Exam 3: Interdependence and the Gains From Trade

What did Adam Smith believe about trade

Jonathan can make a birdhouse in three hours.He can make a bird feeder in three hours.The opportunity cost to Jonathan of making a birdhouse is 1/3 bird feeder.

Figure 3-2 -Refer to Figure 3-2.Assume that both Paul and Cliff divide their time equally between the production of corn and wheat,and they do not trade.If they were the only producers of corn and wheat,what would the total production of wheat and corn be

Table 3-2 -Refer to Table 3-2.What does each producer have an absolute or comparative advantage in

Figure 3-2 -Refer to Figure 3-2.What do the two producers have an absolute or comparative advantage in

Both Canada and the U.S.can produce equally tasty maple syrup.What determines which country will export maple syrup

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

The "two-country,two-good" model (sometimes called the 2×2 model) of comparative advantage that we have studied so far is simple,insightful,and compelling.However,its very simplicity turns out to be its weakness.In the real world,when many countries produce many goods,the simple 2×2 model is of limited use in predicting patterns of trade.To see how complex such a model can become,let us consider a 2×3 model (two countries,1 and 2,and three goods,A,B,and C.) The following table gives the maximum amounts (units) of each good that each country can produce if all the country's resources were used in the production of the respective good.In other words,the table describes each country's production possibilities frontier. a.How do the production possibilities frontiers for each of the two countries look in a three-dimensional coordinate system? (Draw three axes like a corner in your room, and label them after the three goods: A, B, and C.Then, place the number of units for each good for Country 1on its respective axis and connect the three intercepts by straight lines.Repeat for Country 2 on a separate graph.)? b.Calculate the opportunity costs of good A in terms of B and C in each country and call these prices PA1 and PA2 respectively.? c.Calculate the opportunity costs of good B in terms of A and C in each country and call these prices PB1 and PB2 respectively.? d.Calculate the opportunity costs of good C in terms of A and B in each country and call these prices PC1 and PC2 respectively.? e.Based on your calculations, can you tell which country should export or import each product based on comparative advantage?

Suppose that a worker in Agland can produce either 10 units of organic grain or 2 units of incense per year,and a worker in Zenland can produce either 5 units of organic grain or 15 units of incense per year.There are 10 workers in Agland and 20 workers in Zenland.Currently the two countries do not trade.Agland produces and consumes 50 units of grain and 10 units of incense per year.Zenland produces and consumes 100 units of grain and no incense per year.The combined output of the two countries is therefore 150 units of grain and 10 units of incense per year.If the two countries decided to trade and completely specialize in producing the good for which each has a comparative advantage,what would the combined yearly output of the two countries be

According to Adam Smith,what should a person never attempt to make at home

Differences in opportunity cost allow for gains from trade.

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

Table 3-5 -Refer to Table 3-5.How could Canada and Japan both benefit

Egypt has a comparative advantage in the production of linen and an absolute advantage in the production of beer,compared to Russia.If these two countries decide to trade,what would the pattern of trade be

Table 3-6 -Refer to Table 3-6.Denmark and Italy trade according to the principle of comparative advantage.If the international price of bread is 2.5 units of cheese for 1 unit of bread,what is the gain from trade to Italy per unit of bread traded

Regan grows flowers and makes vases.Jayson also grows flowers and makes vases,but Regan is better at producing both.Who has an absolute or comparative advantage in what activity

Table 3-2 -Refer to Table 3-2.What is the opportunity cost of 1 kilogram of potatoes for the rancher

Suppose labour in Mexico is less productive than labour in Canada.What can we conclude from this information

Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.

Figure 3-1 -Refer to Figure 3-1.What do the two producers have an absolute advantage in