PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 16, Problem 1P
(a)
To determine
Identify the actual and
(b)
To determine
Identify the maximum number of each type of fruit.
(c)
To determine
Illustrate the
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Q2. Suppose that there are two countries (A and B) and two goods (a labor-intensive good X, textile, and a capital-intensive good Y, electronics). The two countries have identical demand for the two goods but different labor and capital endowments. Suppose (Px/Py)A < (Px/Py)B in autarky.
Identify the capital-abundant country and the labor-abundant country, respectively.
Use a PPF-indifference-curve graph to identify the autarky equilibrium for country B.
In the same graph, show country B's gains from trade when the two countries trade at a level of Px/Py that is between the two countries' autarky price ratios.
In the above graph, identify the trade triangle (including export and import quantities) for country B.
What would be the effect of trade on country B's relative nominal wage rate, i.e., the ratio of nominal wage rate relative to nominal capital rental rate (w/r)? Illustrate your answer graphically.
Your answer:
When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its
trading partner. Then the country will specialize in the production of this good and trade it for other goods.
The following graphs show the production possibilities frontiers (PPFS) for Yosemite and Congares. Both countries produce corn and lentils, each
initially (ie, before specialization and trade) producing 6 million pounds of corn and 3 million pounds of lentils, as indicated by the grey stars marked
with the letter A.
LENTILS (MEns of pounds
0
0
194
2
Yout
4 10
CORN (Mof pounds)
14
16
LENTILS (Mons of pounds
0
2
Yosemite has a comparative advantage in the production of
production of
comparative advantage. After specialization, the two countries can produce a total of
comm.
Conger
L 10 12
COHN (Mof pounds)
14 16
(?)
conn
while Congaree has a comparative advantage in the
-Suppose that Yosemite and Congaree specialize in the production…
Specialization and trade
When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods.
The following graphs show the production possibilities frontiers (PPFs) for Shenandoah and Congaree. Both countries produce peas and lentils, each initially (i.e., before specialization and trade) producing 36 million pounds of peas and 18 million pounds of lentils, as indicated by the grey stars marked with the letter A.
Shenandoah has a comparative advantage in the production of PEAS or LENTILS or NEITHER PEAS OR LENTILS or BOTH PEAS AND LENTILS.
while Congaree has a comparative advantage in the production of PEAS or LENTILS or NEITHER PEAS OR LENTILS or BOTH PEAS AND LENTILS.
Suppose that Shenandoah and Congaree specialize in the production of the goods in which each has a comparative…
Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- In one day, Dahyun can produce 20 cakes or 40 brownies, and Sana can produce 25 cakes or 125 brownies. Suppose Dahyun and Sana each specialize in producing the good in which they have a comparative advantage. Select the statement that is TRUE for the following terms of trade: trade 1 cake for 7 brownies a Dahyun loses but Sana gains b Dahyun gains but Sana loses c Dahyun gains but Sana is neither better nor worse off (i.e. she is indifferent) d Both Dahyun and Sana are better offarrow_forwardIf country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. Which of the following must be true? check all that apply A and B have the same access to resources (inputs) A can produce more X than B with the same resources A can produce more Y than B could with the same resources B can produce Y at a lower opportunity cost than Aarrow_forwardIf country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. If these countries were going to trade after specializing in their respective comparative advantages, which of the following trades would be considered to be mutually beneficial where BOTH countries gain from trade (and are strictly better off than in autarky, the situation where they both self-reliant and do not trade with one another)? trade at a rate of 3X for 4Y trade at a rate of 2X for 3Y trade at a rate of 5X for 8Y trade at a rate of 3X for 5Yarrow_forward
- If country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. What is the opportunity cost of producing 10 units of X in country A? (hint: your answer should be measured in the positive number of units of good Y that must be given up - round your answer to two decimal places only if necessary)arrow_forwardThe diagram below shows a natural monopoly. If the firm is unregulated, how much deadweight loss will there be? 2$ 100 76 60 56 48 АТС 36 MC 20 MR 288 360 Q 84 144 180 204arrow_forwardIsabella and Antonio are auto mechanics. Isabella takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Antonio takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a comparative advantage. Instructions: Enter your responses rounded to two decimal places. The opportunity cost of replacing a set of brakes for Isabella is The opportunity cost of replacing a set of brakes for Antonio is has a comparative advantage in brake replacement. has a comparative advantage in clutch replacement. V has an absolute advantage in brake replacement. V has an absolute advantage in clutch replacement. Antonio Isabella Neither Isabellaarrow_forward
- Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 6 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 8 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a comparative advantage. Instructions: Enter your responses rounded to two decimal places. The opportunity cost of replacing a set of brakes for Nancy is The opportunity cost of replacing a set of brakes for Bill is (Click to select) has a comparative advantage in brake replacement. (Click to select) has a comparative advantage in clutch replacement. (Click to select) has an absolute advantage in brake replacement. (Click to select) has an absolute advantage in clutch replacement.arrow_forwardInitially, suppose Bellissima uses 1 million hours of labor per week to produce corn and 3 million hours per week to produce jeans, while Felicidad uses 3 million hours of labor per week to produce corn and 1 million hours per week to produce jeans. Consequently, Felicidad produces 15 million bushels of corn and 20 million pairs of jeans, and Bellissima produces 8 million bushels of corn and 48 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of corn and jeans it produces. What is Felicidad's oppunrtunity cost for 1 bushel of corn?arrow_forwardIsabella and Antonio are auto mechanics. Isabella takes 8 hours to replace a clutch and 6 hours to replace a set of brakes. Antonio takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a comparative advantage. Instructions: Enter your responses rounded to two decimal places. The opportunity cost of replacing a set of brakes for Isabella is The opportunity cost of replacing a set of brakes for Antonio is has a comparative advantage in brake replacement. has a comparative advantage in clutch replacement. has an absolute advantage in brake replacement. has an absolute advantage in clutch replacement. Antonio Isabella Antonio Antonioarrow_forward
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