What are the gains from trade


Assignment:

Answer the questions listed below based on Economics.  Use the PowerPoint handed out in class to assist you with the exercises as well.

1.)When would being first be a valuable strategy?

2.)What does it mean to say that economics focuses on the margin?  What is the difference between average and marginal?

3.)In the following table, total cost is listed.  Calculate marginal cost.  Use Details.

Total Cost

10

20

40

80

130

200

Quantity

1

2

3

4

5

6

4.)In the following table, total revenue is listed.  Calculate marginal revenue. Use Details.

Total Revenue

200

350

450

520

580

630

Quantity

5

10

15

20

25

30

5.)An entrepreneur quits a job where she was earning $60,000 per year and starts her own business.  In this business she is earning $20,000.  What is the cost of the business?  Suppose the entrepreneur is so happy being on her own that she thinks it gives her the same joy that a $100,000 job would.  What is the cost of the business?

6.)What are the gains from trade?  What is the primary benefit of trade?  Why is the idea of trade is beneficial counterintuitive? Answer according to Economics.

7.)What is the difference between absolute advantage and comparative advantage?  How can a less developed country like Mexico have a comparative advantage relative to the United States?

8.)What are private property rights as it pertains to Economics?  Why are private property rights necessary for markets to function?

9.)It has been said that "profit opportunities attract firms like sharks to blood."  Explain this theory.

10.) The following data represents the production possibilities of two people in solving math and economic problems.  If they devote their total effort and time to math, A can solve 10 math problems and B can solve 10 math problems.  If they devote their total effort and time to economics, A can solve 10 economic problems and B 5 economic problems.  SHOW ALL WORK!!!

Percent of Resources Devoted To:                           A                                                        B

Math

Economics

Math

Economics

Math

Economics

100

0

10

0

10

0

0

100

0

10

0

5

a.)Who has the absolute advantage?

b.)Who has the comparative advantage?

c.)Assume that each will be self-sufficent and devote half their resources to math and half to economics.

The Outcome follows.

                                              A                                          A                             B                                             B

Alone-No Trade

Math

Economics

Math

Economics

 

5

5

5

2.5

 

 

 

 

 

Now assume that they specialize according to comparative advantage.  How much math and economics will they produce together?  What are the gains from trade? SHOW ALL WORK WHERE APPLICABLE!!!

11.)What is an "externality"?  Why might it create a problem for market allocation?

12.)Why is it widely accepted that the government is responsible for dealing with externalities?

13.)Give an example of an externality between firms, between customers and firm, and between suppliers and firm?

14.)Is the government provision of interstate highways a productive use of resources? What would have occurred had the government not taken responsibility for building and maintaining highways?

15.)What is adverse selection?  What is moral hazard?  Give an example of these two problems arising between a firm and its suppliers.

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International Economics: What are the gains from trade
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