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Dwnload Full Macroeconomics Canada in The Global Environment 10th Edition Parkin Solutions Manual PDF
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2 THE ECONOMIC
PROBLEM
when pizza production is relatively large will require society to devote to pizza production
those resources that are less suited to making pizza and more suited to making smartphones.
This reallocation of resources yields a relatively small increase in pizza output for a large
decrease in smartphone output, creating a relatively high opportunity cost reflected in the
steep slope of the PPF over this range of output. The opportunity cost of pizza production
increases with the quantity of pizza produced as the slope of the PPF becomes ever steeper.
This effect creates the bowed-out effect and means that as more of a good is produced, the
opportunity cost of producing additional units increases.
Page 39
1. What is marginal cost? How is it measured?
Marginal cost is the opportunity cost of producing one more unit of a good or service. The
magnitude of the slope of the PPF is the marginal cost of a unit of the good measured on the
x-axis. As the magnitude of the slope changes moving along the PPF, the marginal cost
changes.
2. What is marginal benefit? How is it measured?
The marginal benefit from a good or service is the benefit received from consuming one more
unit of it. It is measured by what an individual is willing to give up (or pay) for an additional
unit.
3. How does the marginal benefit from a good change as the quantity produced of
that good increases?
As more of a good is consumed, the marginal benefit received from each unit is smaller than
the marginal benefit received from the unit consumed immediately before it, and is larger than
the marginal benefit from the unit consumed immediately after it. This set of results is known
as the principle of decreasing marginal benefit.
4. What is allocative efficiency and how does it relate to the production possibilities
frontier?
Allocative efficiency is a situation in which goods and services are produced at the lowest
possible cost and in the quantities that provide the greatest possible benefit. We cannot
produce more of any good without giving up some of another good that we value more highly.
The allocative efficient level of output is the point on the PPF for which marginal benefit
equals marginal cost.
5. What conditions must be satisfied if resources are used efficiently?
Resources are used efficiently when more of one good or service cannot be produced without
producing less of some other good or service that is valued more highly. This is known as
allocative efficiency and it occurs when: 1) production efficiency is achieved, and 2) the
marginal benefit received from the last unit produced is equal to the marginal cost of
producing the last unit.
Page 44
1. What gives a person a comparative advantage?
A person has a comparative advantage in an activity if that person can perform the activity at
a lower opportunity cost than anyone else. If the person gives up the least amount of other
goods and services to produce a particular good or service, the person has the lowest
opportunity cost of producing that good or service.
2. Distinguish between comparative advantage and absolute advantage.
A person has a comparative advantage in an activity if that person can perform the activity at
a lower opportunity cost than anyone else. A person who is more productive than others has
an absolute advantage. Absolute advantage involves comparing productivities—production
per hour—and comparative advantage involves comparing opportunity costs.
3. Why do people specialize and trade?
People can compare consumption possibilities from producing all goods and services through
self-sufficiency against specializing in producing only those goods and services that reflect
their comparative advantage and trading their output with others who do the same.
Consumption possibilities from specialization and trade are greater than under self-
sufficiency. So it is in people’s own self-interest to specialize.
4. What are the gains from specialization and trade?
From society’s standpoint, the total output of goods and services available for consumption is
greater with specialization and trade. From an individual’s perspective, each person who
specializes enjoys being able to consume a larger bundle of goods and services after trading
with others who have also specialized, than would otherwise be possible under self-
sufficiency. These increases are the gains from specialization and trade for society and for
individuals.
5. What is the source of the gains from trade?
As long as people have different opportunity costs of producing goods or services, total output
is higher with specialization and trade than if each individual produced goods and services
under self-sufficiency. This increase in output that arises from divergent opportunity costs is
the gains from trade.
6. Why do specialization and the gains from trade make the economy’s PPF bow
outward?
Initially, a good is produced by the producers with the lowest opportunity costs of production.
But as more and more of the good is produced, producers with higher opportunity costs of
production begin to produce the good. The slope of the PPF increases as producers with higher
opportunity costs begin production, giving the PPF a bowed-out shape.
7. Why is not specializing and reaping the gains from trade inefficient?
Failure to specialize and trade means that producers are not producing the good in which they
have a comparative advantage, and production occurs inside the PPF—a point of inefficiency.
All the economy’s resources are fully employed, but they are misallocated.
Page 47
1. What generates economic growth?
The two key factors that generate economic growth are technological change and capital
accumulation. Technological change is the development of new goods and of better ways of
producing goods and services. Capital accumulation is the growth of capital resources,
including human capital.
