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Exam 3: Interdependence and the Gains From Trade

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Question 1

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The gains from specialization and trade are based on absolute advantage.

A) True
B) False

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Question 2

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Figure 3-2 Uzbekistan's Production Possibilities Frontier Azerbaijan's Production Possibilities Frontier -Refer to Figure 3-2.If Uzbekistan and Azerbaijan each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails,then

A) neither Uzbekistan nor Azerbaijan will gain from this trade.
B) Uzbekistan will gain from this trade,but Azerbaijan will not.
C) Azerbaijan will gain from this trade,but Uzbekistan will not.
D) both Uzbekistan and Azerbaijan will gain from this trade.

E) All of the above
F) B) and C)

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Question 3

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When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all

The opportunity cost of an item is

Adam Smith was the author of the 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

Table 3-6 $\begin{array} { c c c c c } &&& { \text { Labor Hours Needed to } } &&&& { \text { Amount } } \\&&& { \text { Make 1 Pound of } } &&&& \text { Produced in } 40 \text { hours } \\\hline\end{array}$ $\begin{array} { c c c c c } & \text { Meat } & \text { Potatoes } & \text { Meat } & \text { Potatoes } \\\hline \text { Farmer A } & 8 \text { hours/pound } & 5 \text { hours/pound } & 5 \text { pounds } & 8 \text { pounds } \\\text { Farmer B } & 4 \text { hours/pound } & 10 \text { hours/pound } & 10 \text { pounds } & 4 \text { pounds }\end{array}$ -Refer to Table 3-6.For farmer A,the opportunity cost of 1 pound of meat is

Table 3-1 Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate. -Refer to Table 3-1.Andia has an absolute advantage in the production of

Figure 3-2 Uzbekistan's Production Possibilities Frontier Azerbaijan's Production Possibilities Frontier -Refer to Figure 3-2.Suppose Azerbaijan is willing to trade 3 nails to Uzbekistan for every bolt that Uzbekistan makes and sends to Azerbaijan.Which of the following combinations of bolts and nails could Azerbaijan then consume,assuming Uzbekistan specializes in making bolts and Azerbaijan specializes in making nails?

David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.

Table 3-6 $\begin{array} { c c c c c } &&& { \text { Labor Hours Needed to } } &&&& { \text { Amount } } \\&&& { \text { Make 1 Pound of } } &&&& \text { Produced in } 40 \text { hours } \\\hline\end{array}$ $\begin{array} { c c c c c } & \text { Meat } & \text { Potatoes } & \text { Meat } & \text { Potatoes } \\\hline \text { Farmer A } & 8 \text { hours/pound } & 5 \text { hours/pound } & 5 \text { pounds } & 8 \text { pounds } \\\text { Farmer B } & 4 \text { hours/pound } & 10 \text { hours/pound } & 10 \text { pounds } & 4 \text { pounds }\end{array}$ -Refer to Table 3-6.For farmer B,the opportunity cost of 16 pounds of meat is

Economists generally support

Which famous economist developed the principle of comparative advantage as we know it today?

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

For a country producing two goods,the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Assume for Namibia that the opportunity cost of each hut is 200 bowls.Which of these pairs of points could be on Namibia's production possibilities frontier?

Figure 3-1 Peru's Production Possibilities Frontier -Refer to Figure 3-1.The fact that the line slopes downward reflects the fact that

A farmer has the ability to grow either corn or cotton or some combination of the two.Given no other information,it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton

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

By definition,imports are

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