Exam 2: The Production Possibility Model, Trade, and Globalization

Up through the early decades of the 20th century, many countries remained closed to trade, charging high tariffs or imposing strict quotas on imported goods. In 1948, 23 countries joined the General Agreement on Tariffs and Trade (GATT), which sought to set out rules for trade and enhance future negotiations. The reduction in tariffs as a result of GATT probably brought about:

This production possibility table illustrates: Eggs Rye 10 0 8 10 6 20 4 30 2 40 0 50

Two nations with differing comparative advantages will be able to consume more if they specialize and trade with each other than if they did not specialize or trade with each other.

Increasing marginal opportunity cost means that the production possibility curve is:

What is the argument for laissez faire policy in the context of benefits from trade?

What two lessons can you learn from a production possibilities curve?

Assume that Belgium and Pakistan have linear production possibilities curves as shown in the graph below.Explain how they can both consume a combination of textiles and chocolate that lies outside their individual production possibility curves.

To graphically demonstrate the principle of increasing marginal opportunity cost, the production possibility curve must be:

Refer to the graph below. If the production possibility curve shifts along the Good Y axis, which point will remain as a point of efficiency?

What does it mean when we say that a country has comparative advantage in a specific good?

Refer to the graph below. Which of the shifts explains what will happen to the production possibility curve if the cost of producing books goes down while the cost of producing DVDs goes up?

Refer to the graphs shown. The discovery of a new supply of resources used only in the production of guns can be shown by which shift?

Given the production possibility curve shown below, the opportunity cost of listening to each additional album when moving from point B to point A is on average: