Exam 3: Interdependence and the Gains From Trade

Figure 3-1 -Refer to Figure 3-1. What do the two producers have an absolute advantage in?

-Refer to Table 3-5. If Japan and Canada open up trade based on the principle of comparative advantage, who loses in the short term in Japan?

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

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 Ginger and Fred specialize in?

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

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

Figure 3-3 Ice cream and cones are measured in kilograms. -Refer to Figure 3-3. For Ben, what is the opportunity cost of 1 kg of cones?

Figure 3-4 -Refer to Figure 3-4. What does each of the two producers have a comparative advantage in?

Shawn can produce donuts at a lower opportunity cost than Sue. Who has an absolute or a comparative advantage in the production of donuts?

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

-Refer to Table 3-5. What is the opportunity cost of one car for Canada?

-Refer to Table 3-3. What does each of the two producers have an absolute advantage in?

-Refer to the table. What is the opportunity cost of one birdhouse for Manitoba?

-Refer to Table 3-5. If Denmark and Italy trade based on the principle of comparative advantage, which country will export or import each product?

What does comparative advantage reflect?

Figure 3-1 -Refer to Figure 3-1. 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?

Figure 3-2 -Refer to Figure 3-2. Assume that Cliff and Paul were both producing wheat and corn, and both were dividing their time equally between the two. Then they decide to specialize in the product for which they have a comparative advantage and trade 3 bushels of wheat for 3 bushels of corn. What would Cliff now be able to consume?

-Refer to the table. If Alberta and Manitoba trade based on the principle of comparative advantage, what will happen?

Suppose that a worker in Freedonia can produce either 6 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 6 units of wheat per year. Each nation has 10 workers. For many years the two countries traded, each completely specializing in producing the grain for which it has a comparative advantage. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 30 units of wheat. By how much has the combined yearly output of the two countries declined?

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 50 bushels of corn and 500 bushels of oats. Combined output for the two countries would therefore be 450 bushels of corn and 600 bushels of oats. If the two countries do trade, each will completely specialize in producing the crop for which it has a comparative advantage. If trade occurs, by what amount will the combined output for the two countries increase?