Exam 3: Interdependence and the Gains From Trade: Part B

Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes.Ming-la can complete an oil change in 30 minutes and she can write a poem in 90 minutes.Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.

Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin.Fred and Barney both gain from the exchange.We can conclude that,for Barney,the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.

The production possibilities frontier (PPF)depicts the combinations of goods that provides society with the maximum possible benefit.

Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.

The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make.

Ellie and Brendan both produce apple pies and vanilla ice cream.If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream,Ellie has a comparative advantage in the production of ice cream.

David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.

Trade allows all countries to achieve greater prosperity.

An economy can produce at any point on or inside its production possibilities frontier,but it cannot produce at points outside its production possibilities frontier.