Exam 3: Interdependence and the Gains From Trade

This exercise introduces the concept of "consumption possibilities frontier." Suppose Argentina (A) and Bolivia (B) only trade with each other and they both produce the same two goods: grocery (G) and fish (F).Given its resources,Argentina can produce either 2 units of grocery per day or 1 unit of fish; Bolivia can produce either 5 units of grocery or 4 units of fish.The international price of fish is equal to the average of the opportunity costs of production in the two countries. a.Draw the production possibilities frontiers for each country on separate graphs. b.If Argentina specializes in the production of groceries and sells them all to Bolivia,how much fish could it buy from Bolivia c.If Bolivia specializes in the production of fish and sells it all to Argentina,how much groceries could it buy d.Based on the results of parts b and c,using the production possibilities frontier you drew in part a,draw the consumption possibilities frontier for each country.(A consumption possibilities frontier is a straight line that connects the maximum amount of fish and groceries that a country can afford to consume from its own production or from importing.) e.Think about your answer in part d.Is there anything that might not be correct? (Hint: Is Argentina capable of buying all of Bolivia's fish production? Is Argentina capable of exporting as much groceries as Bolivia could import?)

It takes Barbara 3 hours to make a pie and 4 hours to make a shirt.It takes Gary 2 hours to make a pie and 5 hours to make a shirt.Barbara should specialize in making shirts and Gary should specialize in making pies,then they should trade.

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

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

What are exports

Table 3-6 -Refer to Table 3-6.Which country has an absolute advantage in each product

Table 3-2 -Refer to Table 3-2.What does each producer have a comparative advantage in

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

Table 3-6 -Refer to Table 3-6.If Denmark and Italy trade based on the principle of comparative advantage,which country will export or import each product

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

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.

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

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

Trade allows a country to consume outside its production possibilities frontier.

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

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

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

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

Table 3-5 -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 Canada

What does comparative advantage reflect