ECON 2100 1nd EditionExam # 2 Study Guide Chapters: 5 - 9Chapter 5 (October 7 & 9) Describe the inputs and outputs of production possibilities frontier and present a diagram. Input: production schedule Output: opportunity cost, feasibility, and efficiency What are the 4 different possible changes that can occur to PPF? 1. Technology 2. Land *3. Labor * (*Factors of production*) 4. Capitol *Given the following information for PPF, answer the problems: What is the opportunity cost for 1 computer? 12 computers = 6 leather jackets Day Day 12 computers = 6 leather jackets 12 121 computer = ½ leather jacketWhat is the opportunity cost for 1 leather jacket? 12 computers = 6 leather jackets Day Day 12 computers = 6 leather jackets 6 62 computers = 1 leather jacketWhat is the difference between absolute advantage and comparative advantage? Provide examples of each. Absolute advantage: the ability to produce more with a given amount of resources OR to produce a given output with few resources. Comparative advantage: produce something of the lowest opportunity cost Computer/DayJacket/Day1201018 26 34 42 50 6(Given): Production (you find): Opportunity Cost of: Marina CollinGrapes/Day40 lb 60 lb Days/lb Grapes1/40 day 1/60 day Beef/Day 2 lb 10 lb As the production table shows, Collin has the absolute advantage in the production of grapes because he can produce more lbs of grapes in less time of the day. It is also clear here that Marina has the comparative advantage of grapes because she has the lowest opportunity cost of beef, and Collin has the comparative advantage of beef because he has the lowest opportunity cost of grapes. Countries that engage in trade will tend to specialize in goods in which they have ___ and will____ those goods. A comparative advantage; export If the opportunity costs of production are constant, then the production possibility frontier is what? A straight line. Explain what price is likely for two countries to agree on in trading. Let’s say that Netherlands can raise 100 tons of beef or produce 1,000 boxes of tulips. In the same season, Belgium can raise 50 tons of beef or production 750 boxes of tulips. Given this information, we can conclude that the opportunity cost of 1 lb of beef for the Netherlands is 10 boxes of tulips, and the opportunity cost of 1 lb of beef for Belgium is 15 boxes of tulips. A reasonable price for these countries to trade would be one ton of beef costs 12 boxes of tulips. What happens when the opportunity cost is equal for two different countries? There is no basis for trade. Chapter 6 (October 14) Marina Collin 1lb Grape 1/20 lb Beef1/6 lb Beef1 lb Beef 20 lb Grapes6 lb GrapesSummarize globalization. Globalization describes a process by which economies of the world are becoming increasingly integrated and interdependent, societies and cultures are increasingly interconnected, and the government is becoming increasingly interdependent. Globalization is measured by a multidimensional process, which is economics, social, and political. Measure of globalization take into account all the dimensions. Researchers have resorted to proxy measures and indicators to approximate the degree of globalization because some aspects are observable but not directly measurable. Describe economic globalization and its different aspects. Economic globalization refers to the growing integration and interdependence of economies. The real sector is the sector of the global economy where goods and services are traded. Cross-border flows of capitol takes place in the sector of the economy known as the financial sector. How is foreign direct investment and portfolio investment related?Foreign direct investment is the ownership of at least 10% of a company located in a foreign country. 10% stake = sufficient to allow direct control of the operations of the business enterprise. Typically FDI is a long-term investment. Portfolio investment is short term foreign investment in stocks and trade. Summarize the social dimension of globalization. Social globalization refers to the increasing social and cultural interconnectedness across countries. This is facilitated by increased international travel and advances in communication technology. Measures of social globalization are essentially indicators of the extent of social and cultural interaction across countries. Indicators of social globalization are 1) the number of international phone calls, 2) international travel, 3) international population in the country, and 4) extent of internet use. What is the political dimension of globalization? Political globalization refers to the growing interdependence among national governments. Indicators of political globalization include 1) membership in international organizations (I.e. World Trade Center), 2) legally binding sovereign treaties, and 3) embassies and consulates around the world. Explain the pros and cons of Globalization. Pros: - Increased wealth of nations: globalization expands export markets, which allows nations toproduce more and expand employment - efficient production due to specialization: globalization eliminates the need for each country to produce every good it consumers - Transfer of technology and knowledge: increased foreign direct investment is associated with transfer of technology and technical know-how form industrialized to developing countries. - Foreign Direct Investment: creation of new jobs- Growing strength of civil society organization: - Reduced possibility of war: economic interdependence -Cultural exposureCons: - Income inequality: globalization created winners and losers. (I.e. Technology advanced rich countries are globally more competitive and benefit the most) - The growing power of multination companies: financially powerful global companies can influence public policy. It diminishes the power of the government and citizens to determine public policy priorities. Chapter 7 (October 21)Summarize important aspects of the International Monetary Fun (IMF) and the World Bank (WB). The IMF and WB are creations of the UN monetary and financial conference in Bretton woods. The original mission of the world bank was to rebuild Europe after WWII, and for the IMF, it wasto