Exam 3: Interdependence and the Gains From Trade

The principle of comparative advantage was developed by:

Table 3-3 -Refer to Table 3-3. The opportunity cost of one car for Europe is:

A country's consumption possibilities frontier can be moved outside its production possibilities frontier:

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

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

A butcher can produce only sausages, and a farmer can produce only potato chips. The butcher and the farmer like both foods. They:

Table 3-4 -According to Table 3-4, if England and Spain do not trade:

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

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

The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.

Jack and Catherine have a cooperative project that must be completed for a business class. The project involves doing a series of calculations and writing a report. It would take Jack 10 hours to do the required calculation and 10 hours to write the report. It would take Catherine 12 hours to do the calculations and 20 hours to write the report. a. How much time would it take the two to complete the project if they divide the calculations equally and the writing equally? b. How much time would it take the two to complete the project if they use comparative advantage and specialise in calculating or writing? c. If Catherine and Jack have the same opportunity cost of $5 per hour, is there a better solution than for each to specialise in calculating or writing?

Table 3-4 -Refer to Table 3-4. If England imports cheese from Spain, who will benefit and who will lose?

People's motivation to trade comes from the goods or services they expect to get in return.

The conclusions of Adam Smith and David Ricardo on the gains from trade are no longer valid due to the increase of barriers to trade.

Graph 3-1 These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour. -According to Graph 3-1:

Spain can produce everything more cheaply than France. What should they do?

Table 3-4 -Refer to Table 3-4. The opportunity cost of one unit of bread in Spain is:

The principle of absolute advantage explains the gains from trade and why economic interdependence occurs.

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 Robinson Crusoe, the opportunity cost of 1 kg of coconuts is:

Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes while his housemate John can cook dinner in 15 minutes and wash the laundry in 30 minutes. How should they allocate their work?