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Questions and Answers
(1071 solutions)

Suppose there exist two imaginary countries, Everglades and Glacier. Their labor forces are each capable of supplying four million hours per day that can be used to produce pistachios, chinos, or some combination of the two. The following table shows the amount of pistachios or chinos that can be produced by one hour of labor.

Country	Pistachios	Chinos
Country	(Pounds per hour of labor)	(Pairs per hour of labor)
Everglades	4	16
Glacier	6	12

Suppose that initially Glacier uses 1 million hours of labor per day to produce pistachios and 3 million hours per day to produce chinos, while Everglades uses 3 million hours of labor per day to produce pistachios and 1 million hours per day to produce chinos. As a result, Everglades produces 12 million pounds of pistachios and 16 million pairs of chinos, and Glacier produces 6 million pounds of pistachios and 36 million pairs of chinos. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of pistachios and chinos it produces.

Everglades's opportunity cost of producing 1 pound of pistachios is4 pairs of chinos, and Glacier's opportunity cost of producing 1 pound of pistachios is of chinos. Therefore, has a comparative advantage in the production of pistachios, and has a comparative advantage in the production of chinos.

Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces pistachios will produce

million pounds per day, and the country that produces chinos will produce

million pairs per day.

In the following table, enter each country's production decision on the third row of the table (marked “Production”).

Suppose the country that produces pistachios trades 14 million pounds of pistachios to the other country in exchange for 42 million pairs of chinos.

In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked “Trade Action,” and enter each country's final consumption of each good on the line marked “Consumption.”

When the two countries did not specialize, the total production of pistachios was 18 million pounds per day, and the total production of chinos was 52 million pairs per day. Because of specialization, the total production of pistachios has increased by

million pounds per day, and the total production of chinos has increased by

million pairs per day.

Because the two countries produce more pistachios and more chinos under specialization, each country is able to gain from trade.

Calculate the gains from trade—that is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked “Increase in Consumption”).

	Everglades		Glacier
	Pistachios	Chinos	Pistachios	Chinos
	(Millions of pounds)	(Millions of pairs)	(Millions of pounds)	(Millions of pairs)
Without Trade
Production	12	16	6	36
Consumption	12	16	6	36
With Trade
Production
Trade action
Consumption
Gains from Trade
Increase in Consumption

Everglades's opportunity cost of producing 1 pound of pistachios is4 pairs of chinos, and Glacier's opportunity cost of producing 1 pound of pistachios is2 pairs of chinos. Therefore,Glacier has a comparative advantage in the production of pistachios, andEverglade...

Posted by Cleveland on August 29, 2024

Elijah and Aneesha are farmers. Each one owns an 18-acre plot of land. The following table shows the amount of zucchini and watermelon each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing zucchini or watermelon or to produce zucchini on some of the land and watermelon on the rest.

	Zucchini	Watermelon
	(Pounds per acre)	(Pounds per acre)
Elijah	12	3
Aneesha	18	6

On the following graph, use the blue line (circle symbol) to plot Elijah's production possibilities frontier (PPF), and use the purple line (diamond symbol) to plot Aneesha's PPF.

has an absolute advantage in the production of zucchini, and has an absolute advantage in the production of watermelon.

Elijah's opportunity cost of producing 1 pound of watermelon is

pounds of zucchini, whereas Aneesha's opportunity cost of producing 1 pound of watermelon is

pounds of zucchini. Because Elijah has a opportunity cost of producing watermelon than Aneesha, has a comparative advantage in the production of watermelon, and has a comparative advantage in the production of zucchini.

Elijah's opportunity cost of producing 1 pound of watermelon is4pounds of zucchini, whereas Aneesha's opportunity cost of producing 1 pound of watermelon is3pounds of zucchini. Because Elijah has ahigher opportunity cost of producing watermelon than Aneesha,Aneesha has a comp...

