Exam 3: Interdependence and the Gains From Trade

The principle of comparative advantage was developed by:

Table 3-2 Labour hours needed to produce one unit of: Amount produced in 60 hours: Butter (kg) Butter (kg Rice (kg) Rice (kg) Lee 6 10 15 4 John 3 20 15 4 -According to Table 3-2:

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:

Graph 3-2 These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour. -Refer to Graph 3-2.The opportunity cost of one coffee for Amy is:

If two countries have identical opportunity costs, then:

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 3-3 Hours needed to make one unit of: Amount produced in 2400 hours: Cars Aeroplanes Cars Aeroplanes US 40 160 60 15 Europe 50 150 48 16 -According to Table 3-3:

Table 3-3 Hours needed to make one unit of: Amount produced in 2400 hours: Cars Aeroplanes Cars Aeroplanes US 40 160 60 15 Europe 50 150 48 16 -Refer to Table 3-3.The opportunity cost of one car for Europe is:

Table 3-4 Labour hours needed to make one unit of: Amount Produced in 40 hours: Cheese Bread Cheese Bread England 3 2 13.3 20 Spain 1 5 40 8 -Refer to Table 3-4.If England imports cheese from Spain, who will benefit and who will lose?

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:

Trade is based on:

Explain the difference between absolute advantage and comparative advantage.

Graph 3-2 These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour. -According to Graph 3-2:

Table 3-3 Hours needed to make one unit of: Amount produced in 2400 hours: Cars Aeroplanes Cars Aeroplanes US 40 160 60 15 Europe 50 150 48 16 -According to Table 3-3, the US and Europe could benefit by specialising in _____ respectively.

What roles were played by Adam Smith and David Ricardo in developing the idea that trade is beneficial?

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

Trade allows a country to pivot outwards its production possibilities frontier.

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.

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

Table 3-3 Hours needed to make one unit of: Amount produced in 2400 hours: Cars Aeroplanes Cars Aeroplanes US 40 160 60 15 Europe 50 150 48 16 -Refer to Table 3-3.If Europe and the US trade according to the principle of comparative advantage: