Exam 3: Interdependence and the Gains From Trade

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

Table 3-13 -Refer to Table 3-13. What is Russia's opportunity cost of one radio?

Unless two people who are producing two goods have exactly the same opportunity costs, then one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good.

Figure 3-5 -Refer to Figure 3-5. Suppose Peru decides to increase its production of emeralds by 3. What is the opportunity cost of this decision?

International trade can make some individuals within a country worse off, even as it makes the country as a whole better off.

It takes Anne 3 hours to make a pie and 4 hours to make a shirt. It takes Mary 2 hours to make a pie and 5 hours to make a shirt. Anne should specialize in making shirts and Mary should specialize in making pies, and they should trade.

Absolute advantage is found by comparing different producers'

International trade may make some individuals in a nation better off, while other individuals are made worse off.

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

For both parties to gain from trade, the price at which they trade must lie exactly in the middle of the two opportunity costs.

Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both gain from the exchange. We can conclude that, for Barney, the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.

Figure 3-1 Graph (a) Graph (b) -Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches is constant in

Table 3-11 Assume that Bahamas and Denmark can switch between producing coolers and producing radios at a constant rate. ​ ​ -Refer to Table 3-11. Assume that Bahamas and Denmark each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of radios increased by

Figure 3-7 Mary's Production Possibilities Frontier Kate's Production Possibilities Frontier ​ -Refer to Figure 3-7. If Mary and Kate trade foods with each other, who will trade away muffins in exchange for cookies?

A professor spends 8 hours per day giving lectures and writing papers. For the professor, a graph that shows his various possible mixes of output (lectures given per day and papers written per day) is called his

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

Trade can make everybody better off because it

If a country has the comparative advantage in producing a product, then that country must also have the absolute advantage in producing that product.

Mark can produce 24 footballs or 48 basketballs in 8 hours. Maria can produce 64 basketballs in 8 hours. In order for Maria to have a comparative advantage producing basketballs, the number of footballs she can produce in 8 hours has to be less than _____.

Under what conditions is an economy's production possibilities frontier also its consumption possibilities frontier?