Exam 3: Interdependence and the Gains From Trade

Rusty can edit two pages in one minute, and can type 80 words in one minute. Emily can edit one page in one minute, and can type 100 words in one minute. Rusty has an absolute and comparative advantage in editing, and Emily has an absolute and comparative advantage in typing.

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 an absolute advantage in each product?

Who developed the principle of comparative advantage?

What is David Ricardo's contribution?

What did Adam Smith believe about 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. If Fred and Ginger both specialize in the good in which they have a comparative advantage, what would the total consumption be?

Using all available resources, if a farmer can produce either 65 cantaloupes or 70 watermelons, what is the opportunity cost of 1 cantaloupe to the farmer?

Suppose it takes a Chinese worker 2 hours to produce a ceramic pot, and 20 hours to produce a tablecloth. Suppose that it takes a Canadian worker 2 hours to produce a ceramic pot and 10 hours to produce a tablecloth. It will benefit China to produce extra pots and export them to Canada in return for imported Canadian tablecloths.

Which of the following could benefit Canada?

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

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

Figure 3-4 -Refer to Figure 3-4. For Jerry, what is the opportunity cost of one bottle of wine?

-Refer to Table 3-5. If Canada and Japan trade based on the principle of comparative advantage, what could Japan gain from importing an airplane?

It takes Russell 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Wilma 6 hours to produce a bushel of corn and 1 hour to wash and polish a car. Wilma and Russell cannot gain from specialization and trade, since it takes each of them 6 hours to produce 1 bushel of corn.

Suppose labour in Mexico is less productive than labour in Canada. What can we conclude from this information?

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

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. What is the opportunity cost of one loaf of bread for Barney?

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

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

Which of the following would NOT occur if each person specializes in the good for which they have a comparative advantage?