Exam 2: Trade-Offs, Comparative Advantage, and the Market System

In a two-good, two-country world, if one country has an absolute advantage in the production of both goods, it cannot benefit by trading with the other country.

The circular flow model demonstrates

Table 2.6 Table 2.6 shows the number of labour hours required to produce a digital camera and a pound of wheat in China and South Korea. -Refer to Table 2.6.South Korea has a comparative advantage in the production of

Figure 2.4 Figure 2.4 shows various points on three different production possibilities frontiers for a nation. Alt text for Figure 2.4: In figure 2.4, a graph illustrates 3 different production possibilities. Long description for Figure 2.4: The x-axis is labelled, plastic products, and the y-axis is labelled, food products.3 convex curves are shown, with points V, W, X, Y, and Z plotted.The first curve begins just past the half-way point on the y-axis, and ends just past the half-way point on the x-axis.Points W and X are plotted along the curve, with point W approximately 1 third of the way from the start of the curve, and point X more than 2 thirds of the way along the curve.The second curve begins almost 3 quarters of the way up the y-axis and ends just past the termination of the first curve on the x-axis.Point Y is plotted on the second curve, approximately 2 thirds of the way along the curve.The third curve begins at the same point as the second curve, and ends approximately 3 quarters of the way along the x-axis.Point Z is plotted on the third curve, a little less than half-way along the curve.Point V is plotted between the first curve and the origin. -Refer to Figure 2.4.Consider the following events: a. a reduction in the patent protection period to no more than 2 years b. a war that destroys a substantial portion of a nation's capital stock c. the lack of secure and enforceable property rights system Which of the events listed above could cause a movement from W to V?

Suppose your expenses for this term are as follows: tuition: $7,000, room and board: $8,500, books and other educational supplies: $2,500.Further, during the term, you can only work part-time and earn $5,500 instead of your full-time salary of $20,000.What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?

Figure 2.12 Tesla motors currently has three different models available in Canada; the Model S and the Model 3 (both coupes)and the Model X (an SUV).Figure 2.12 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions. Alt text for Figure 2.12: In figure 2.12, 3 graphs, A, B and C show changes to Tesla motors' production possibilities frontier. Long description for Figure 2.12: Graph A: The x-axis is labelled, S U Vs, and the y-axis is labelled, coupes.2 convex curves begin from the same point near the top of the y-axis.The curves diverge.The first curve ends a little more than half-way along the x-axis.The point E is plotted a little more than half-way along the curve.The second curve ends further along the x-axis, near the end of the axis.The point F is plotted a little more than half-way along the curve.Graph B: The x-axis is labelled, S U Vs, and the y-axis is labelled, coupes.2 convex curves are shown.The first curve begins approximately 3 fifths of the way up the y-axis and finishes a little more than half way along the x-axis.Point G is plotted a little more than half-way along the curve.The second curve begins near the end of the y-axis, and ends close to the end of the x-axis.Point J is plotted is little more than 1 third of the way along the curve, and point H is plotted 3 quarters of the way along the curve. -Refer to Figure 2.12.In response to changing consumer demands, Tesla cuts back on the production of coupes and increases its production of SUVs.This strategy is best represented by

Table 2.7 -Refer to Table 2.7.This table shows the number of labour hours required to produce a digital cameras and a bushel of wheat in China and South Korea. a.Which country has an absolute advantage in the production of digital cameras? b.Which country has an absolute advantage in the production of wheat? c.What is China's opportunity cost of producing one digital camera? d.What is South Korea's opportunity cost of producing one digital camera? e.What is China's opportunity cost of producing one bushel of wheat? f.What is South Korea's opportunity cost of producing one bushel of wheat? g.If each country specializes in the production of the product in which it has a comparative advantage, who should produce digital cameras? h.If each country specializes in the production of the product in which it has a comparative advantage, who should produce wheat?

The production possibilities frontier model assumes which of the following?

Figure 2.8 Figure 2.8 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. Alt text for Figure 2.8: In figure 2.8, a graph illustrates the production possibilities frontier for roses and orchids in Vidalia. Long description for Figure 2.8: The x-axis is labelled, orchids, in dozens, and is marked from 0 to 80 in increments of 20.The y-axis is labelled, roses, in dozens, and is marked from 0 to 200 in increments of 40.Five points (0, 200), (20, 150), (40, 100), (60, 50), and (80, 0)are plotted on the graph and joined to form a line, which slants from the top left corner and slopes down to the bottom right corner. -Refer to Figure 2.8.What is the opportunity cost of one dozen roses?

Table 2.6 Table 2.6 shows the number of labour hours required to produce a digital camera and a pound of wheat in China and South Korea. -Refer to Table 2.6.What is South Korea's opportunity cost of producing one digital camera?

For a person to have a comparative advantage in producing a product, she must be able to produce that product at a lower opportunity cost than her competitors.

The production possibilities frontier shows

The points outside the production possibilities frontier are

Suppose in the United States, the opportunity cost of producing an engine is 4 auto bodies.In Canada, the opportunity cost of producing an engine is 2 auto bodies. a. What is the opportunity cost of producing an auto body for the United States? b. What is the opportunity cost of producing an auto body for Canada? c. Which country has a comparative advantage in the production of auto bodies? d. Which country has a comparative advantage in the production of engines?