Question

1. What is the relationship between productivity and the standard of living?

2. What is the difference between absolute advantage and comparative advantage?

3. List two factors that affect people's buying plans that lead to changes in demand (shifts in the demand curve.)

4. Did the four hurricanes in Florida in 2004 lead to a decrease in the quantity of orange juice supplied or a decrease in the supply of orange juice?

Answer 1

Q1. There is a direct relationship betweeen productivity and standard of living. Productivity is defined as output to input ratio with higher ratio implying higher efficiency while standard of living can be defined as the material well being available to the people which is necessary to sustain a happy life. Productivity is the major determinant of standard of living, with higher productivity resulting in even higher standard of living. This is because standard of living is determined by the supplybof goods and services and to supply them, first we need to produce them.

Q2. Absolute Advantage: Absolute advantage looks at the efficiency of producing a single product.It is the ability of an entity to produce higher output per unit input (higher efficiency/productivity) giving it an advantage over other competing entities.In other words, you can say the entity can produce the output with less costs.

Comparative Advantage: Comparative Advantage takes a more wholesome view with the view that the entity can produce a variety of goods. However, producing one good comes at the opportunity cost of other goods. Therefore, the entity will produce only those goods which are more profitable. In other words, the entity will produce goods which have less opportunity costs.

Q3. Factors which may shift demand curve:

Change in tastes of consumers: If over a period of time, consumer taste changes either positively or negatively will result the demand curve shifting rightwards or leftwards.

Increase in Income: Rightward shift of demand curve

Decrease in price of substitute goods: Leftward shift of demand curve

Q4. The four hurricanes in Florida resulted in decrease of orange juice supply because due to the hurricane a lot of orange trees were uprooted creating a shortage of supply.