Deck 4: Trade and the Ppf

Question 1

Paulene and Charles, the only two people in an economy, can spend their time making either herbs or eggs.Each has four hours in total to work.Paulene can make either 36 bunches of herbs and 0 dozen eggs or no herbs and 12 dozen eggs in her four hours.Charles on the other hand can make 16 bunches of herbs if he spends all his time on herb production (and no eggs) or he can make eight dozen eggs in his four hours (and no herbs).If both parties are going to be willing to trade:

A)The price of a bunch of herbs must be between 1/3 and ½ a dozen eggs.
B)The price of a bunch of herbs must be between 1/2 and a dozen eggs.
C)The price of a bunch of herbs must be between 1 and 2 a dozen eggs.
D)The price of a bunch of herbs must be between 2 and 3 a dozen eggs.
E)The price of a bunch of herbs must be at least 3 dozen eggs.

Answer 1

The price of a bunch of herbs must be between 1/3 and ½ a dozen eggs.

Question 2

The theory of comparative advantage suggests that:

A)Both trading parties can gain if they specialize in producing the good in which they have an absolute advantage.
B)Both trading parties can gain if they specialize in producing the good for which they have the lower opportunity cost, and that all the gains from trade will accrue to the more productive party.
C)Both trading parties can gain if they each specialize in producing the good for which they have the higher opportunity cost.
D)Both trading parties can gain if they each specialize in producing the good for which they have the lower opportunity cost.
E)None of the above.

Answer 2

Both trading parties can gain if they each specialize in producing the good for which they have the lower opportunity cost.

Question 3

Cassandra and Jim can make either sushi or wine or some combination of both.Each have eight hours to work.In her eight hours Cassandra can make 24 sushi rolls or 8 litres of wine (or some combination, if she splits her time).Jim can make either 16 sushi rolls or 4 litres of wine (or some combination).Which statement is true?

A)Cassandra's opportunity cost of making a sushi roll is 3 litres of wine; Jim's opportunity cost of making a sushi roll is forgoing ¼ a litre of wine.
B)Cassandra's opportunity cost of making a sushi roll is a litre of wine; Jim's opportunity cost of making a sushi roll is forgoing 4 litres of wine.
C)Cassandra's opportunity cost of making a sushi roll is 2 litres of wine; Jim's opportunity cost of making a sushi roll is forgoing 8 litres of wine.
D)Cassandra's opportunity cost of making a sushi roll is 1/3 a litre of wine; Jim's opportunity cost of making a sushi roll is forgoing ¼ a litre of wine.
E)None of the above.

Answer 3

Cassandra's opportunity cost of making a sushi roll is 1/3 a litre of wine; Jim's opportunity cost of making a sushi roll is forgoing ¼ a litre of wine.

Question 4

Bill and Jen are the only two people in an economy.Each has 10 hours in which they can make either croissants, juice or some combination of both products.In takes Bill one hour to make one croissant and one hour to make a litre of juice.It takes Jen 20 minutes to make a croissant and 40 minutes to make a litre of juice.If the parties trade, which statement is true?

A)Bill will specialize in juice production and Jen will specialize in juice; the price of a croissant will be between 1 and 2 litres of juice.
B)Bill will specialize in croissant production and Jen will specialize in making juice; the price of a croissant will be between ½ and 1 litre of juice.
C)Bill will specialize in juice production and Jen will specialize making croissants; the price of a croissant will be between ½ and 1 litre of juice.
D)Bill will specialize in juice production and Jen will specialize in juice; the price of a croissant will be 1 litre of juice.
E)None of the above.

Question 5

Cassandra and Jim can make either sushi or wine or some combination of both.Each have eight hours to work.In her eight hours Cassandra can make 24 sushi rolls or 8 litres of wine (or some combination, if she splits her time).Jim can make either 16 sushi rolls or 4 litres of wine (or some combination).If the gains from trade are to be realized:

A)Cassandra will specialize in wine and Jim will specialize in producing sushi; the price of a litre of wine must be between 1/4 and 1/3 of a sushi roll.
B)Cassandra will specialize in wine and Jim will specialize in producing sushi; the price of a litre of wine must be between 3 and 4 sushi rolls.
C)Cassandra will specialize in wine and Jim will specialize in producing sushi; the price of a litre of wine must be between 1/4 and 1 sushi roll.
D)Cassandra will specialize in sushi and Jim will specialize in producing wine; the price of a litre of wine must be between 3 and 4 sushi rolls.
E)Cassandra will specialize in wine and Jim will specialize in producing sushi; the price of a litre of wine must be between 2 and 4 sushi rolls.

