Exam 3: Interdependence and the Gains From Trade

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?

What are imports?

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.

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

What is comparative advantage based on?

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year,and a worker in Teeveeland can produce either 2 radios or 5 televisions per year.Each nation has 100 workers.If Radioland trades 100 televisions to Teeveeland in exchange for 100 radios each year,what is the impact on each country's maximum consumption of new radios and televisions per year?

Shawn can produce donuts at a lower opportunity cost than Sue.Who has an absolute or a comparative advantage in the production of donuts?

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?

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

The only two countries in the world,Alpha and Omega,face the following production possibilities frontiers. a.Assume that each country decides to use half of its resources in the production of each good.Show these points on the graphs for each country as point A. b.If these countries choose not to trade,what would be the total world production of popcorn and peanuts? c.Now suppose that each country decides to specialize in the good in which each has a comparative advantage.By specializing,what is the total world production of each product now? d.If each country decides to trade 100 units of popcorn for 100 units of peanuts,show on the graphs the gain each country would receive from trade.Label these points B.

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6 tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.What is the opportunity cost of 1 chair?

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 Ginger?

Table 3-3 ​ -Refer to Table 3-3.What does each of the two producers have an absolute advantage in?

Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because each person concentrates on the activity for which he or she has the lower opportunity cost.

Why does total output in an economy increase when each person specializes?

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

As long as two people have different opportunity costs,each can gain from trade by being able to obtain a good at a price lower than his or her opportunity cost.

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?

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?

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