Connect Access Card For Principles Of Macroeconomics, 7th
7th Edition
ISBN: 9781260111019
Author: Frank Robert H
Publisher: McGraw-Hill Education
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Chapter 16, Problem 16.1CC
To determine
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Suppose that country A using one unit of labor can produce 80 pounds of apples or 20 pounds of oranges, while country B using the same unit of labor can produce 40 pounds of apples or 15 pounds of oranges. This shows that:
A) B has a comparative advantage in the production of apples.
B) If A and B trade, A should specialize in the production of oranges.
C) B has a comparative advantage in the production of oranges.
Suppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000.
(g) If the terms of trade is 2 to 1 in favour of the country with the comparative advantage in food. Determine the combination of the two goods that each country will consume after trade if the country with the comparative advantage in fuel imports 4000 units of food. Label this point B and B* respectively.
h) Who gains from trade? Who loses? What is the impact if any on the world?
(i) What should the terms of trade be to make trade beneficial for BOTH Japan and Peru? Explain.
The country of "Econoland" can use its resources to produce either 500 tons of crab or 200 tons of plywood. Its rival, "Arcadonia," is able to produce either 200 tons of crab or 100 tons of plywood.From this passage, it can be concluded that
Arcadonia should specialize in producing plywood.
Econoland has a comparative advantage in plywood.
Arcadonia has an absolute advantage in the production of both crab and plywood.
Econoland should specialize in producing plywood, and trade them with Arcadonia for crabs.
Chapter 16 Solutions
Connect Access Card For Principles Of Macroeconomics, 7th
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- In Country T, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In Country Y, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Country T has a comparative advantage over Country Y in cocoa. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion stems from which of these inaccurate assumptions? Multiple Choice We have assumed constant returns to scale. We have assumed the prices of resources and exchange rates in the two countries are dynamic. We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. We have assumed that agrarian nations do not specialize in producing particular products. We have assumed diminishing returns to specialization.arrow_forwardSuppose that a worker in Freedonia can produce either 6 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 6 units of wheat per year. Each nation has 10 workers. For many years the two countries traded, each completely specializing in producing the grain for which it has a comparative advantage. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 30 units of wheat. By how much has the combined yearly output of the two countries declined?arrow_forwardSuppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces jeans will produce million pairs per week, and the country that produces corn will produce million bushels per week.arrow_forward
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