Exam 2: The Power of Trade and Comparative Advantage

Use the following to answer questions: Figure: Countries A and B -(Figure: Countries A and B) Refer to the figure regarding countries A and B. If both countries fully allocate all of their labor toward the good in which they have a comparative advantage, the combined production for the two countries would be _______ units of Good X, and _______ units of Good Y.

Use the following to answer questions: Table: Production Possibilities for the United States and Mexico Corn (millions of tons) Potatoes (millions of tons) United States 50 10 Mexico 40 5 -(Table: Production Possibilities for the United States and Mexico) Using the table on production possibilities for the United States and Mexico, assume each country specializes in the good for which it has a comparative advantage. Which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.)

Specialization and trade can _____ the per-unit cost of production because _____ .

The production possibility frontier shows:

The basic idea of trade is to buy the things you could only make at a high opportunity cost, and sell the things you can make at a low opportunity cost.

The real cost of producing a good is:

Use the following to answer questions: Figure: Countries A and B -(Figure: Countries A and B) Refer to the figure. According to the diagram about countries A and B, which of the following statement(s) is correct? I. Country A has a comparative advantage in Good Y. II. Country B has an absolute advantage in both goods. III. Country B has a comparative advantage in Good X.

When using a production possibilities frontier (PPF), a trade-off is demonstrated by:

Use the following to answer questions: Figure: PPF Mexico & United States -(Figure: PPF Mexico & United States) Use the above figure in which both Mexico and the United States each have 24 units of labor. Mexico has a comparative advantage in ______ and the United States has a comparative advantage in ______.

U.S. pharmaceutical companies sell drugs to Kenya, and Kenyan farmers sell flowers to the U.S. This pattern of trade suggests that the U.S. is the low-opportunity-cost producer of drugs and Kenya is the low-opportunity-cost producer of flowers.

Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?

Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true?

Brazil can produce one unit of sugar cane for one unit of labor and one iPod for eight units of labor, and China can produce one unit of sugar cane for two units of labor and one iPod for four units of labor. What are each country's opportunity costs of producing iPods?

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. From these numbers, we infer that Conan has a comparative advantage in the production of:

Which of the following statements is TRUE? I. Compared with a modern economy, the division of knowledge is greater in a primitive economy because every family is self-sufficient: growing their own food, making their own clothes, and constructing their own shelter. II. Nobody understands the entire process of producing even the simplest products, like a lead pencil, in a modern economy. III. The collapse of communism and the opening of the Chinese economy to the rest of the world have increased the division of knowledge, leading to increased world output.

When economists say that an individual or country has the comparative advantage in the production of a good, it means that they:

The human brain has no limits, so the division of knowledge decreases the total knowledge in society.

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. Conan's opportunity cost of writing a single usable joke is:

Use the following to answer questions: Table: Production in the United States and Germany Labor units required to produce: One Clock One Sofa United States 2 5 Germany 3 9 -(Table: Production in the United States and Germany) According to the table, which of the following statements is true?

Each of 100 people receives a random item from a grocery store and assigns it a value between 1 (low) and 10 (high). They trade those items among themselves for items they prefer rather than those they randomly received and then assign a second value (again, 1 to 10) to the item that they end up with after the trading concludes. How would the sum of those values before trading compare with the sum after trading?