Exam 3: Interdependence and the Gains From Trade

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, what is the opportunity cost of 1 bushel of green beans?

What does comparative advantage reflect?

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

Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns and why?

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. Who has an absolute advantage in each product?

For two people who are planning to trade two different goods, when will there NOT be a comparative advantage for either?

-Refer to Table 3-5. What is the opportunity cost of one car for Canada?

Figure 3-2 -Refer to Figure 3-2. Assume that Cliff and Paul were both producing wheat and corn, and both were dividing their time equally between the two. Then they decide to specialize in the product for which they have a comparative advantage. What would happen to the production of corn?

-Refer to Table 3-5. If Canada and Japan trade based on the principle of comparative advantage, what could Japan gain from importing an airplane?

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good for which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, what is each country's maximum consumption of new radios and televisions per year?

-Refer to Table 3-2. How could the farmer and rancher both benefit?

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 consumption be?

Suppose a producer requires a smaller quantity of inputs to produce carrots than to produce onions. Is this information sufficient to determine in which good the producer has a comparative advantage?

Why does total output in an economy increase when each person specializes?

-Refer to the table. What is the opportunity cost of one beach ball for Summer?

What is David Ricardo known for?

What is trade based on?

-Refer to Table 3-6. What is the opportunity cost of one unit of bread in Denmark?

Suppose that a worker in Freedonia can produce either 6 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 6 units of wheat per year. Each nation has 10 workers. For many years the two countries traded, each completely specializing in producing the grain for which it has a comparative advantage. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 30 units of wheat. By how much has the combined yearly output of the two countries declined?

Cole and Tashonna must prepare a presentation for their marketing class. As part of their presentation, they must do a series of calculations and prepare 20 PowerPoint slides. It would take Cole 5 hours to do the required calculations and 5 hours to prepare the slides. It would take Tashonna 6 hours to do the calculations and 10 hours to prepare the slides. a. How much time would it take the two to complete the project if they divide the calculations equally and the slides equally? b. How much time would it take the two to complete the project if they use comparative advantage and specialize in calculating or preparing slides? c. If Tashonna and Cole have the same opportunity cost of $10 per hour, is there a better solution than for each to specialize in calculating or preparing slides?