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Exam 3: Interdependence and the Gains From Trade

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Question 51

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Trade between countries

A) allows each country to consume at a point outside its production possibilities frontier.
B) limits a country's ability to produce goods and services on its own.
C) must benefit both countries equally; otherwise, trade is not mutually beneficial.
D) can best be understood by examining the countries' absolute advantages.

E) A) and B)
F) A) and C)

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Question 52

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An assumption of the production possibilities frontier model is that technology is fixed.

A) True
B) False

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Question 53

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Jennifer takes 2 hours to make a loaf of bread and 1 hour to make a dozen cookies. Janet takes 3 hours to make a loaf of bread and 3/4 hours to make a dozen cookies. Who, if either, has an absolute advantage baking bread? Who, if either, has an absolute advantage making cookies?

Some countries win in international trade, while other countries lose.

Figure 3-3 -Refer to Figure 3-3. Tanek's opportunity cost of one burrito is

Figure 3-3 -Refer to Figure 3-3. If the production possibilities frontier shown for Tanek is for 120 hours of production, then how long does it take Tanek to make one burrito?

Scenario 3-1 ​ In country A a worker who works 40 hours can produce 200 pounds of rice or 100 pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds of rice or 120 pounds of broccoli. -Refer to Scenario 3-1. Give a range of prices in terms of pounds of rice per pound of broccoli at which the two countries would be both be willing to trade.

Figure 3-1 Graph (a) Graph (b) -Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches depends on how many chairs and couches are being produced in

Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because each person specializes in the activity for which he or she has the lower opportunity cost.

Figure 3-6 The production possibilities frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Greg's Production Possibilities Catherine's Production Possibilities ​ -Refer to Figure 3-6. What is Greg's opportunity cost of producing ice cream? Explain how you derived your answer.

Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why?

Differences in opportunity cost allow for gains from trade.

Figure 3-6 The production possibilities frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Greg's Production Possibilities Catherine's Production Possibilities ​ -Refer to Figure 3-6. Which if any good(s) does Greg have an absolute advantage producing?

As a student, Jordyn spends 40 hours per week writing term papers and completing homework assignments. On one axis of her production possibilities frontier is measured the number of term papers written per week. On the other axis is measured the number of homework assignments completed per week. Jordyn's production possibilities frontier is a straight line if

The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make.

Table 3-9 Summary of the Gains from Trade ​ ​ ​ -Refer to Table 3-9. The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade?

Adam Smith developed the theory of comparative advantage as we know it today.

If US workers can produce everything in less time than Mexican workers, it is not possible for the US to gain from trade with Mexico.

Table 3-12 ​ Assume that Indonesia and India can switch between producing maize and bananas at a constant rate. ​ ​ -Refer to Table 3-12. India's opportunity cost of producing bananas is

What does a consumption possibilities frontier represent?