Exam 3: Interdependence and the Gains From 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:

Two individuals or two nations can benefit from trade even if one country has an absolute advantage over the other in producing all goods.

The table below describes the production possibilities for Lee and Amy in a four-hour shift. a. What is the opportunity cost of one coffee for each person? What is the opportunity cost of one croissant? b. Who has a comparative advantage in coffees? Who has a comparative advantage in croissants? c. Who has an absolute advantage in coffees? Who has an absolute advantage in croissants? d. Who should produce coffees? Who should produce croissants?

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

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 potato farmer, the opportunity cost of 1 kg of meat is:

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

Table 3-3 -Refer to Table 3-3. The opportunity cost of one aeroplane for the US is:

Adam Smith discusses that countries should be self-sufficient in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

In order to have a linear production possibilities frontier (one that is not bowed out), it must be that:

Differences in opportunity cost and comparative advantage allow for gains from trade.

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

In one day, Daniel can catch 10 frogs or 5 birds that are eating the crops on his farm. Miles can catch 20 frogs or 2 birds. a. What is Daniel's opportunity cost of catching a bird? What is Miles' opportunity cost of catching a bird? b. Who has comparative advantage in catching frogs? Birds? c. The two farmers decide that Daniel will catch 2 birds for Miles if Miles catches 40 frogs in return. Who is gaining from this specialisation and trade? d. If Miles hones his bird catching skills and can now catch 5 birds in an hour, have the farmers' advantages changed?

Which of the following is correct?

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

Suppose Aaron can build a table in three days and clean a house in one hour, while Jack can clean a house in three hours but it only takes him one day to build a table. Jack has an absolute advantage over Aaron.

Table 3-3 -Refer to Table 3-3. If the US and Europe trade according to the principle of comparative advantage, the US will export what product to Europe?

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 potato farmer, the opportunity cost of 1 kg of potatoes is:

Table 3-3 -Refer to Table 3-3. If Europe and the US trade according to the principle of comparative advantage:

If trade is not possible, then each person's production possibility frontier is the same as each person's consumption possibility frontier.

David Ricardo was the author of: