Which statement about free trade is MOST accurate? A. Free trade frequently leads to high rates of unemployment because it encourages inefficiency. B. Free trade discourages economic specialization because consumers can purchase goods from multiple markets. C. Free trade causes the price of goods to increase by creating more competitive labor markets. D. Free trade allows industries to use their resources for production and import what they cannot produce efficiently.
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- A worker in country A can produce either 5 computers or 45 tons of rice, while a worker in country B canproduce either 7 computers or 42 tons of rice. a. Graph the production possibilities curve for each country. On which point of the curve would eachcountry produce if the workers spent half of their time producing each good? b. Which country has absolute advantage? Which country has comparative advantage? In theproduction of rise Country A absolute advantage c. If there was trade, which country would specialize in the production of rice? d. At what price of computers would the countries agree to trade?1.Under what conditions is the production possi bilities frontier linear rather than bowed out? 2.Explain how absolute advantage and compara-tive advantage differ. 3.Give an example in which one person has anabsolute advantage in doing something butanother person has a comparative advantage. 4.Is basoute advantage or comparative advantage more important for trade? Explain yourreasoning using the example in your answer toQuestion 3..If two parties trade based on comparativeavantage an ot gain, in wat range mustthe price of the trade lie?.Will a nation tend to export or import goods forwhich it has a comparative advantage?scenario Production Advantage and Opportunity CostsAssume there are two countries, the United States and France, and two goods, automobiles andcomputers.The table presented below shows the number of automobiles and computers that the United States andFrance can produce with the same amount of resources.United States FranceAutomobiles 120 100Computers 60 55Source: Pearson Education Inc. 1.1 Which country has an absolute advantage in computer production? Motivate your answer.1.2 Which country has a comparative advantage in the production of automobiles? Motivateyour answer. 1.3 Assume these countries trade with one another under the conditions of free trade. Whichcountry will specialise in the production of automobiles? Motivate your answer. 1.4 If free trade exists between the United States and France, what are the highest and lowestlevels for the price of an automobile (expressed in terms of computers)? Motivate youranswer by stating which level favours the United States and France.
- Home has 1,200 units of labor available. It can produce two goods, apples and bananas.The unit labor requirement in apple production is 3, while in banana production it is 2.a. Graph Home’s production possibility frontier.b. What is the opportunity cost of apples in terms of bananas?c. In the absence of trade, what would the price of apples in terms of bananas be?Why?2. Home is as described in problem 1. There is now also another country, Foreign, with alabor force of 800. Foreign’s unit labor requirement in apple production is 5, while inbanana production it is 1.a. Graph Foreign’s production possibility frontier.b. Construct the world relative supply curve.1. Home has 1,200 units of labour available. It can produce two goods, cars and televisions. The unitlabour requirementin car production is 3, while in television production it is 2.(a) Graph Home’s production possibility frontier.(b) What is the opportunity cost of cars in terms of televisions?(c) In the absence of trade, what would be the price of cars in terms of televisions? Why?1. Describe and illustrate what a Production Possibility Frontier (PPF) for a two good economy looks like, which if it used all its resources, can produce either 300 units of national security or 140 units of health care, or some combination of the two. 2. Explain what the opportunity cost is and calculate it for this example (assume constant opportunity cost).
- 1. Home has 1,200 units of labor available. It can produce two goods, apples and bananas.The unit labor requirement in apple production is 3, while in banana production it is 2.a. Graph Home’s production possibility frontier.b. What is the opportunity cost of apples in terms of bananas?c. In the absence of trade, what would the price of apples in terms of bananas be?Why?2. Home is as described in problem 1. There is now also another country, Foreign, with alabor force of 800. Foreign’s unit labor requirement in apple production is 5, while inbanana production it is 1.a. Graph Foreign’s production possibility frontier.b. Construct the world relative supply curve.3. Now suppose world relative demand takes the following form: Demand for apples/demandfor bananas = price of bananas/price of apples.a. Graph the relative demand curve along with the relative supply curve.b. What is the equilibrium relative price of apples?c. Describe the pattern of trade.d. Show that both Home and Foreign gain…Could a nation be producing in a way that is allocatively efficient, but productively inefficient?Production Advantage and Opportunity CostsAssume there are two countries, the United States and France, and two goods, automobiles andcomputers.The table presented below shows the number of automobiles and computers that the United States andFrance can produce with the same amount of resources.United States FranceAutomobiles 120 100Computers 60 55Source: Pearson Education Inc. 1.1 Which country has an absolute advantage in computer production? Motivate your answer.1.2 Which country has a comparative advantage in the production of automobiles? Motivateyour answer. 1.3 Assume these countries trade with one another under the conditions of free trade. Whichcountry will specialise in the production of automobiles? Motivate your answer. 1.4 If free trade exists between the United States and France, what are the highest and lowestlevels for the price of an automobile (expressed in terms of computers)? Motivate youranswer by stating which level favours the United States and France.
- a) Draw a production possibilities frontier (PPF) for a society that produces two goods, guns and wheat. Suppose this society has two political parties, party R (who want a strong military) and party L (who want a smaller military). Show points on your diagram that party R and party L chooses. b) Show graphically whether your PPF will change if all the resources used for both the goods were equally suitable for production of guns and wheat? c) Assuming that b stands and if all the resources are used for the production of guns, 20 guns can be produced and if all the resources are used for production of wheat, 80 units of wheat can be produced, then what is the opportunity cost of producing one gun?Suppose that there are 10 million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year. What is the opportunity cost of producing a car in Canada? What is the opportunity cost of producing a bushel of wheat in Canada? Explain the relationship between the oppor-tunity costs of the two goods. Draw Canada’s production possibilities frontier. If Canada chooses to consume 10 million cars, how much wheat can it consume with-out trade? Label this point on the production possibilities frontier. Now suppose that the United States offers to buy 10 million cars from Canada in exchange for 20 bushels of wheat per car. If Canada continues to consume 10 million cars, how much wheat does this deal allow Canada to consume? Label this point on your diagram. Should Canada accept the deal?. Which country has an absolute advantage in the production of fruit? Which countryhas an absolute advantage in the production of timber?b. Which country has a comparative advantage in the production of fruit? of timber?c. Sketch the PPF’s for both countries.d. Assuming no trading between the two, if both countries wanted to have equalnumbers of feet of timber and baskets of fruit, how would they allocate workers tothe two sectors?e. Show that specialization and trade can move both countries beyond their PPF’s.