3. Explain why seniors often earn lower grades in their last semester before graduation (hint: incentive problem).

4. Analyze the difference between macroeconomics and microeconomics (written response). Determine whether each of the following is primarily a macroeconomic issue or a microeconomic issue (answer only).

A) What price to charge for a TV

B) Tax reform on total consumer spending in the economy

C) Your family's decisions about what to purchase

D) A contractor's decision regarding how much to work each week

E) Government policy to increase employment

5. What is the difference between a positive economic statement and a normative economic statement? Determine whether each of the following is primarily a positive economic statement or normative economic statement:

A) The current unemployment rate is below 4% in 2018

B) The inflation rate in the United States is too low

C) The Government should increase the minimum wage

D) U.S. trade restrictions cost consumers $125 billion annually

Answer 1

1. Absolute Advantage:

Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.

Comparative Advantage

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Comparative advantage is better than absolute advantage because it takes into account the opportunity cost of producing a good and tell which country is specialized in production of which good.

2. Production possibility curve shows different combination of two goods which can be produced with the given resources on the assumptions that (i) resources are fully and efficiently utilized, and (ii) technique of production remains constant.

In the above PPC, C is the unattainable combination of output. Combination A shows under-utilization or inefficient utilization of resources. Point on PPC i.e. B shows fuller utilization of resources.

Combination of bundles inside PPF shows feasible area while outside PPF shows not feasible area. Bundle A is feasible and inefficient while bundle C is not feasible and inefficient. Bundle B is efficient.