2 Production, income and trade

Student book solution manual

Put yourself in the situation

1. Explain the concept of opportunity cost using as an example the

cannons and the butter.

Whoever commits their resources to the production of cannons could not do so in the
butter production and vice versa, although they can also be adopted
intermediate solutions production of both goods.

2. Why, in terms of trade, is it indifferent for a territory to decide

to dedicate oneself to the production of cannons or butter?

In terms of trade, it matters little to produce cannons than butter. Whoever

producing the first one, you will be able to exchange it for the second one in the international market and
vice versa.

3. What is your opinion on developed countries, including Spain, being

the main arms exporters?

Open response. It is about the students reflecting on this type of

issues.

Activities
1. Why can't economic models represent exactly
the reality?
Economic models cannot exactly represent reality because, in
ultimately, they depend on human behavior, which is always somewhat
degree, unpredictable. That is why the models try to represent reality of
a simplified form, focusing only on the most important factors, and
putting aside those who have less influence on the phenomenon
economic that is intended to be interpreted.

2. Ultimately, who does the normative economy that governs depend on?
Economic life of a country? Why?
Economic decisions are made by citizens through the politicians who
we choose to represent us in public institutions. The subject of all

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economic decision and, therefore, of normative economics, always corresponds to the

public powers empowered by society. The main one, due to the scope of the
decisions, it would be the national government.

3. How does the PPF represent the concept of opportunity cost of a

economy?
The production possibility frontier (PPF) reflects the maximum quantities of
goods and services that a society is capable of producing in a given period
over time based on certain productive resources and given technology. And as each time
that a country uses scarce resources in the production of a good, renounces to the
possible alternatives the opportunity cost is present.

4. Create a production possibilities frontier that expresses the amount

of meters that you can run and French tortillas that you can cook in one
Hour. Try to make the values realistic!

Cooperative work activity

A realistic FPP could be the one corresponding to these data. It can be observed that the
the curve has a concave shape and responds to the principle of marginal returns
decreasing.
Tortillas 0 2 4 5 6
Subways 10,000 8,000 6,000 3.000 0

5. In relation to Activity resolved 1, extrapolate Elena's results in

the Z point to the economy of a country. Explain what factors you think
can cause a country like Spain, for example, not to reach its
production possibilities frontier. How could Spain achieve the
point H?
If it is difficult for individuals to reach their potential, countries, made up of
millions of people, too. There are always idle resources, such as...
bags of unemployed workers, as well as the land, machines or simply
resources not used or optimized.
Point H is an unreachable situation, meaning any combination of production,
that the country's productive capacity does not allow it to be so high.

6. How have markets changed with the development of the Internet?

With the development of the Internet, the essence of markets is maintained, but it disappears.
the market as a physical place of exchange. Costs and purchase time are saved,
the supply and variety of products increase, prices drop.

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2 Production, income, and trade

7. Why is it said that the relationship between families and businesses is circular?
It is said that the relationship between families and businesses is circular because money flows from
companies to families (for the payment of productive resources) and from families to
companies (for the payment of the goods and services produced by the companies).

8. How do you think unemployment affects the circular flow of income? Explain your reasoning.
answer.
Unemployment affects the circular flow of income in that it decreases it: if the
family members who do not work have less money to pay for goods and
services produced by the company. Companies, in turn, lose revenue and
productive capacity.

9. In relation to Activity resolved 2, respond:

a) How would the existence of a public sector affect the scheme?

b) Indicate what regulations and functions you would assign to a public sector for
improve the relationship between Emma Robles and the Mol shopping center.
a) The existence of the public sector implies the existence of certain rules that
would involve both parties. In addition, it would collect taxes.

b) Open response. It is about the student verifying to what extent they are
Necessary norms that allow economic activity to develop.
with normality: minimum wages, working hours, opening and closing times,
sanitary regulations in food, quote to Social Security to have
healthcare and a long etc.

10. Explain the difference between specialization and division of labor.

Whereas the division of labor consists of the fragmentation of an activity
productive in more elementary tasks among people based on their qualities
to improve its performance, specialization consists of the increase in the
training for a task by someone who dedicates time and exclusivity to it.

11. What is the main advantage of an autarkic (self-sufficient) country compared to

A specialist? And the main drawback?

Self-sufficient countries do not rely on others for the supply of goods and
services since they provide everything themselves. The main drawback
is that, being fewer specialists, the value of the production of their goods and services
is much lower than that of specialized countries.

12. How does interdependence between countries promote international peace?

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Interdependence promotes peace between nations to the extent that, when it does not exist
If it is minimal, there are fewer reasons to negotiate and seek lines of understanding.

13. Search on the Internet for examples of countries where a society is poor, but
equal and others from countries whose society is rich, but with high levels of
inequality.

Cooperative work activity

Open answer. Any internet search engine provides the answer. As a title of
example Algeria and Albania as poor but egalitarian societies and Puerto Rico and
Brazil as rich but unequal countries.

Economic tools
14. Spanish productivity is one of the lowest in Europe although it is one
of the countries where the most hours are worked, what does this statement mean?
in economic terms?

This means that the production or output/hours worked ratio is very low.
like in other countries. That is to say, a lot of work is done for the performance achieved.

15. Under what circumstances do you have the right to a refund for a purchase?
Two possibilities are considered:
If it is a distance sale, there is a period of 14 calendar days to
returns, counted from the delivery of your purchase, as long as the items
are in perfect condition.
For items purchased in a physical store, the right of return
it only applies if the product is in perfect condition and the store includes it in its policy
recognize that right to your customers.

16. What do you think is understood by good faith in the guarantee relationship? And by
be proactive?

Acting in good faith means: acting honestly and at the time of making a claim.
be for one of the following reasons:
• Not in proper condition for use;

Does not meet the user's needs.

Being proactive refers to taking control actively and deciding what to do.
every moment.

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Periscopes
Periscope 1. The controversial normative economics

Read carefully the following economic headlines:

Unemployment has decreased by 100,000 people in September.
Used car sales increase by 10%.
Despite the crisis, the Government raises the salaries of civil servants.
The State will raise taxes on electricity companies and banks.
Identify which of these economic headlines refer to an approach.
positive and which to a normative approach of the economy.
Busca en Internet tres noticias de economía positiva y otras tres de economía
regulations and explain why you consider they belong to those categories.

Positive.
Positive.
c) Regulation.
d) Regulation.

Regarding Internet search, the response is open. It is recommended that they be

various students who answer the question so that the difference remains clear between
both types of economy.

Periscope 2. The intervention of the public sector

Read carefully the following economic headlines:

The Government wants to reduce spending on social cafeterias.

The number of grants for business creation is increasing

c) 'The Board will lower the regional taxes.'

€3000 aid for the birth of a child

Identify whether these are measures that increase or decrease intervention.
from the public sector in the economy.
Search the Internet for three economic news articles that, in line with the previous ones,
assume a greater or lesser intervention of the public sector in the economy.

Decrease.

b) Increases.

c) Decrease.

increases.

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Open response. It is advisable to ask students for their opinion on the different
measures to promote a debate on what should be the level of intervention of the
public sector in the economy.

Periscope 3. The wage gap

In relation to the wage gap that, in turn, is related to the

gender inequality, look it up on the Internet:
What is known as the wage gap?
What has been the evolution of the wage gap in recent years?
Propose, debate, and reach consensus in class on measures to reduce the salary gap.

The wage gap between men and women is known as the existing difference.
among the salaries received by workers of both sexes, calculated on the
based on the average difference between gross income per hour of all
workers.

In 2010, the wage gap in Spain was at 17.1%. Eight years later, that
the percentage dropped to 15.7%. But the statistics improved substantially in
2019, reaching 11.9%, according to Eurostat data, which is below the
European media, which was placed at 14.1%.

-Open response. The aim is for students to engage and argue about this.
issue.

Periscope 4. Legislation in Electronic Commerce

E-commerce, or purchases made through the Internet, teleshopping or
telecommunications, carries an increasing weight, which is why there is specific legislation.
in this regard.
Identify the rights you have when you shop remotely.

Solution:

Right of withdrawal from the purchase made.

2. The guarantees related to the purchase of consumer goods.

3. The right to the protection of personal data.

4. Rights regarding the sending of advertising.

Review test

1d, 2b, 3d, 4b, 5c, 6a, 7d, 8a, 9b, 10a, 11d, 12c

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Put yourself in the situation

STEP 1

The news of Normative economics

positive economy
Provalyrian Party the King's Steps Atlantean government

(By way of example)

Prices have risen by a The disastrous management of the House of the Atlanteans makes each day Prices have only increased by 10%
10 %. It becomes more difficult to put a plate of food on the table. luxury items
Unemployment rises by 10 000 This does not happen in Valyria, territory of the house of the dragon, where it Like other years, it is completely
people. approaches full employment. seasonal rise in unemployment at this time
An agreement with Valyria and the house of the dragon would help improve the The high number of imports leads to,
Exports
trade and exports of the Steps of the King comparatively, the exports
they descend.
have been reduced

STEP 2

If the productive capacity is 100 ships for 0 dragons and the opportunity cost for
each dragon is 25 boats the resulting table is:
Dragons Ships
A 0 100
B 1 75
C 2 50
D 3 25
E 4 0

STEP 3

Implied rents
Market
Measures or operations Economic agent (mark with an X)
Valyrian implied Valyrian Goods and services/
Alq. Hi. Int.
factors of production
Mandatory sale of raw materials to
Companies Goods and services X … …
Valyrian factories
Mandatory scheduling of shifts
Workers (families) factors of production … X …
doubles by the workers
Compulsory bank deposits in
Companies factors of production … X
banks of Valyria

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Forced conscription in the army

Public sector … … … …
Valyrian.

STEP 4

Inherited rings (in this order from left to right): Arryn, Stark, Strong, Bolton.

Issues

1. For Valyria, what is the opportunity cost of raising three dragons?

The opportunity cost for each dragon is 25 ships, for 3 dragons it is 75 ships.

2. Why do the Atlanteans not find Valyria's need legitimate?

annex the King's Steps to supply their lack of resources
natural?

Because the region of the King's Steps is rich in natural resources.

3. Represent the circular flow of income in relation to trade.

iron in Valyria.

4. Identify on the Internet the Sustainable Development Goals that

would you relate to the activities of the Secret Atlantean Committee of which
you are part of.

Activity oriented towards working with SDGs

These are the 17 Objectives, based on them you will have to detail those that are present in the
committee.

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Goal 1: End poverty.

Objective 2: Hunger and food security.
Objective 3: Health.
Objective 4:Quality education.
Objective 5:Gender equality.
Objective 6:Clean water and sanitation.
Objective 7: Energy.
Objective 8: Economic growth.
Objective 9: Infrastructure.
Objective 10:Reduction of inequalities.
Objective 11:Sustainable cities and communities.
Objective 12:Responsible production and consumption.
Objective 13: Climate change.
Goal 14: Oceans.
Goal 15: Forests, desertification and biodiversity.
Goal 16:Peace, justice, and strong institutions.
Objective 17Alliances to achieve the objectives.

Exercises
The study of economics
1. What distinguishes microeconomics from macroeconomics? And economics?
positive aspect of the regulation?

Microeconomics and macroeconomics differ in that the former studies the

behavior of economic agents separately, as well as their relationships,
while the second deals with the overall result of the interaction of the agents
economic. Positive and normative economics differ in that the former deals with
from the actual data of the economy, while the second is responsible for proposing
recommendations, policies, and actions based on subjective personal judgments or in
what should be.

2. Identify which branch of economics (microeconomics or macroeconomics)

Study each of the following phenomena:
a) The rises and falls of prices.
b) The competition between companies.

c) The consumption of families.

d) The figures for unemployment and employment.

e) The decisions of the public sector.

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f) The decision of a company to raise or lower the price of one of its

products.
a) The rises and falls of prices. Macroeconomics
b) Competition between companies. Microeconomics
c) The consumption of families. Microeconomics
d) The figures for unemployment and employment. Macroeconomics

e) Decisions of the public sector. Microeconomics

f) The decision of a company to increase or decrease the price of one of its products.
Microeconomics.

3. Identify which of the following headlines are of positive economics and which are not.
of normative economics:

The number of contracts registered in Social Security is decreasing.

The price of gasoline is going up.
The stock market takes a nosedive.
The Town Hall will hire unemployed people for gardening work.
The regional government abolishes the Inheritance Tax.
The number of distribution surfaces in Spain is decreasing.
Tourism improves its figures compared to last year.
a) The number of contracts registered in Social Security decreases. Positive
b) The price of gasoline rises. Positive
c) The Stock Market takes a tumble. Positive

The city council will hire unemployed people for gardening work. Regulations.
e) The regional government abolishes the Inheritance Tax. Regulations.
f) The number of distribution surfaces in Spain decreases. Positive
g) Tourism improves its figures compared to last year. Positive

Production and its possibilities

4. What types of income do you know? And what productive factors?

Income is known by different names, depending on the productive resource that generates it:
salary, if it comes from work; rent, if it comes from natural resources; and
interest, when it has its origin in capital.
The factors of production are classified into natural resources, labor, and capital.

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5. Classify the following productive resources in their category

corresponding: oil, money, machines, wood, and crafts.
Natural resources: Oil, wood
Workforce: Craftsmanship tasks
Capital goods: Money, machines

6. What role does technology play in production?

Technology is the way in which different productive resources are combined.

7. If we compared the same company today and fifty years ago, what
What changes do you think we would see regarding productive resources?
What do you use to carry out your activity? Give an example.
Open response, to the extent that the student knows the productive activity of
20th century, especially the one before the arrival of computing. Over time, and
since the Industrial Revolution, there has been a gradual substitution of work
manual by machines, that is, substitution of the productive resource labor with
productive resource capital goods.

8. Indicate, for each of the following businesses, what factors or resources

productive resources are needed for its production.
a bakery.
a carpentry.
a supermarket.
a savings account.
An educational academy.
For this, create a table in your notebook like the one in the following table and
fill it in with your answers.

Factors of production
Earth Work Capital
Internet café Light, water Personal with Local, computers, money
knowledge
computer scientists
A bakery Flour, eggs, sugar, Bakers Local, oven, counter,
energy shelves
A carpentry Wood, energy, water Carpenters local, mountains, tools
A supermarket Energy, water Warehouse workers, Cash registers, shelves,
stock replenishers cold displays, chambers
cashiers refrigerated, warehouse
A savings box Energy, connection Personal with Local, computers, furniture
computer science, water knowledge
financial
An academy of Energy, connection Teachers, Local, computers, furniture,

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teaching informática, agua receptionist slates

9. What are the possibilities of production? How is this concept related?

with potential production?
The possibilities of production are what countries can produce.
This concept is related to potential production to the extent that it
production marks the limit of how far it is possible to go.

10. How are the production possibilities of countries increased?

The production possibilities of countries increase in two ways:
increasing the amount of available productive resources and/or improving the
technology.

11. Ecolandia is a country that employs all of its available resources to

produce two goods: airplanes and tractors. The production combinations,
measures in produced units, are those shown in the following table:

A B C D E
Airplanes 0 1 2 3 4
Tractors 2000 1500 1000 500 0

a) What is the opportunity cost of producing an airplane?

b) Graphically represent the PPF of this economy.
c) At what points on the graph does Ecolandia reach its potential production?
d) Point out any inefficient point in the graph and comment on which factors
It may obey the fact that it does not reach its potential production.
e) Explain why there are certain combinations that are unattainable and
mark them on the graph.
f) Using the PPC of this example as a reference, explain to your
scarcity of resources
opportunity cost and potential production.
a) The cost of producing an airplane is 500 tractors.
b)

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at points A, B, C, D or E.
d) A point like V represents in the previous graph a level of production that does not
it reaches potential production. This fact is explained by factors such as unemployment,
wasted resources or failures in technology.
e) Point H would be an example of an unreachable combination of goods. It is called
unreachable point because Ecolandia lacks sufficient resources to
achieve such production.
f)
Concepts represented in the FPP

Scarcity of If we concentrated all resources on production of

resources tractors, for example, we could never manufacture more than 2,000.

Cost of Fewer planes means more tractors, and vice versa.

opportunity

The production The combinations A, B, C, D or E show the maximum production

potential that Ecolandia is capable of obtaining with some resources and a
given technology, as long as it is used efficiently.