Question 6

Bill and Jen are the only two people in an economy.Each has 10 hours in which they can make either croissants, juice or some combination of both products.In takes Bill one hour to make one croissant and one hour to make a litre of juice.It takes Jen 20 minutes to make a croissant and 40 minutes to make a litre of juice.Which statement is true?

A)The opportunity cost for Jen to make a croissant is ½ a litre of juice.
B)The opportunity cost for Jen to make a croissant is 2 litres of juice.
C)The opportunity cost for Jen to make a croissant is 20 minutes.
D)The opportunity cost for Bill to make a croissant is ½ a litre of juice.
E)The opportunity cost for Bill to make a litre of juice is a litre of juice.

Question 7

Which statement is true?

A)A party has the comparative advantage in producing a good if it has the absolute advantage in producing the other good.
B)If one party is more productive in producing both products, it has a comparative advantage in producing both goods.
C)A party can have a comparative disadvantage in producing both goods.
D)If parties specialize and trade, it is only the less productive party that can experience any gains from trade.
E)None of the above statements are true.

Question 8

Paulene and Charles, the only two people in an economy, can spend their time making either herbs or eggs.Each has four hours in total to work.Paulene can make either 36 bunches of herbs and 0 dozen eggs or no herbs and 12 dozen eggs in her four hours.Charles on the other hand can make 16 bunches of herbs if he spends all his time on herb production (and no eggs) or he can make 8 dozen eggs in his four 4 hours (and no herbs).Which statement is true?

A)Paulene's opportunity cost of making one bunch of herbs is forgoing three of a dozen eggs; Charles opportunity cost of making one bunch of herbs is ½ a dozen eggs.
B)Paulene's opportunity cost of making one bunch of herbs is forgoing a dozen eggs; Charles opportunity cost of making one bunch of herbs is ½ a dozen eggs.
C)Paulene's opportunity cost of making one bunch of herbs is forgoing three of a dozen eggs; Charles opportunity cost of making one bunch of herbs is two of a dozen eggs.
D)Paulene's opportunity cost of making one bunch of herbs is forgoing 1/3 of a dozen eggs; Charles opportunity cost of making one bunch of herbs is ½ a dozen eggs.
E)None of the above.

Question 9

Paulene and Charles, the only two people in an economy, can spend their time making either herbs or eggs.Each has four hours in total to work.Paulene can make either 36 bunches of herbs and 0 dozen eggs or no herbs and 12 dozen eggs in her four hours.Charles on the other hand can make 16 bunches of herbs if he spends all his time on herb production (and no eggs) or he can make eight dozen eggs in his four hours (and no herbs).Which statement is true?

A)Paulene has the comparative advantage in egg production Charles has the comparative advantage in producing eggs.
B)Paulene has the comparative advantage in herb production Charles has the comparative advantage in producing eggs.
C)Paulene has the comparative advantage in egg production Charles has the comparative advantage in producing herbs.
D)Paulene has the comparative disadvantage in producing both goods.
E)Charles has a comparative disadvantage in producing both goods.

Question 10

Bill and Jen are the only two people in an economy.Each has 10 hours in which they can either make croissants, juice or some combination of both products.In takes Bill 1 hour to make one croissant and one hour to make a litre of juice.It takes Jen 20 minutes to make a croissant and 40 minutes to make a litre of juice.Which statement is true?

A)Bill has the comparative disadvantage in juice; Jen has the comparative disadvantage in making croissants.
B)Bill has the comparative advantage in juice production; Jen has the comparative advantage in making croissants.
C)Bill has the comparative advantage in croissants and juice.
D)Bill has the comparative advantage in croissants; Jen has the comparative advantage in making juice.
E)Jen has the comparative advantage in producing both goods.