Exam 3: Comparative Advantage and the Production Possibilities Frontier

Assume that the limits to mutually beneficial trade between the U.S. and India are 1Machine = 3Cloth and 1Machine = 5Cloth, respectively. The closer the ratio is to the U.S. ratio of 1Machine = 3Cloth, the better it is for India.

If a country does not get at least half of the benefits from trade then it should not engage in trade.

Consider the data in the following table. -Referring to the table above, the opportunity cost of producing a computer in Country B is:

Limits to mutually beneficial trade are determined by the opportunity costs of producing the two goods in each country.

Constant opportunity costs results in upward sloping supply curves and concave production possibility frontiers.

Consider the data in the following table. -Referring to the table above, when trade opens up between Countries A and B, Country A should specialize in producing:

Consider the data in the following table. -Referring to the table above, when trade opens up between Countries A and B, Country B should specialize in producing:

Consider the data in the following table. -Referring to the table above, Country B gains most from trade if a computer trades for:

In autarky, a country will maximize its standard of living when:

The terms of trade measures the relationship between the price a country receives for its exports and the price it pays for its imports.

When two countries trade, it is always true that both countries benefit by exactly the same amount.

Reciprocal demand suggests that the actual international exchange ratio at which trade takes place depends on the trading partners interacting demands.

When a production possibilities frontier is bowed out from the origin, production occurs under conditions of:

Even with international trade a country must remain inside or on its production possibilities frontier.

Consider the data in the following table. -Referring to the table above, when trade opens up between Countries A and B. Country B should specialize in producing:

If the terms of trade is between each country's opportunity costs:

based on the following information. Suppose a worker in Canada can produce either 100 skateboards or 200 jars of peanut butter per day. A worker in Guatemala can produce 200 skateboards or 600 jars of peanut butter per day. -Guatemala has an absolute advantage in the production of peanut butter.

A point on a country's production possibilities frontier indicates:

Small countries tend to benefit more from trade because their demand for products from large countries would tend to be lower than the large country's demand for their products.

Consider the data in the following table. -Referring to the table above, which of the following would be a mutually acceptable terms of trade: 1 computer for: