- A.It would be most beneficial for country B to export wheat and import corn because it would have an easier
time specializing in wheat. Remember that countries will specialize in goods that have the lowest opportunity
cost in producing. - C.In a free market or capitalistic system, the government’s role is to establish and protect property rights.
Property rights become unclear when dealing with different sectors, such as the public sector and the private
sector. With the government’s direction, individual property rights can be defined and protected. - B.To determine production advantages, we would need to know the opportunity costs each state faces in its
production of wine and cheese. With this knowledge, we can determine who should specialize in what product. - D. If U.S. exports exceed imports, the country is experiencing a trade surplus.
- B.If Americans decide to buy less English tea, the demand for the English pound will shift to the left because
fewer dollars are being converted into pounds for the sale of tea. Whenever the demand for a product decreases,
the demand for the currency that represents that product also decreases because less currency is being exchanged
for the purchase of that product. - C.Countries with many unskilled workers use labor-intensive production. This is because with little skill,
workers have limited capabilities in the production of certain goods. Machines and other production methods
cannot be maximized because workers do not possess the skills to use them. - C.When governments elect to use a protectionist method, they are doing so to expand the level of exports for the
country. - B.All other things held constant, if U.S. exports increase, then the supply of foreign currency will decrease
because foreign countries are converting their currencies to the dollar to purchase U.S. goods. - A.Flexible exchange systems have no government involvement. The exchange rates are determined by the forces
of supply and demand. These forces reveal exchange rates, prices, and distribution. They also allow a nation to
decide whether it should specialize in the production of a certain good or service. - A.If the U.S. demand for imports rises, eventually the dollar loses its value internationally because more dollars
are being spent to purchase foreign currencies and products. As the dollar becomes increasingly present abroad,
its value decreases. - B.Supply and demand are the main guiding forces in a flexible exchange market. The government has no
involvement, and it is the forces of supply and demand that dictate exchange rates in this system.
Part III: Microeconomics