Exam 3: Interdependence and the Gains From Trade

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

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 or absolute advantage in what product?

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Figure 3-3 Ice cream and cones are measured in kilograms. -Refer to Figure 3-3. What does each of the two producers have a comparative or absolute advantage in?

Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns and why?

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 is the opportunity cost of one pair of tap shoes for Fred?

Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler proclaimed that Xenophobia should become self-sufficient and so would not engage in foreign trade. From an economic perspective, when would this idea make sense?

What is the best reason for people to provide you with goods and services?

Which book did David Ricardo write?

-Refer to the table. Who has a comparative advantage in the production of each good?

Figure 3-1 -Refer to Figure 3-1. Assume that Cliff and Paul were both producing wheat and corn, and each was dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in. What would happen to the total production of corn?

When each person specializes in producing the good for which he or she has a comparative advantage, each person can gain from trade but total production in the economy is unchanged.

-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 Italy per unit of bread traded?

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 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. What is the opportunity cost of 1 bushel of oats in Cornland?

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 is the opportunity cost of one pair of ballet slippers for Fred?

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

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

Figure 3-3 Ice cream and cones are measured in kilograms. -Refer to Figure 3-3. What does each of the two producers have a comparative advantage in?

Unless two people who are producing two goods have exactly the same opportunity costs, each will have a comparative advantage in a different good.

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