Exam 3: Interdependence and the Gains From 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:

The gains from trade are:

Table 3-2 -Refer to Table 3-2. For John the opportunity cost of one kg of rice:

Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why?

Explain the difference between absolute advantage and comparative advantage.

If two countries have identical opportunity costs, then:

Mark is a computer company executive, and earns $500 per hour managing the company and promoting its products. His daughter Regan is a high school student, and earns $6 per hour helping her grandmother on the farm. Mark's computer is broken. He can repair it himself in one hour. Regan can repair it in 10 hours. Mark has a comparative advantage in repairing the computer.

Adam Smith discusses that countries should be self-sufficient in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

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 in the good in which they have a comparative advantage, total consumption of coffee and total consumption of doughnuts will be _____ respectively.

Use the accompanying table to answer the following questions. Table 3-4 -Refer to Table 3-4. If England and Spain trade according to the principle of comparative advantage, Spain will export which product to England?

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

Suppose that there are two goods in the world: bread and cheese. Without trade, David can bake 50 loaves of bread in a week. Alternatively, he can make five kg of cheese in a week. Laura can make 20 kg of cheese in one week, or she can bake 10 loaves of bread in one week. Draw the production possibilities frontiers for David and for Laura, assuming that the frontiers are linear.

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 devote half of their time (four hours) to the production of each good, total production of coffee and total production of doughnuts by both would 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 Friday, the opportunity cost of 1 kg of fish is:

The principle of comparative advantage was developed in Adam Smith's 1817 book Principles of Political Economy and Taxation.

Trade can make everybody better off because it:

Is the statement 'international trade can make everyone better off' true? Why or why not?

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 Spain is:

Keith is an Economics lecturer. He is extremely competent. And the students love his PowerPoint slideshows. He is one of the more creative designers of PowerPoints in the department. Using the appropriate language, what should Keith focus his energies on prior to a lecture?

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 Amy is: