Exam 3: Interdependence and the Gains From Trade

Assume that South Korea has a comparative advantage in televisions and India has a comparative advantage in clothes. What will happen if these two countries specialize and trade according to their comparative advantage?

Figure 3-3 Ice cream and cones are measured in kilograms. -Refer to Figure 3-3. For Jerry, what is the opportunity cost of 1 kg of cones?

Figure 3-3 Ice cream and cones are measured in kilograms. -Refer to Figure 3-3. What does each of the two producers have an absolute advantage in?

Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 70 bushels of corn for 30 bushels of wheat, would he be better off or worse off?

-Refer to Table 3-1. What does each producer have an absolute or comparative advantage in?

-Refer to Table 3-3. What does each of the two producers have a comparative advantage in?

Suppose it takes a Chinese worker 2 hours to produce a ceramic pot, and 20 hours to produce a tablecloth. Suppose that it takes a Canadian worker 2 hours to produce a ceramic pot and 10 hours to produce a tablecloth. It will benefit China to produce extra pots and export them to Canada in return for imported Canadian tablecloths.

Figure 3-3 Ice cream and cones are measured in kilograms. -Refer to Figure 3-3. For Ben, what is the opportunity cost of 1 kg of ice cream?

Figure 3-2 -Refer to Figure 3-2. What do the two producers have an absolute or comparative advantage in?

-Refer to the table. Who has a comparative advantage in the production of each good?

Suppose labour in Belize is less productive than labour in Canada. What can we conclude from this information?

Figure 3-4 -Refer to Figure 3-4. For Ben, what is the opportunity cost of one bottle of beer?

Which of the following could benefit Canada?

-Refer to Table 3-3. How could Maria and Courtney both benefit?

Differences in opportunity cost allow for gains from trade.

Figure 3-3 Ice cream and cones are measured in kilograms. -Refer to Figure 3-3. Suppose that Ben and Jerry have both decided to produce at point A on their production possibilities frontiers. What can we infer from this information?

Figure 3-5 These graphs illustrate the production possibilities available for dancing shoes to Fred and Ginger with 40 hours of labour. -Refer to Figure 3-5. If Fred and Ginger both specialize in the good in which they have a comparative advantage, what would the total production be?

Figure 3-2 -Refer to Figure 3-2. What is the opportunity cost of 1 bushel of wheat for Cliff?

Figure 3-6 These figures illustrate the production possibilities available to Barney and Betty with eight hours of labour in their bakery. -Refer to Figure 3-6. What is the opportunity cost of one loaf of bread for Barney?

-Refer to Table 3-1. What is the opportunity cost of 1 kg of potatoes for the rancher?