Econ 201 Chapter 2 practice

• LEARN BY DOING: PRACTICE QUESTION 1 • Suppose you are stranded on an island. Luckily, this island is rich in clams and mangos. If you devote all of your time to harvesting clams, you can get 100 clams in a week. If you use all of your time to collect mangos, you can find 200 mangos in a week. • Assume it is possible to collect fractional amounts of both goods and draw a sketch of your production possibility frontier for a week. (Place mangos on the x-axis and clams on the y- axis.) • Calculate the opportunity cost of each good. • LEARN BY DOING: PRACTICE QUESTION 2 • With a partner, create your production possibilities curve for the following two activities: (a) drawing happy faces and (b) drawing elephants: • Take turns timing each other for 30 seconds and recording the following: The maximum number of happy faces drawn The maximum number of elephants drawn • Now construct your PPF with elephants on the vertical axis and faces on the horizontal axis. • Calculate your opportunity cost for each good. • LEARN BY DOING: PRACTICE QUESTION 3 • If Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. This year Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food.  (assume linear production possibility frontiers) • _______has the absolute advantage in the production of clothing and ________has the absolute advantage in the production of food. • Texia; Texia • Texia; Urbania • Urbania; Texia • Urbania; Urbania • LEARN BY DOING: PRACTICE QUESTION 3 (Answer) • If Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. This year Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food.  (assume linear production possibility frontiers) • _______has the absolute advantage in the production of clothing and ________has the absolute advantage in the production of food. • Texia; Texia (correct answer) • Texia; Urbania • Urbania; Texia • Urbania; Urbania • LEARN BY DOING: PRACTICE QUESTION 4 • If Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. This year Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food.  (assume linear production possibility frontiers)  • _______has the comparative advantage in the production of clothing and ________has the comparative advantage in the production of food. • Texia; Texia • Texia; Urbania • Urbania; Texia • Urbania; Urbania

• LEARN BY DOING: PRACTICE QUESTION 4 (Answer) • If Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. This year Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food.  (assume linear production possibility frontiers)  • _______has the comparative advantage in the production of clothing and ________has the comparative advantage in the production of food. • Texia; Texia • Texia; Urbania (correct answer) • Urbania; Texia • Urbania; Urbania • LEARN BY DOING: PRACTICE QUESTION 5 • If a country specializes according to its own comparative advantage and then trades with other nations: • it will operate at a point inside its production possibilities frontier. • it can consume at a higher level than the domestic production possibilities frontier. • its production possibilities frontier will shift or rotate inward. • it can consume at the same level as the domestic production possibilities frontier. • LEARN BY DOING: PRACTICE QUESTION 5 (Answer) • If a country specializes according to its own comparative advantage and then trades with other nations: • it will operate at a point inside its production possibilities frontier. • it can consume at a higher level than the domestic production possibilities frontier. (correct answer) • its production possibilities frontier will shift or rotate inward. • it can consume at the same level as the domestic production possibilities frontier. • LEARN BY DOING: PRACTICE QUESTION 6 • Write down, then discuss with a partner: • What do you think? Would the U.S. economy be better off if we did not import so much clothing from China?   • List the groups who you think would gain and the groups who would lose if Chinese clothing imports were restricted. • LEARN BY DOING: PRACTICE QUESTION 7 • Suppose that in Australia, it takes 2 hours to harvest 10 bushels of apples and 4 hours to harvest 10 bushels of tomatoes. Suppose a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of these statements is TRUE? • Brazil has a comparative advantage in producing tomatoes. • Brazil has a comparative advantage in producing apples. • Brazil has an absolute advantage in producing both goods. • In trade between these two countries, Australia would gain and Brazil would lose. • LEARN BY DOING: PRACTICE QUESTION 7 (Answer) • Suppose that in Australia, it takes 2 hours to harvest 10 bushels of apples and 4 hours to harvest 10 bushels of tomatoes. Suppose a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of these statements is TRUE? • Brazil has a comparative advantage in producing tomatoes. (correct answer) • Brazil has a comparative advantage in producing apples. • Brazil has an absolute advantage in producing both goods. • In trade between these two countries, Australia would gain and Brazil would lose