Exam 3: Interdependence and the Gains From Trade

-Refer to Table 3-5. If Denmark and Italy specialize and trade according to their respective comparative advantage, who gains in the short run in Denmark?

What is the opportunity cost of an item?

Trade is based on absolute advantage.

What are exports?

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

What are imports?

-Refer to Table 3-3. What is the opportunity cost of one blanket for Amy?

Gary and Diane must prepare a presentation for their marketing class. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Gary 10 hours to do the required calculations and 10 hours to prepare the slides. It would take Diane 12 hours to do the calculations and 20 hours to prepare the slides. a. How much time would it take the two to complete the project if they divide the calculations equally and the slides equally? b. How much time would it take the two to complete the project if they use comparative advantage and specialize in calculating or preparing slides? c. If Diane and Gary have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

-Refer to Table 3-5. Which country has a comparative advantage in each product?

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. If Barney and Betty both specialize in the good in which they have a comparative advantage, what would the total production be?

Why does total output in an economy increase when each person specializes?

How is absolute advantage found?

As long as two people have different opportunity costs, each can gain from trade by being able to obtain a good at a price lower than his or her opportunity cost.

-Refer to Table 3-1. What does each producer have an absolute or comparative advantage in?

Figure 3-4 -Refer to Figure 3-4. Suppose Ben and Jerry both spend half their time producing beer and half their time producing wine. How much wine and beer does each produce?

How does trade benefit the two parties involved?

According to Adam Smith, what should a person never attempt to make at home?

What is the term for a good that is produced abroad and sold domestically?

-Refer to Table 3-1. What is the opportunity cost of 1 kg of meat for the rancher?

-Refer to Table 3-5. Which country has an absolute or comparative advantage in each product?