Exam 2: The Power of Trade

Use the following to answer questions Figure: PPF Goods X & Y -Suppose a country without any international trade opens its borders to international trade.After specialization how will its location on its production possibility frontier change?

International trade is based on the theory of absolute advantage.

The U.S.interstate highway system probably allowed more people in small communities to become full-time interior decorators.

When a rich country that has absolute advantages in all products begins trading with a poor country:

In a two-country world of Japan and South Korea,suppose Japan can produce 600 radios or 300 TV sets in one day with all its available resources,while South Korea can produce 100 radios or 200 TV sets in one day with all its available resources.According to the theory of comparative advantage,what would be the possible gain in this world if the two countries specialize and trade with each other?

A producer has a comparative advantage over other producers if his production of the good involves:

Involuntary trades increase value in the same way voluntary trades do.

The theory of comparative advantage is:

Economic growth in the modern era is primarily due to the:

One of the outcomes of specialization is that it leads to _____,which _____ the average cost of production.

If you have a comparative advantage in washing dishes,then you also have an absolute advantage in washing dishes.

In a certain country it takes five of its 10 workers to produce one barrel of wine but only one worker to produce one yard of cloth.If we graphed this country's PPF (placing wine on the vertical axis and cloth on the horizontal axis),the slope of the PPF would equal -1/5.

Trade barriers like the Berlin Wall:

Economies can grow due to:

Trade tends to:

What are the three major benefits of trade? Explain briefly.

The basic idea of trade is to buy the things you could only make at a high opportunity cost,and sell the things you can make at a low opportunity cost.

Trade makes people better off only when they all have the same preferences.

James and Linda must prepare a presentation for their marketing class.As part of their presentation,they must do a marketing plan and prepare 40 PowerPoint slides.It would take James 5 hours to do the required plan and 5 hours to prepare the slides.It would take Linda 6 hours to do the plan and 10 hours to prepare the slides. a.How much time would it take the two to complete the project if they divide the writing of the marketing plan equally and the development of the slides equally? b.How much time would it take the two to complete the project if they use comparative advantage and specialize in writing the marketing plan or preparing slides? c.If James and Linda have the same opportunity cost of $5 per hour,is there a better solution than for each to specialize?

The trade networks of the Roman Empire: