Exam 3: Interdependence and the Gains From Trade

Figure 3-2 -Refer to Figure 3-2. If Paul divides his time equally between corn and wheat, what will he be able to produce?

What is the difference between production possibilities frontiers that are bowed out and those that are linear?

-Refer to the table. If Summer and Winter (assumed to be provinces) trade based on the principle of comparative advantage, what will happen?

-Refer to the table. If Summer and Winter trade based on the principle of comparative advantage, what will be exported?

Dave can make a birdhouse in two hours. He can make a bird feeder in two hours. The opportunity cost to Dave of making a birdhouse is 1/2 bird feeder.

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 5 televisions per year. Each nation has 100 workers. If Radioland trades 100 televisions to Teeveeland in exchange for 100 radios each year, what is the impact on each country's maximum consumption of new radios and televisions per year?

Adam Smith developed the theory of comparative advantage as we know it today.

-Refer to Table 3-2. What is the opportunity cost of 1 kilogram of potatoes for the rancher?

What is comparative advantage based on?

-Refer to the table. Who has an absolute advantage in the production of each good?

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. What should Ginger and Fred specialize in?

Mark is a computer company executive and earns $200 per hour managing the company and promoting its products. His daughter Regan is a high school student and earns $12 per hour helping her grandmother on the farm. Mark's computer is broken. He can repair it himself in one hour. Regan can repair it in 10 hours. Mark has a comparative advantage repairing the computer.

Which statement does NOT accurately outline an implication of our model of trade?

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. If Barney and Betty both specialize in the good in which they have a comparative advantage, what would the total production be?

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. What is the opportunity cost of one pair of ballet slippers for Fred?

When each person specializes in producing the good for which he or she has a comparative advantage, each person can gain from trade but total production in the economy is unchanged.

Antonio and Elyse are two woodworkers who both make kitchen cabinets and bathroom vanities. In one month, Antonio can make 12 kitchen cabinets or 36 bathroom vanities, where Elyse can make 10 kitchen cabinets or 50 bathroom vanities. What is the opportunity cost of 1 bathroom vanity?

-Refer to Table 3-6. Which country has a comparative advantage in each product?

Suppose that a worker in Boatland can produce either 5 units of wheat or 20 units of fish per year, and a worker in Farmland can produce either 20 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland. As a result, Boatland produces and consumes 25 units of wheat and 100 units of fish per year while Farmland produces and consumes 100 units of wheat and 25 units of fish per year. If the political pressure was overcome and trade was to occur, each country would completely specialize in the product for which it has a comparative advantage. If trade were to occur, by how much would the combined output of the two countries increase?

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. What does each of the two producers have an absolute advantage in?