6. Explain how the natural rate of unemployment may be higher in low-income countries.

7. How does indexing wage contracts to inflation help workers?

8. Use the AD/AS model to show how increases in government spending can lead to more inflation.

9. Show, using the AD/AS model, how governments can use monetary policy to decrease the price level.

10. What do international flows of capital have to do with trade imbalances?

11. Use the demand-and-supply of foreign currency graph to determine what would happen to a small, open economy that experienced capital outflows.

14. Assume a perfectly competitive market and the exporting country is small. Using a demand and supply diagram, show the impact of increasing standards on a low-income exporter of toys. Show the tariff's impact. Is the effect on toy prices the same or different? Why is a standards policy preferred to tariffs?

15. What is the difference between a free trade association, a common market, and an economic union?

16. Why would countries promote protectionist laws, while also negotiate for freer trade internationally?

17. What might account for the dramatic increase in international trade over the past 50 years?

18. How does competition, whether domestic or foreign, harm businesses?

19. What are the gains from competition?

10. Give the three reasons that explain why the division of labor increases an economy's level of production.

11. What are three reasons to study economics?

12. What is the difference between microeconomics and macroeconomics?

13. What are examples of individual economic agents?

14. What are the three main goals of macroeconomics?

15. How did John Maynard Keynes define economics?

16. Are households primarily buyers or sellers in the goods and services market? In the labor market?

17. Are firms primarily buyers or sellers in the goods and services market? In the labor market?

18. What are the three ways that societies can organize themselves economically?

19. What is globalization? How do you think it might have affected the economy over the past decade?

Table 20.15shows how the average costs of production for semiconductors (the "chips" in computer memories) change as the quantity of semiconductors built at that factory increases.

1. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale?
2. If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors? 50,000 semiconductors? 30,000 semiconductors?
3. Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.

Quantity of SemiconductorsAverage Total Cost10,000$8 each20,000$5 each30,000$3 each40,000$2 each100,000$2 each

Table20.15r