Markets and rents

12. What elements are necessary for a market to function as such?

Use the appliance market as an example to explain it where
stores, large retailers, and online businesses sell televisions or refrigerators
to consumers.
To be considered as such, a market needs three elements: buyers,
sellers and a good or service that is exchanged. By way of example and for the
TV market, the buyers are the consumers, the sellers are
stores, large surfaces and online shops. The product, and also the one that gives
the name in the market is televisions.

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13. Why are goods and services markets complementary with

regarding the markets for productive resources?
The markets for goods and services are complementary with respect to the markets.
of productive resources because one is not possible without the other. The companies
obtain their resources thanks to the markets of goods and services and these, in turn,
they provide people with the goods and services that people need.

14. Describe in your own words the circular flow of income.

Open response. It is about verifying whether the student has understood the
complementarity of functions between businesses and families. For guidance purposes, it
One could say it is a symbiosis.

15. How and why does the public sector regulate relationships and exchanges that
Are they produced between families and companies?

The public sector regulates the relationships and exchanges that take place between families and
companies to operate normally, for example, for
to safeguard families from potential abuses by companies.

Commerce and inequalities

16. Represent the following operations of Antía in the circular flow of the economy.
rent:
She is hired part-time by Hámazon SL and earns €1300.
b) Buy a mobile for €200 at the Bip store.
Received a public scholarship of 1000 €.
Pay €300 in taxes.

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17. Bartering or the direct exchange of goods for goods was for centuries the
facilitating instrument for exchanges. What advantages and disadvantages?
What does it present with respect to money?

Advantages Disadvantages
It is a form of exchange that does not Difficulty in exchanging high-value goods
the intervention of elements is needed different value.
monetary Difficulty selling today and buying tomorrow.
Difficulty finding the ideal person for
exchange.

18. What problem has specialization brought to modern societies?

The problem that the specialization of modern societies has brought is the
interdependence, the need to trade among themselves to obtain the goods that
they do not produce because they have specialized.

19. Describe with an example the process that leads to the creation of well-being.
starting from commerce, going through the division of labor, specialization
and efficiency.
Open response. By way of example and taking advantage of Adam Smith's account about
the pin workshop:
1st/ Pins are required in such a way that they are objects of commerce.
2nd/ The production process of pins is divided into differentiated tasks.
3rd/ The experience gained in performing those differentiated tasks makes it so that
workers specialize in what they are most competent at.
4th/ As a result of specialization, workers improve their skills and become more
efficient.
5th/ By being more efficient, the productivity of the workers is such that
they earn better wages. Their quality of life increases and with it their well-being.

20. How do markets and money promote the specialization of people and
companies?
Money. Being a means of payment accepted by everyone, money allows
exchange goods and services without resorting to problematic barter.
•The markets. They are known and pre-established places where buyers and
sellers carry out the exchanges.

21. How can globalization foster inequality in a society?

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This is so because by facilitating the outsourcing of cheap services and products, the
globalization is capable of creating prosperity anywhere in the world, but when
at the same time, it increases inequalities within countries between those who know
to take advantage of the benefits of globalization and those who do not.

22. Give an example that clearly illustrates the difference between poverty and inequality.

Open answer. Ideally, it would be done through examples like those of the countries.
For example, Europe is less unequal than the United States because there is less
concentration of wealth, that is to say, wealth is more distributed. In contrast, the
Poverty is the scarcity of resources.

In countries where there are no wealth redistribution instruments

from the corresponding public administrations there is more
inequality. Why do you think it is this way?

In poor countries, it is more difficult for the benefits of globalization to reach the
set of society due to the lack of efficiency of the mechanisms
distributors of income.

24. Explain why you think more social conflicts arise or growth
Economic growth is lower in countries where there are greater inequalities.

Inequalities create tensions between different levels of society that create

conflicts and incidents lead to lower production or productivity (less growth)
economic).

25. Point out the cause you believe most influences inequalities and debate.
your response to a classmate who has chosen another one.

Cooperative work activity

Open response. It is about the students reflecting, arguing, and debating on

class on the different causes.

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