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Exam 3: Interdependence and the Gains From Trade

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Question 31

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Nick and Traci are two woodworkers who both make tables and chairs. In one month, Nick can make 3 tables or 6 chairs, whereas Traci can make 16 tables or 48 chairs. Given this, we know that the opportunity cost of 1 chair is

A) 1/2 table for Nick and 1/3 table for Traci.
B) 1/2 table for Nick and 3 tables for Traci.
C) 3 tables for Nick and 1/2 table for Traci.
D) 1/3 table for Nick and 2 tables for Traci.

E) B) and C)
F) None of the above

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Question 32

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Figure 3-6 The production possibilities frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Greg's Production Possibilities Catherine's Production Possibilities ​ -Refer to Figure 3-6. Is it possible for Greg and Catherine to gain from trade? Defend your answer.

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Yes. Greg has a comparative ad...

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Question 33

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Economists use the term ______ to refer to the ability to produce a good at a lower opportunity cost than another producer.

It takes Heather 1 hour to change the oil in the car and 20 minutes to do the dishes. It takes Zach 1.5 hours to change the oil in the car. For Zach to have a comparative advantage changing the oil it must take him more than ______ minutes to do the dishes.

It takes Ross 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Courtney 6 hours to produce a bushel of corn and 1 hour to wash and polish a car. Courtney and Ross cannot gain from specialization and trade, since it takes each of them 6 hours to produce 1 bushel of corn.

In most countries today, many goods and services consumed are imported from abroad, and many goods and services produced are exported to foreign customers.

​Trade between nations is based on absolute advantage, which occurs when a country has a lower opportunity cost of producing a good.

Table 3-11 Assume that Bahamas and Denmark can switch between producing coolers and producing radios at a constant rate. ​ ​ -Refer to Table 3-11. Bahamas's opportunity cost of one cooler is

Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.

A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce.

The principle of comparative advantage states that, regardless of the price at which trade takes place, everyone will benefit from trade if they specialize in the production of the good for which they have a comparative advantage.

Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by

In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Together, they could produce more output in total if Moira knits only sweaters and Tori knits only scarves.

Table 3-11 Assume that Bahamas and Denmark can switch between producing coolers and producing radios at a constant rate. ​ ​ -Refer to Table 3-11. Bahamas and Denmark would not be able to gain from trade if Denmark's opportunity cost of one radio changed to

When a country has a comparative advantage in producing a certain good,

Suppose that Venezuela produces beef and oil and it can switch production between each at a constant rate. If the most beef it can produce is 300 million pounds and the most oil it can produce is 50 million barrels, then what is the opportunity cost of a pound of beef and what is the opportunity cost of a barrel of oil?

Figure 3-2 -Refer to Figure 3-2. If the production possibilities frontier shown is for two months of production, then which of the following combinations of peanuts and cashews could Venezuela produce in two months?

Table 3-13 -Refer to Table 3-13. What is England's opportunity cost of one compass?

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

If Shawn can produce more donuts in one day than Sue can produce in one day, then