Basic economics

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1-Factors of production are

d. inputs into the production process.

There is no reason to get too technical about this answer. Factors of production are simply whatever is needed to produce something. There are mathematical calculations firms make in determining their optimal production levels, but these are related to optimal output.

2-What you give up to obtain an item is called your

a. opportunity cost.

Explicit costs are those directly related to the enterprise. Direct costs are directly attributable to the manufacturing of a product. True cost is not an economics terms. Only opportunity cost describes the giving up of one option to obtain the other. For example, most student have chosen to give up working full-time in order to go to school. The lost income is their opportunity cost. The cost of tuition, books and so forth are their explicit costs.

3-Which of the following statements about trade is false?

b. With trade, one country wins and one country loses.

Trade is generally mutually beneficial, otherwise one partner would not participate. With trade, each good can be produced in the country with the lowest opportunity cost. This lowers the world price of the good. Every country benefits in this situation. Trade does however increase competition. Many domestic companies may find that they cannot compete with foreign firms.

4. Which of the following statements about comparative advantage is not true?

a. Comparative advantage is determined by which person or group of persons can produce a
given quantity of a good using the fewest resources.

Even though a country may not be producing the good more efficiently than other country, its opportunity cost in terms of another good may be lower. This is related to the distinction between absolute advantage and comparative advantage. A country may not have a absolute advantage, but could still have a comparative advantage.

5. If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price,

a. the country will be an exporter of the good.

If the price in that country is lower than the world price, it implies that the opportunity cost for this good is lower in this country. Thus, it can offer this good on the world market and ...