Posted by Cleveland on August 29, 2024

1. Specialization and production possibilities

Suppose Scotland produces only scooters and bikes. The resources that are used in the production of these two goods are not specialized—that is, the same set of resources is equally effective at producing both bikes and scooters.

The following graphs show two possible PPFs for Scotland's economy: a straight-line PPF (

{PPF}_{1}

) and a bowed-out PPF (

{PPF}_{2}

Based on the previous description, the trade-off Scotland faces between producing bikes and scooters is best represented by .

The shape of Scotland's production possibilities frontier (PPF) should reflect the fact that as Scotland produces more bikes and fewer scooters, the opportunity cost of producing each additional bikeremains constant .ased on the previous description, the trade-off Scotland faces between ...

Posted by Cleveland on August 29, 2024

Shahina is a tax accountant. She receives $100 per hour doing tax returns. She can type 10,000 characters per hour into spreadsheets. She can hire an assistant who types 2,500 characters per hour into spreadsheets. Which of the following statements is true?

a. Shahina should not hire an assistant because the assistant cannot type as fast as she can.

b. Shahina should hire the assistant as long as she pays the assistant less than $100 per hour.

c. Shahina should hire the assistant as long as she pays the assistant less than $25 per hour.

d. None of the answer choices are correct

c. Shahina should hire the assistant as long as she pays the assistant less than $25 per hour....

Posted by Cleveland on August 29, 2024

Use the production possibilities frontiers in the exhibit to answer the question. Assume each country has the same number of workers, say 20 million, and that each axis is measured in metric tons per month.

The opportunity cost of producing 1 metric ton of beef in Colombia is ________.

d. 3 tons of fruit...

Posted by Cleveland on August 29, 2024

Colombia will export ________.

a. both fruit and beef

b. fruit

c. beef

d. neither fruit nor beef

b) Fruit...

Posted by Cleveland on August 29, 2024

Use the production possibilities frontiers in the Exhibit to answer the question. Assume each country has the same number of workers, say 20 million, and that each axis is measured in metric tons per month.

Brazil has a comparative advantage in the production of ________.

a. both fruit and beef

b. fruit

c. beef

d. neither fruit nor beef

c) Beef...

Posted by Cleveland on August 29, 2024

Suppose the world consists of two countries— Canada and Mexico. Furthermore, suppose there are only two goods—food and clothing. Which of the following statements is true?

a. If Canada has an absolute advantage in the production of food, then Mexico must have an absolute advantage in the production of clothing.

b. If Canada has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing.

c. If Canada has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing.

d. If Canada has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of food.

e. None of the answer choices are correct.

If Canada has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing....

Posted by Cleveland on August 29, 2024

The following table shows the units of output a worker can produce per month in Germany and Poland. Use this table to answer the question.

	Wheat	Computers
Germany	20	5
Poland	8	4

Prices of computers can be stated in terms of units of wheat. What is the range of prices of computers for which both countries could gain from trade?

a. The price must be greater than 1/4 of a unit of wheat but less than 1/2 of a unit of wheat.

b. The price must be greater than 1/5 of a unit of wheat but less than 1/4 of a unit of wheat.

c. The price must be greater than 2 units of wheat but less than 4 units of wheat.

d. The price must be greater than 4 units of wheat but less than 5 units of wheat.

The price must be greater than 2 units of wheat but less than 4 units of wheat....

Posted by Cleveland on August 29, 2024

The following table shows the units of output a worker can produce per month in Germany and Poland. Use this table to answer the question.

	Wheat	Computers
Germany	20	5
Poland	8	4

Poland should ________.

a. specialize in wheat production, export wheat, and import computers

b. specialize in computers production, export computers, and import wheat

c. produce both goods because neither country has a comparative advantage

d. produce neither good because it has an absolute disadvantage in the production of both goods

b. specialize in computers production, export computers, and import wheat...

Posted by Cleveland on August 29, 2024

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1. Specialization and production possibilities

Questions and Answers
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