Exam 3: Interdependence and the Gains From Trade

Figure 3-19 Chile's Production Possibilities Frontier Colombia's Production Possibilities Frontier -Refer to Figure 3-19. At which of the following prices would both Chile and Colombia gain from trade with each other?

Figure 3-13 Peru's Production Possibilities Frontier -Refer to Figure 3-13. Suppose Peru decides to increase its production of emeralds by 2. What is the opportunity cost of this decision?

If a country has a lower opportunity cost than its potential trading partner, the country should decide to be self- sufficient.

For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.

Figure 3-16 Hosne's Production Possibilities Frontier Merve's Production Possibilities Frontier -Refer to Figure 3-16. If Hosne and Merve switch from each person dividing her time equally between the production of purses and wallets to each person spending all of her time producing the good in which she has a comparative advantage, then total production of purses will increase by

It takes Ross 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Courtney 6 hours to produce a bushel of corn and 1 hour to wash and polish a car. Courtney and Ross cannot gain from specialization and trade, since it takes each of them 6 hours to produce 1 bushel of corn.

Table 3-36 -Refer to Table 3-36. If Antigua and Barbuda decide to trade with each other, Antigua should specialize in the production of

Figure 3-20 Canada's Production Possibilities Frontier Mexico's Production Possibilities Frontier -Refer to Figure 3-20. Canada has a comparative advantage in the production of

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then

Figure 3-1 Panel (a) Panel (b) -Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches is constant in

Adam Smith was the author of the 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

Charlotte can produce pork and beans and can switch between producing them at a constant rate. If it takes her 10 hours to produce a pound of pork and 5 hours to produce a pound of beans, what is her opportunity cost of pork and what is her opportunity cost of beans?

Suppose the U.S. and Japan can both produce airplanes and televisions and the U.S. has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions. Also suppose the U.S. has an absolute advantage in the production of both airplanes and televisions. The U.S. should

Table 3-25 Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate. -Refer to Table 3-25. Miguel has an absolute advantage in the production of

Table 3-31 -Refer to Table 3-31. Relative to the rancher, the farmer has

Table 3-36 -Refer to Table 3-36. Antigua has a comparative advantage in the production of

Figure 3-14 Arturo's Production Possibilities Frontier Dina's Production Possibilities Frontier -Refer to Figure 3-14. Arturo's opportunity cost of one burrito is

Table 3-21 Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. -Refer to Table 3-21. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by

Figure 3-2 Brazil's Production Possibilities Frontier -Refer to Figure 3-2. If the production possibilities frontier shown is for 24 hours of production, then how long does it take Brazil to make one cashew?

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by