Exam 3: Interdependence and the Gains From Trade

Suppose that a worker in Boatland can produce either 5 units of wheat or 20 units of fish per year, and a worker in Farmland can produce either 20 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland. As a result, Boatland produces and consumes 25 units of wheat and 100 units of fish per year while Farmland produces and consumes 100 units of wheat and 25 units of fish per year. If the political pressure was overcome and trade was to occur, each country would completely specialize in the product for which it has a comparative advantage. If trade were to occur, by how much would the combined output of the two countries increase?

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

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

Which of the following does trade NOT allow for?

Both Canada and the U.S. can produce equally tasty maple syrup. What determines which country will export maple syrup?

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

When can a country's consumption possibilities frontier be outside its production possibilities frontier?

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

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

Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 70 bushels of corn for 30 bushels of wheat, would he be better off or worse off?

If it takes Canadian workers fewer hours to produce every good than it takes German workers, Canada cannot gain from trade with Germany.

The producer who has the smaller opportunity cost of producing a good is said to have an absolute advantage in producing that good.

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. What would happen to the production of corn?

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. Who has a comparative advantage in each good?

-Refer to Table 3-6. What is the opportunity cost of one unit of cheese in Denmark?

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

Suppose a gardener produces both green beans and corn in her garden. If she must give up 15 bushels of corn to get 5 bushels of green beans, what is the opportunity cost of 1 bushel of green beans?

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 2/3 bushel of green beans, what is the opportunity cost of 1 bushel of green beans?

Which of the following do economists generally support?

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