ECON: MACRO4 (with CourseMate, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
4th Edition
ISBN: 9781285423623
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 17, Problem 1.3PA
To determine
The shape of the
Introduction:
Terms of trade: The terms of trade are defined as the ratio of exports to its imports
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12. Given this set of production possibilities and consumption (trade) possibilities frontiers, what happens to the prices of wine and cloth in each country as a result of trade?
a) The price of wine in Portugal increases from 1/3 yard/bottle to 1/2 yard/bottle.
b) The price of cloth in Portugal decreases from 3 bottles/yard to 2 bottles/yard.
c) The price of wine in England decreases from 1 yard/bottle to 1/2 yard/bottle.
d) The price of cloth in England increases from 1 bottle/yard to 2 bottles/yard.
e) All of the above
10. Given the above set of production possibilities and consumption (trade) possibilities frontiers, what happens to the prices of wine and cloth in each country as a result of trade?
a) The price of wine in Portugal decreases from ⅓ yard/bottle to ½ yard/bottle.
b) The price of cloth in Portugal increases from 3 bottles/yard to 2 bottles/yard.
c) The price of wine in England decreases from 1 yard/bottle to ½ yard/bottle.
d) The price of cloth in England increases from 1 bottle/yard to 3 bottles/yard.
e) All of the above
10)
PPFS for Countries X and Y
300
Y
200
400
tons of rice
a). In the graph above, what is the opportunity cost of producing a ton of wheat for each
country?
b) In the graph above, which country has a comparative advantage in producing wheat?
c) In the graph above, if both countries specialize in producing the good in which they
have a comparative advantage, together how much will they produce of each good?
Countries X and Y will produce 200 tons
rice for 100 tons of wheat
tons of wheat
Chapter 17 Solutions
ECON: MACRO4 (with CourseMate, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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- Question 1 Suppose that Country A and Country B have unit labour requirements for producing one tonne of steel and one tonne of oil shown in the following table: (Look at the image) (a) Determine which country has a comparative advantage in each good.(b) If Country A and Country B each have 100 units of labour, calculate the maximum production of each good for both countries (c) In the absence of trade, Country B uses 20% of its total labour units to produce steel and the rest to produce oil. Country A uses 60% of its total labour units to produce steel and the rest to produce oil. Calculate how many tonnes of steel and oil can be produced by both countries. (d) Both countries agree that one tonne of steel can be exchanged for one tonne of oil. Calculate the gains after trade is allowed if Country A consumes 30 tonnes of oil domestically.arrow_forward5. Comparative Advantage The following table describes the production possibilities of two cities in the country of Baseballia: Pairs of Red Socks per Worker per Hour Pairs of White Socks per Worker per Hour Boston Chicago 4 3. Without trade, the price of a pair of white socks (in terms of red socks) in Boston is of red socks, and in Chicago it is of red socks. has an absolute advantage in the production of red socks, and has an absolute advantage in the production of white socks. has a comparative advantage in the production of red socks, and has a comparative advantage in the production of white socks. If the cities trade with each other, Boston will export socks, and Chicago will export socks. The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities better off is of red socks per pair of white socks, and the lowest price that makes both cities better off is of red socks per pair of white socks.…arrow_forward1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why? Consider the following pairs of Which would you expect to have the more elastic demand? Why? water or diamonds insulin or nasal decongestant spray food in general or breakfast cereal gasoline over the course of a week or gasoline over the course of a year personal computers or IBM personal computersarrow_forward
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