Exam 19: Interdependence and the Gains From Trade

Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why?

Draw a production possibilities frontier showing increasing opportunity cost of hammers in terms of horseshoes. a. On the graph, identify the area of feasible outcomes and the area of infeasible outcomes. b. On the graph, label a point that is efficient and a point that is inefficient. c. On the graph, illustrate the effect of the discovery of a new vein of iron ore, a resource needed to make both horseshoes and hammers, on this economy. d. On a second graph, illustrate the effect of a new computerised assembly line in the production of hammers on this economy.

All points on a production possibilities frontier show the

Exhibit 2 -Refer to Exhibit 2. If free trade is allowed, consumer surplus is the

Busisani is a tax accountant. He receives R100 per hour doing tax returns. He can type 10 000 characters per hour into spreadsheets. He can hire an assistant who types 2 500 characters per hour into spreadsheets. Which of the following statements is true?

Tariffs and quotas cause deadweight losses because they raise the price of the imported good and cause over-production and under-consumption of the good in the importing country.

Table 1 shows the units of output a worker can produce per month in South Africa and Namibia. Fond Electranics South Africa 20 5 Narmibia 8 2 -Refer to Table 1. Which of the following statements about comparative advantage is true?

Comparative advantage, not absolute advantage, determines the decision to specialise in production.

Opponents of free trade often argue that free trade destroys domestic jobs.

Table 1 shows the units of output a worker can produce per month in South Africa and Namibia. Fond Electranics South Africa 20 5 Narmibia 8 2 -Refer to Table 1. The opportunity cost of 1 unit of electronics in Namibia is

If an economy is operating on its production possibilities frontier, it must be using its resources efficiently.

Table 1 shows the units of output a worker can produce per month in South Africa and Namibia. Fond Electranics South Africa 20 5 Narmibia 8 2 -Refer to Table 1. The opportunity cost of 1 unit of food in South Africa is

Exhibit 3 -Refer to Exhibit 3. If free trade is allowed, consumer surplus is the

Use the graph to answer the following questions about music album downloads. $\text { R22 }$ a. What is the equilibrium price of music album downloads before trade? b. What is the equilibrium quantity of music album downloads before trade? c. What is the price of music album downloads after trade is allowed? d. What is the quantity of music album downloads exported after trade is allowed? e. What is the amount of consumer surplus before trade? f. What is the amount of consumer surplus after trade? g. What is the amount of producer surplus before trade? h. What is the amount of producer surplus after trade? i. What is the amount of total surplus before trade? j. What is the amount of total surplus after trade? k. What is the change in total surplus because of trade?

Economic growth is depicted by a

When a country allows trade and exports a good,

Which of the following statements is true?

Opportunity costs change as an economy moves along its production possibilities frontier because