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Exam 3: Interdependence and the Gains From Trade

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Question 71

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If China is capable of producing either teddy bears or toy trains or some combination of the two, then

A) China should specialize in the product in which it has an absolute advantage.
B) it would be impossible for China to have an absolute advantage over another country in both products.
C) it would be difficult for China to benefit from trade with another country if China is efficient in the production of both goods.
D) China's opportunity cost of teddy bears is the inverse of its opportunity cost of toy trains.

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

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Question 72

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Which of the following statements about comparative advantage is not true?

A) Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.
B) The principle of comparative advantage applies to countries as well as to individuals.
C) Economists use the principle of comparative advantage to emphasize the potential benefits of free trade.
D) A country may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good.

E) B) and C)
F) None of the above

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Question 73

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​Whenever a country has an absolute advantage in the production of a good, that implies that the country should specialize in the production of that good.

An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside its production possibilities frontier.

Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer spends 1 hour less producing corn and 1 hour more producing beans, he reduces his output of corn by 2 bushels and raises his output of beans by 3 bushels. In view of these assumptions, the farmer's production possibilities frontier is bowed out.

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. Which country, if either, has a comparative advantage producing broccoli? Defend your answer using the numbers given.

Figure 3-2 -Refer to Figure 3-2. If the production possibilities frontier shown is for 32 hours of production, then how long does it take Venezuela to make one pound of peanuts?

If the U.S. could produce 5 televisions per hour of labor and China could produce 3 televisions per hour of labor, would it necessarily follow that the U.S. should specialize in television production? Explain your answer using the concepts of comparative and or absolute advantage.

Figure 3-4 -Refer to Figure 3-4. Both Alvina and Betty

Tom's opportunity cost of mowing a lawn is 2 loads of laundry. Jen's opportunity cost of mowing a lawn is 1.5 loads of laundry. What is the range of prices for mowing a lawn at which Tom and Jen could both benefit from trade?

Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.

​When it is said that trade between nations can make both sides of the trade better off, this means that all citizens in each nation will benefit.

Which of the following is not correct?

The most obvious benefit of specialization and trade is that they allow us to

Suppose Jack and Tucker can both produce two goods: toy cars and dinosaur figures. Which of the following is not possible?

Table 3-13 -Refer to Table 3-13. Which country has an absolute advantage in producing radios?

Production possibilities frontiers cannot be used to illustrate trade-offs.

Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes. Ming-la can complete an oil change in 30 minutes and she can write a poem in 90 minutes. Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.

The production possibilities frontier illustrates

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. Which country, if either, has an absolute advantage producing rice? Defend your answer.