If a country’s workers can produce 5 hamburgers per hour or 10 bags of fries per hour, then absent trade with other countries, the price of 1 bag of fries is 2 hamburgers. If trade benefits one country, its trading partner must be worse off as a result of trade.

If a country’s workers can produce 5 hamburgers per hour or 10 bags of fries per hour, then absent trade with other countries, the price of 1 bag of fries is 2 hamburgers. If trade benefits one country, its trading partner must be worse off as a result of trade.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 2SCQ: Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40...

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If a country’s workers can produce 5 hamburgers per hour or 10 bags of fries per hour, then absent trade with other countries, the price of 1 bag of fries is
2 hamburgers.

If trade benefits one country, its trading partner must be worse off as a result of trade.

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Review the numbers for Canada and Venezuela from Table 33.12 which describes how many barrels of oil and tons of lumber the workers can produce. Use these numbers to answer the rest of this question. Draw a production possibilities frontier for each country. Assume there are 100 workers in each country. Canadians and Venezuelans desire both oil and lumber. Canadians want at least 2,000 tons of lumber. Mark a point on their production possibilities where they can get at least 3,000 tons. Assume that the Canadians specialize completely because they figured out they have a comparative advantage in lumber. They are willing to give up 1,000 tons of lumber. How much oil should they ask for in return for this lumber to be as well off as they were with no trade? How much should they ask for if they want to gain from trading with Venezuela? Note: We can think of this ask as the relative price or trade price of lumber. Is the Canadian ask you identified in (b) also beneficial for Venezuelans? Use the production possibilities frontier graph for Venezuela to show that Venezuelans can gain from trade.
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