Exam 3: Interdependence and the Gains From Trade

a. Neverland imports 60 per cent of its beef. What does this say about Neverland's ability to produce beef compared to other countries? b. Imports of beef into Neverland have been falling over the last 10 years, and forecasts suggest that within another five years Neverland will become an exporter of beef. What does this say about Neverland's changing comparative advantage/disadvantage in producing beef?

A Korean worker can produce 10 cars per month or grow 1500 kg of wheat per month and an American worker can produce four cars or 1700 kg of rice per month. Korea and the US can both gain if Korea makes more cars and exports them to the US in exchange for imports of increased output of Australian rice.

Graph 3-1 These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour. -Refer to Graph 3-1. For Friday, the opportunity cost of 1 kg of coconuts is:

Comparative advantage will always occur when two parties have different opportunity costs in production.

Table 3-2 -According to Table 3-2:

A constant trade-off in the production of two goods implies that the production possibility frontier will be a curve rather than a straight line.

David Ricardo developed the theory of imports and exports, as we know them today.

Shaquille can score 32 points or produce 12 rebounds in one game. Karl can score three points or produce one rebound in one game. Shaquille has both an absolute and a comparative advantage in both scoring and rebounding.

Graph 3-1 These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour. -Refer to Table 3-1. For the cattle farmer, the opportunity cost of one kg of potatoes is:

Rusty can edit two pages in one minute, and can type 80 words in one minute. Emily can edit one page in one minute and can type 100 words in one minute. Rusty has both an absolute and a comparative advantage in editing and Emily has both an absolute and a comparative advantage in typing.

Comparative advantage is based on:

John can milk 20 cows or feed 40 calves in one hour. Jared can milk 10 cows or feed 50 calves in one hour. a. Who has the absolute advantage in milking cows? Who has the absolute advantage in feeding calves? b. Who has the comparative advantage in milking cows? Who has the comparative advantage in feeding calves? c. If John and Jared, who have been dividing their time equally between milking and feeding, each specialise in the activity in which they have a comparative advantage, how many additional cows can be milked and calves fed per hour?

Table 3-2 -Refer to Table 3-2. The opportunity cost of 1 kg of butter for John is:

As long as two people have different opportunity costs, each can gain from trade by being able to obtain a good at a price lower than his or her opportunity cost.

A person is able to obtain goods at prices that are less than that person's opportunity cost because each person concentrates on the activity for which he or she has the lower opportunity cost.

The central argument for free trade has changed a lot in the past two centuries.

Explain the difference between absolute advantage and comparative advantage.

Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.

If capital in China is less productive than capital in Australia in agricultural production:

Table 3-4 -Refer to Table 3-4. If England reduced the labour hours needed for it to produce cheese by 2.5 hours, it would: