Exam 3: Interdependence and the Gains From Trade

Table 3-3 -According to Table 3-3:

Robinson Crusoe can produce 20 coconuts or 10 palm leaves in one day. Friday can produce 25 coconuts or five palm leaves in one day. Both individuals will be made better off through trade if Robinson specialises in producing coconuts and Friday specialises in producing palm leaves.

Comparative advantage is based on:

Table 3-1 -According to Table 3-1:

Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.

Use the accompanying table to answer the following questions. Table 3-4 -According to Table 3-4, if England and Spain trade according to the principle of comparative advantage, they will export _____ respectively.

Table 3-3 -Refer to Table 3-3. The opportunity cost of one car for the US is:

Two individuals or two nations benefit from trade only if it is impossible for each individual or nation to produce the good or service purchased from the other.

Table 3-1 -According to Table 3-1:

Table 3-2 -Refer to Table 3-2. The opportunity cost of one kg of butter for John is:

Economists' support of trade restrictions is still based largely on the failure of the principle of comparative advantage.

Describe two ways in which trade benefits a country.

The central argument for free trade has changed a lot in the past two centuries.

Table 3-3 -Refer to Table 3-3. If the US and Europe trade according to the principle of comparative advantage:

It takes Barbara three hours to make a pie and four hours to make a shirt. It takes Gary two hours to make a pie and five hours to make a shirt. Barbara should specialise in making pies and Gary should specialise in making shirts. Then they should trade.

Graph 3-2 These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour. -According to Graph 3-2:

Table 3-1 -Refer to Table 3-1. For the potato farmer, the opportunity cost of 1 kg of potatoes is:

Martha can prepare a meal in one hour, and her opportunity cost of one hour is $50. Stewart can prepare the same kind of meal in two hours and his opportunity cost of one hour is $20. Will both Martha and Stewart be better off if she pays him $45 per meal to prepare her meals? Explain.

In the absence of international importing and exporting:

Graph 3-2 These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour. -Refer to Graph 3-2. The opportunity cost of one doughnut for Jim is: