Exam 3: Interdependence and the Gains From Trade

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

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

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

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

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 devote half of their time (20 hours) to the production of each good, what would the total production be?

-Refer to Table 3-2. How could the farmer and rancher both benefit?

Figure 3-2 -Refer to Figure 3-2. What do the two producers have an absolute or comparative advantage in?

Differences in opportunity cost allow for gains from trade.

Assume that Spain has a comparative advantage in fish and Germany has a comparative advantage in cars. What will happen if these two countries specialize and trade according to their comparative advantage?

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 10 workers in each country. No trade occurs between the two countries. Boatland produces and consumes 25 units of wheat and 125 units of fish per year, while Farmland produces and consumes 125 units of wheat and 25 units of fish per year. If trade were to occur, Boatland would trade 100 units of fish to Farmland in exchange for 100 units of wheat. If Boatland no longer grew any of its own wheat, how many units of fish could it now consume along with the 100 units of imported wheat?

Figure 3-1 -Refer to Figure 3-1. What is the opportunity cost of 1 bushel of wheat for Cliff?

Mark is a computer company executive and earns $200 per hour managing the company and promoting its products. His daughter Regan is a high school student and earns $12 per hour helping her grandmother on the farm. Mark's computer is broken. He can repair it himself in one hour. Regan can repair it in 10 hours. Mark has a comparative advantage repairing the computer.

-Refer to Table 3-5. Denmark and Italy trade according to the principle of comparative advantage. If the international price of bread is 2.5 units of cheese for 1 unit of bread, what is the gain from trade to Denmark per unit of bread traded?

Adam Smith developed the theory of comparative advantage as we know it today.

What happens when countries specialize according to their comparative advantage?

International trade may make some individuals in a nation better off, while other individuals are made worse off.

What is the term that means whatever must be given up to obtain an item?

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 ice cream?

-Refer to Table 3-3. How could Kevin and Amy both benefit?

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 does each of the two producers have an absolute advantage in?