2. How does economic growth influence the production possibilities frontier?
Economic growth shifts the PPF outward.
3. What is the opportunity cost of economic growth?
When a society devotes more of its scarce resources to research and development of new
technologies, or devotes additional resources to produce more capital equipment, both
decisions lead to increased consumption opportunities in future periods at the cost of less
consumption today. The loss of consumption today is the opportunity cost borne by society for
creating economic growth.
Illustrator: L. J. Bridgman
Language: English
BY AMY E. BLANCHARD
Illustrated by
L. J. BRIDGMAN
BOSTON
DANA ESTES & COMPANY
PUBLISHERS
Copyright, 1909
By Dana Estes & Company
"I seem to have made an impression," she said as her aunt came up.
"I didn't know strangers were such a rarity here that people stared at
them the way that man did at me. I wonder who he is and what made
him look so taken by surprise."
"Oh, I suppose he didn't know that any of the summer residents had
arrived," returned Miss Elliott, "and he wondered who you were and
where you came from. There aren't usually any summer visitors here
before the middle of June."
"I suppose that must have been it," returned Gwen, at the same time
feeling that it did not quite explain matters.
At the side door, by which it seemed they were expected to enter,
they met Ora. She turned away her head and hurried around to the
kitchen.
"What a pretty girl," said Gwen, looking after her. "Such a lovely
complexion. But, oh dear, why does she lace so painfully? Doesn't
she know wasp waists are all out of style? That they belong to the
early Victorian age and passed out with ringlets and high
foreheads?"
"She probably doesn't know," returned Miss Elliott. "I notice that
many of the girls up here still cling to the traditions of their
grandmothers in more than one direction. I have heard that one, at
least, died from the effects of tight lacing."
"Then they need a missionary as much as the heathen Chinee
does," observed Gwen as she entered the house.
She had gone out bareheaded but she tossed aside the golf-cape,
which was none too warm for out-door wear, and sat down by the
window. Miss Phenie, established in a comfortable rocking-chair,
was quite ready for a chat while she knitted a "sweaterette" as she
called it. Miss Phosie was in the kitchen getting supper, but Miss
Phenie felt that it was due to her position as elder sister to entertain
the guests rather than to give a hand to the evening's work. It was
always her attitude and one of which no one had ever heard Miss
Phosie complain. The most that she had ever done was to remark to
Almira Green: "It's very easy to be hospitable when you do the
entertaining and some one else does the work." But that was under
great provocation when the minister, the surveyor, the doctor and the
editor of The Zephyr had all arrived on the island in one day and all
had been entertained at Cap'n Ben's house because there seemed
nowhere else for them to go. On that occasion Miss Phenie, as
usual, had asserted her right to the position of hostess, and had left
Miss Phosie alone to wash the dishes as well as to get the dinner,
Ora having gone to Portland for the day.
"Well," said Almira Green to whom Miss Phosie's remark was made,
"there was Cap'n Ben to do the talking, and as they was all men I
don't see why Phenie was called upon to set with them all the time."
"I guess she thought she had to," Miss Phosie had returned with the
feeling that perhaps she had said too much.
To-day, however, there was not much reason for Miss Phenie's
presence in the kitchen, for, while Miss Phosie made the soda
biscuits Ora could be setting the table. The lobsters had been boiled
that morning, so there were only the fish and potatoes to fry, and the
preserves to be set on the table with the cake. Miss Phenie, in tight
fitting black alpaca, rocked comfortably and asked questions till
Gwen, by the window, saw Luther Williams pass. "Who is that, Miss
Phenie?" she asked. "That tall man with the serious face and the
kind eyes?"
"I guess you mean Mr. Williams. I presume he is taking his after
supper smoke. He boards with us, you know."
"Oh!" Gwen wondered why he had not appeared at the table. "Is he
a relative of yours?"
"None in the world, and we never heard that he had any. He gets a
daily paper and advertising letters sometimes, but I never knew him
to get any other mail. He's real well educated, and reads everything
he can lay his hands on, but he is a very quiet man. He never talks
much to anybody, but there ain't a kinder man living. If anybody's in
trouble he's the first on hand, and the first to put his hand in his
pocket."
"Is he a fisherman?"
"Yes. His pound is just off your point. He's been real lucky and it's
said he's right well off."
"Has he boarded with you long?"
"Ever since he came to the island; that's about twenty years now. He
came for a week's fishing, he said, and he's stayed ever since. I
never heard a word against Mr. Williams. Everybody likes him, and if
he is rather close-mouthed you don't hear him speak ill of anyone.