PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 3P
(a)
To determine
Illustrate the
(b)
To determine
Illustrate the consumption possibilities for Costa Rica in the case of an open economy.
(c)
To determine
Explain the answer based on the assumption that 1 computer traded for 80 pounds of coffee on world markets.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
In 2017, Ecuador's biggest export was crude (unprocessed) petroleum, 63% of which it exported to the United States, and
Ecuador's biggest import was refined (processed) petroleum, of which 70% was imported from the United States. What does
this tell you about the countries' comparative advantages in extracting petroleum and refining petroleum?
This information suggests that
has a comparative advantage in refining petroleum, and
the United States
must I
ntage in extracting petroleum.
Ecuador
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:
Suppose that a worker in Country A can produce either 6 units of corn or 2 units of wheat per year, and a worker in Country B can
produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Country A produces and
consumes 30 units of corn and 10 units of wheat per year. Country B produces and consumes 10 units of corn and 30 units of
wheat. Suppose that trade is then initiated between the two countries, and Country A sends 30 units of corn to Country B in
exchange for 30 units of wheat. Country A will now be able to consume a maximum of
Select one:
a.30 units of corn and 30 units of wheat.
b.40 units of corn and 20 units of wheat.
c.40 units of corn and 30 units of wheat.
d.10 units of corn and 40 units of wheat.
Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Knowledge Booster
Similar questions
- With its given resources, Nicaragua can produce either 20 thousand pounds of chicken or 80 thousand pounds of quinoa per year. Costa Rica can produce either 100 thousand pounds of chicken or 200 thousand pounds of quinoa per year. Suppose the countries completely specialize and they decide to trade 14 thousand pounds of chicken for 42 thousand pounds of quinoa. After trade, Nicaragua will consume thousand pounds of chicken and thousand pounds of quinoa. After trade, Costa Rica will consume thousand pournds of chicken and thousand pounds of quinoa. Round to the nearest whole number.arrow_forwardAssume that the world economy is composed of only two countries (Canada and the United States) and only two goods (steel and wheat). The table below reports the units of steel or wheat per unit of labor in Canada and in the United States Steel per Wheat per unit of labor unit of labor Canada United States 9. 3 Suppose both the US and Canada have 10 units of labor. Use the joint PPF to answer the following: If the two countries are producing 25 units of wheat, what is the opportunity cost of wheat? Hint: draw the PPF and ask what is the slope when 25 units are being produced? 2.5 2.75 3arrow_forwardThe following graph shows a PPC for the imaginary country of Caldonia producing flyboats and time-stopping watches. Suppose a technological change improves production of time-stopping watches. So Caldonia can make more time-stopping watches with the same amount of resources, whereas production of time-stopping watches does not change. Adjust the vertical and horizontal intercepts of the PPC to show the effect of the the technological change on Caldonia's economy. (Hint: Do not move the intercept if the production of a good is not affected.) Quantity of time-stopping watches PPC Quantity of flyboats Before the technological change, point X was first box unattainable inefficient efficient second box unattainable inefficient efficient PPC and after the event, it isarrow_forward
- The production possibilities frontiers in the figure to the right show how many bananas and coconuts you (Y) and your neighbor (N) can consume without trade. Suppose you are initially consuming 6 bananas and 6 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. You give your neighbor half of your production for half of what he produces. (Enter all responses as integers.) If you trade with your neighbor, then you will have additional coconut(s) after the trade and banana(s). additional At the same time, your neighbor will be able to consume additional banana(s) and will be as a result of trade. Quantity of coconuts 287 26- 24- 22- 20- 18- 16- 14- 12- 10- 8- 6- 4- 2- 0- Your PPF 0 N Neighbor's PPI 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Quantity of bananasarrow_forwardThe production possibilities frontiers in the figure to the right show how many bananas and coconuts you (Y) and your neighbor (N) can consume without trade. Suppose you are initially consuming 7 bananas and 3 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. You give your neighbor half of your production for half of what he produces. (Enter all responses as integers.) If you trade with your neighbor, then you will have additional coconut(s) after the trade and additional banana(s). At the same time, your neighbor will be able to consume as a result of trade additional banana(s) and will be Quantity of coconuts 28 26- 24- 22- 20- 4- Your PPF N Neighbor's PPF Y 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Quantity of bananas Q Garrow_forwardWhen a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Sylvania. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. Freedonia Sylvania 32 32 28 28 24 PPF 24 20 20 16 16 12 12 PPF 8 8 4 4 4 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 POTATOES (Millions of pounds) POTATOES (Millions of pounds) Freedonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a comparative…arrow_forward
- Q32 Consider the Production Possibility Frontiers of two countries, Australia and Brazil. Assume both have linear PPFs and the two countries both produce the same two goods: fruits and grain. Given its resources, Australia can produce either 2 units of grain per day or 1 unit of fruits; Brazil can produce either 5 units of grain or 4 units of fruits. (You may, for your own use, find it helpful to draw the Production Possibilities Frontiers for each country, though these won't be included in the answers you provide in you online responses.) a. If there were no trade, what would be the local price of fruits in each country, measured in units of grain? b. If trade is allowed, which country will export fruits and which country will export grain (if any)? c. What are the gains from trading a unit of fruit if the international price of fruit is equal to the average of the local prices in the two countries? d. How are the gains from trade distributed? Comment on why the benefits…arrow_forwardUnsure how to solvearrow_forwardFreedonia has a comparative advantage in the production of (grain, tea, neither grain nor tea, both grain and tea), while Desonia has a comparative advantage in the production of (grain, tea, neither grain nor tea, both grain and tea). If each fully specializes that is, produces only the good for which each has a comparative advantage, the most the two countries can produce is ( )million pounds of grain and ( )million pounds of tea. As you did for Freedonia, use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Desonia. Then place the black point (plus symbol) on the trading possibilities line to indicate Desonia’s consumption after specialization and trade. True or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumption bundles. (Hint: Base your answer to this question on the answers you previously entered on this page.) a) True b) Falsearrow_forward
- When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Sylvania. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 0 PPF 1 Freedonia 24, 12 8 16 24 32 40 48 LEMONS (Millions of pounds) 56 64 (?) SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 PPF 0 8 Sylvania A 16 24 32 40 48 56 64 LEMONS (Millions of pounds) (?) Freedonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of . Suppose that Freedonia and Sylvania…arrow_forwardSuppose the United States is currently producing 140 tons of hamburgers and 63 tons of tacos and Mexico is currently producing 14 tons of hamburgers and 35 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of _____ additional ton(s) of hamburgers can be produced for the two countries combined (enter a numeric response using an integer) and a total of ____ additional ton(s) of tacos can be produced.arrow_forwardAs you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Sylvania's consumption after trade. Sylvania 80 70 Consumption After Trade 60 PPF 50 40 30 20 10 20 30 40 50 60 70 80 LEMONS (Millions of pounds) True or False: Without engaging in international trade, Freedonia and Sylvania would not have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) O True O False TEA (Millions of pounds)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you