Exam 3: Interdependence and the Gains From Trade

Rusty can edit two pages in one minute, and can type 80 words in one minute. Emily can edit one page in one minute and can type 100 words in one minute. Rusty has both an absolute and a comparative advantage in editing and Emily has both an absolute and a comparative advantage in typing.

Use the accompanying table to answer the following questions. Table 3-4 -Refer to Table 3-4. If England and Spain specialise and trade according to their comparative advantages:

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

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

Shaquille can score 32 points or produce 12 rebounds in one game. Karl can score three points or produce one rebound in one game. Shaquille has both an absolute and a comparative advantage in both scoring and rebounding.

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

The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.

Khan can catch three cockatoos or 18 crocodile eggs per day. James can catch four cockatoos or 24 crocodile eggs per day. Khan does not have a comparative advantage in either catching cockatoos or crocodile eggs.

Table 3-3 -Refer to Table 3-3. The opportunity cost of one aeroplane for Europe is:

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

How do consumption possibilities differ between a situation of no trade and a situation of trade?

What roles were played by Adam Smith and David Ricardo in developing the idea that trade is beneficial?

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

In order to have a linear production possibilities frontier (one that is not bowed out), it must be that:

Graph 3-2 These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour. -According to Graph 3-2, if Amy and Jim both specialise completely in the good in which they have a comparative advantage, total production of coffee and total production of doughnuts will be _____ respectively.

Graph 3-1 These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour. -Refer to Graph 3-1. For Robinson Crusoe, the opportunity cost of one kg of coconuts is:

Graph 3-1 These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour. -According to Graph 3-1:

The principle of absolute advantage explains the gains from trade and why economic interdependence occurs.

Use the accompanying table to answer the following questions. Table 3-4 -Refer to Table 3-4. The opportunity cost of one unit of bread in England is:

Trade is based on: