Exam 2: The Power of Trade and Comparative Advantage

Specialization in its comparative advantage and trading with other nations benefits a country in terms of its total output, but not individuals when it comes to their wages.

The trade networks of the Roman Empire:

Everyone, from the most to the least skilled to the most and least educated, can benefit from trade.

Use the following to answer questions: Figure: PPF Mexico & United States -(Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one computer are:

If it was impossible to have a comparative advantage, there would be no gains from trade.

Brazil and Canada trade two goods: bananas and ice pops. Brazil has a comparative advantage in banana production. This means that:

A country has a comparative advantage in a good if:

As trade becomes more extensive, it slows down the creation of new ideas because fewer people can specialize in areas like science and engineering.

Utilizing comparative advantage can best be exemplified as:

Both Maria and Jorge bake cookies and bread, but Maria spends less time baking each batch of cookies and each loaf of bread than Jorge does. Which of the following is TRUE?

What are the three major benefits of trade? Explain briefly.

Suppose a country without any international trade opens its borders to international trade. After specialization how will its location on its production possibility frontier change?

Gains from trade are largest when two parties are similar in terms of preferences.

Use the following to answer questions: Figure: Computers and Books -(Figure: Computers and Books) According to the figure, if country A produces only the good for which it has a comparative advantage and then consumes the other good by exchanging computers for books, then:

Jack and Jill work at a bakery. In one hour, Jack can decorate either 5 ice-cream cakes or 2 wedding cakes. In one hour, Jill can decorate either 4 ice-cream cakes or 1 wedding cake. Thus, the opportunity cost of decorating an ice-cream cake is _____ for Jack and _____ for Jill.

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. The opportunity cost of producing Good X in Country A is _____ and in Country B it is _____ meaning that Country _____ should specialize in producing Good X and Country _____ in Good Y.

The United States and the European Union are groups of semi-independent states that have come together under an agreement whereby resources can travel freely across borders and a common currency is in use. Which of the following statements best explains how this allows for the achievement of economies of scale?

In a two-country world of Japan and South Korea, suppose Japan can produce 600 radios or 300 TV sets in one day with all its available resources, while South Korea can produce 100 radios or 200 TV sets in one day with all its available resources. According to the theory of comparative advantage, what would be the possible gain in this world if the two countries specialize and trade with each other?

Anita can bake 10 cakes in a day, but has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John makes equally delicious cakes and cookies but can only make 7 cakes or 100 cookies in a day. Based on this information, which of the following statements is TRUE?

When countries produce those goods for which they have a comparative advantage: