Exam 3: Interdependence and the Gains From Trade

Figure 3-5 These graphs illustrate the production possibilities available for dancing shoes to Fred and Ginger with 40 hours of labour. -Refer to Figure 3-5. What should Fred and Ginger produce?

Figure 3-1 -Refer to Figure 3-1. Assume that Cliff and Paul were both producing wheat and corn, and each was dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in and trade 3 bushels of wheat for 3 bushels of corn. What would Cliff now be able to consume?

If there is trade, which of the following is most likely?

-Refer to Table 3-2. What does each producer have an absolute or comparative advantage in?

Figure 3-2 -Refer to Figure 3-2. Assume that both Paul and Cliff divide their time equally between the production of corn and wheat, and they do not trade. If they were the only producers of corn and wheat, what would the total production of wheat and corn be?

South Korea can produce shoes, clothes, TV sets, and computers cheaper than any other country. What would one expect South Korea to export?

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good for which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, what is each country's maximum consumption of new radios and televisions per year?

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

It takes Barbara 3 hours to make a pie and 4 hours to make a shirt. It takes Gary 2 hours to make a pie and 5 hours to make a shirt. Barbara should specialize in making shirts and Gary should specialize in making pies, then they should trade.

What is the difference between production possibilities frontiers that are bowed out and those that are linear?

The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers. a. Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A. b. If these countries choose not to trade, what would be the total world production of popcorn and peanuts? c. Now suppose that each country decides to specialize in the good in which each has a comparative advantage. By specializing, what is the total world production of each product now? d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country would receive from trade. Label these points B.

Spain and Germany can both produce fish and cars. Spain has a comparative advantage in cars, but Germany has an absolute advantage in cars. What would Germany import from Spain?

When will a production possibilities frontier be linear and not bowed out?

-Refer to the table. Who has an absolute advantage in the production of each good?

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. Then suppose that trade is initiated between the two countries, and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. What maximum amounts will Freedonia now be able to consume?

Figure 3-6 These figures illustrate the production possibilities available to Barney and Betty with eight hours of labour in their bakery. -Refer to Figure 3-6. Who has a comparative advantage in each product?

-Refer to Table 3-2. What is the opportunity cost of 1 kilogram of meat for the farmer?

Suppose that a worker in Agland can produce either 10 units of organic grain or 2 units of incense per year, and a worker in Zenland can produce either 5 units of organic grain or 15 units of incense per year. There are 10 workers in Agland and 20 workers in Zenland. Currently the two countries do not trade. Agland produces and consumes 50 units of grain and 10 units of incense per year. Zenland produces and consumes 100 units of grain and no incense per year. The combined output of the two countries is therefore 150 units of grain and 10 units of incense per year. If the two countries decided to trade and completely specialize in producing the good for which each has a comparative advantage, what would the combined yearly output of the two countries be?

A rancher can produce only beef, while a farmer can produce only potatoes. If the rancher and the farmer like both foods, which of the following is most likely?

-Refer to Table 3-5. What is the opportunity cost of one unit of bread in Denmark?