Exam 3: Interdependence and the Gains From Trade

Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than to buy.

The principle of comparative advantage states that,regardless of the price at which trade takes place,everyone will benefit from trade if they specialize in the production of the good for which they have a comparative advantage.

Figure 3-2 Peru's Production Possibilities Frontier -Refer to Figure 3-2.Suppose Peru decides to increase its production of rubies by 30.What is the opportunity cost of this decision?

Which of the following is not correct?

Regan grows flowers and makes ceramic vases.Jayson also grows flowers and makes ceramic vases,but Regan is better at producing both goods.In this case,trade could

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year,and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year.Each nation has 10 workers.Without trade,Freedonia produces and consumes 30 units of corn and 10 units of wheat per year.Sylvania produces and consumes 10 units of corn and 30 units of wheat.Suppose that trade is then initiated between the two countries,and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat.Sylvania will now be able to consume a maximum of

Table 3-2 Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. -Refer to Table 3-2.At which of the following prices would both Aruba and Iceland gain from trade with each other?

Figure 3-8 Chile’s Production Possibilities Frontier Colombia’s Production Possibilities Frontier -Refer to Figure 3-8.Colombia would incur an opportunity cost of 24 pounds of coffee if it increased its production of soybeans by

Trade allows a country to consume outside its production possibilities frontier.

Table 3-12 -Refer to Table 3-1.Relative to the rancher,the farmer has a comparative advantage in the production of

Jennifer takes 2 hours to make a loaf of bread and 1 hour to make a dozen cookies.Janet takes 3 hours to make a loaf of bread and 3/4 hours to make a dozen cookies.Who,if either,has an absolute advantage baking bread? Who,if either,has an absolute advantage making cookies?

Table 3-4 Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate. -Refer to Table 3-4.The rancher has an absolute advantage in the production of

Figure 3-7 Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier -Refer to Figure 3-7.The opportunity cost of 1 bowl for Juba is

Table 3-7 Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate. -Refer to Table 3-7.Korea has an absolute advantage in the production of

Table 3-4 -Refer to Table 3-4.Denmark's opportunity cost of producing 1dozen eggs is

Table 3-2 Assume that England and Holland can switch between producing milk and oats at a constant rate. -Refer to Table 3-2.We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for Holland.If we were to do this,measuring milk along the horizontal axis,then

Figure 3-7 Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier -Refer to Figure 3-7.Bintu has an absolute advantage in the production of

For international trade to benefit a country,it must benefit all citizens of that country.

Table 3-17 US and French Production Opportunities -Refer to Table 3-17 The US has a comparative advantage in the production of

Suppose that the country of Xenophobia chose to isolate itself from the rest of the world.Its ruler proclaimed that Xenophobia should become self-sufficient,so it would not engage in foreign trade.From an economic perspective,this idea would