Exam 3: Interdependence and the Gains From Trade

Total output in an economy increases when each person specializes because

Define comparative advantage.

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 8 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 coolers increased by

Interdependence among individuals and interdependence among nations are both based on the gains from trade.

In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Moira's opportunity cost of knitting scarves is lower than Tori's opportunity cost of knitting scarves.

What must be given up to obtain an item is called

The principle of comparative advantage does not provide answers to certain questions. One of those questions is

Table 3-1 Assume that Celia and John can switch between producing bread and wine at a constant rate. ​ ​ -Refer to Table 3-1. Assume that Celia and John each work 24 hours. What happens to total production if instead of each person spending 12 hours producing each good, Celia spends 21 hours producing wine and 3 hours producing bread and John spends 3 hours producing wine and 21 hours producing bread?

Figure 3-7 Mary's Production Possibilities Frontier Kate's Production Possibilities Frontier ​ -Refer to Figure 3-7. What is Mary's opportunity cost of one muffin?

Table 3-8 ​ ​ ​ -Refer to Table 3-8. If the production possibilities frontier is bowed outward, then how many coats are produced when 6 blankets are produced?

Harry is a computer company executive, earning $200 per hour managing the company and promoting its products. His daughter Quinn is a high school student, earning $6 per hour helping her grandmother on the farm. Harry's computer is broken. He can repair it himself in one hour. Quinn can repair it in 10 hours. Harry's opportunity cost of repairing the computer is lower than Quinn's.

A production possibilities frontier is bowed outward when

It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.

Scenario 3-1 ​ In country A a worker who works 40 hours can produce 200 pounds of rice or 100 pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds of rice or 120 pounds of broccoli. -Refer to Scenario 3-1. Which country, if either, has an absolute advantage producing broccoli? Defend your answer.

Table 3-2 ​ ​ ​ ​ -Refer to Table 3-2. Assume that England and France each has 40 labor hours available. If each country devotes 30 to production of pastrami and 10 to production of milk, then total production is

If a person chooses self-sufficiency, then she can only consume what she produces.

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Julia can fix a meal in 1 hour, and her opportunity cost of one hour is $50. Jacque can fix the same kind of meal in 2 hours, and his opportunity cost of one hour is $20. Will both Julia and Jacque be better off if she pays him $45 per meal to fix her meals? Explain.

Table 3-13 -Refer to Table 3-13. If the two countries decide to trade with each other, which country should specialize in producing compasses?

What does a production possibilities frontier represent?