Exam 3: Interdependence and the Gains From Trade

​If a country has a higher opportunity cost to produce a good, that means that this country can never possess a comparative advantage in the production of any good.

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 cookie?

For a self-sufficient producer, the production possibilities frontier

Specialization and trade can make everyone better off if a person can obtain goods at prices that are less than that person's opportunity cost.

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 1 radios or 4 televisions per year. Each nation has 150 workers. Also, suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 50 radios to Teeveeland in exchange for 50 televisions each year, then each country's maximum consumption of new radios and televisions per year will be

The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers. Alpha's Production Possibilities Frontier Omega's Production Possibilities Frontier ​ a.Assume that each country decides to use half of its resources in the production of each good.Show these points on the graphs for each country as point A. b.If these countries choose not to trade, what would be the total world production of popcorn and peanuts? c.Now suppose that each country decides to specialize in the good in which each has a comparative advantage.By specializing, what is the total world production of each product now? d.If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country would receive from trade.Label these points B.

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

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

To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A has an absolute advantage over Farmer B in producing wheat.

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

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 30 workers in Cornland and 30 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 600 bushels of corn and 150 bushels of oats, while Oatland will produce and consume 20 bushels of corn and 1300 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by

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

Opportunity cost refers to how many inputs a producer requires to produce a good.

When an economist points out that you and millions of other people are interdependent, she is referring to the fact that we all

Timmy can edit 2 pages in one minute and he can type 80 words in one minute. Olivia can edit 1 page in one minute and she can type 100 words in one minute. Timmy has an absolute advantage and a comparative advantage in editing, while Olivia has an absolute advantage and a comparative advantage in typing.

Define absolute advantage.

Country A and country B both produce shirts and shorts. Country B has an absolute advantage producing both shirts and shorts. Is there any condition under which the two countries could gain from trade?

Henry can make a bird house in 3 hours and he can make a bird feeder in 1 hour. The opportunity cost to Henry of making a bird house is 1/3 bird feeder.

Table 3-13 -Refer to Table 3-13. Which country has a comparative advantage in producing radios?

Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier?