3. Are the following statements true or false? Explain in each case. (a) "Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods." (b) "Certain very talented people have a comparative advantage in everything they do." (c) "If a certain trade is good for one person, it can?t be good for the other one."
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- 5. The price of trade Suppose that Slovenia and Wales both produce ale and glass. Slovenia's opportunity cost of producing a pane of glass is 5 kegs of ale while Wales's opportunity cost of producing a pane of glass is 9 kegs of ale. By comparing the opportunity cost of producing glass in the two countries, you can tell that production of glass and has a comparative advantage in the production of ale. Suppose that Slovenia and Wales consider trading glass and ale with each other. Slovenia can gain from specialization and trade as long as it receives more than of ale for each pane of glass it exports to Wales. Similarly, Wales can gain from trade as long as it receives more than of glass for each keg of ale it exports to Slovenia. Based on your answer to the last question, which of the following prices of trade (that is, price of glass in terms of ale) would allow both Wales and Slovenia to gain from trade? Check all that apply. 19 kegs of ale per pane of glass has a comparative…5. The price of trade Suppose that Hungary and Luxembourg both produce boots and wheat. Hungary's opportunity cost of producing a bushel of wheat is 5 pairs of boots while Luxembourg's opportunity cost of producing a bushel of wheat is 9 pairs of boots. By comparing the opportunity cost of producing wheat in the two countries, you can tell that production of wheat and has a comparative advantage in the production of boots. has a comparative advantage in the Suppose that Hungary and Luxembourg consider trading wheat and boots with each other. Hungary can gain from specialization and trade as long as it receives more than of boots for each bushel of wheat it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it of wheat for each pair of boots it exports to Hungary. receives more than Based on your answer to the last question, which of the following prices of trade (that is, price of wheat in terms of boots) would allow both Luxembourg and Hungary to gain from…5. Comparative Advantage The following table describes the production possibilities of two cities in the country of Baseballia: Pairs of Red Socks per Worker per Hour Pairs of White Socks per Worker per Hour Boston Chicago 4 3. Without trade, the price of a pair of white socks (in terms of red socks) in Boston is of red socks, and in Chicago it is of red socks. has an absolute advantage in the production of red socks, and has an absolute advantage in the production of white socks. has a comparative advantage in the production of red socks, and has a comparative advantage in the production of white socks. If the cities trade with each other, Boston will export socks, and Chicago will export socks. The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities better off is of red socks per pair of white socks, and the lowest price that makes both cities better off is of red socks per pair of white socks.…
- 4) According to the theory of comparative advantage, a country A. imposes tariffs on goods in which it does not have comparative advantage. B. imports the goods in which it has plenty of factors of production. C. exports the goods in which it does not have comparative advantage. D. imports the goods in which it does not have comparative advantage.5. The price of trade Suppose that Croatia and Wales both produce ale and broccoli. Croatia's opportunity cost of producing a bushel of broccoli is 5 kegs of ale while Wales's opportunity cost of producing a bushel of broccoli is 10 kegs of ale. By comparing the opportunity cost of producing broccoli in the two countries, you can tell that production of broccoli and has a comparative advantage in the production of ale. has a comparative advantage in the Suppose that Croatia and Wales consider trading broccoli and ale with each other. Croatia can gain from specialization and trade as long as it receives more than of ale for each bushel of broccoli it exports to Wales. Similarly, Wales can gain from trade as long as it receives more than of broccoli for each keg of ale it exports to Croatia. Based on your answer to the last question, which of the following prices of trade (that is, price of broccoli in terms of ale) would allow both Wales and Croatia to gain from trade? Check all that…3. The table below shows output per hour worked in production of wheat and cloths in theUnited States and United Kingdom, respectively.US Wheat (bushels per hour) 12 Cloths (yards per hour) 6 UK Wheat (bushels per hour) 6Cloths (yards per hour) 18 Assess all the statements below and judge which of them is true and which is false.Provide a short justification for your assessment.a) The US has an absolute advantage in the production of wheat.b) The UK has an absolute disadvantage in the production of cloths.c) The opportunity cost of cloths in the US is one-half bushels of wheat.d) The UK has an absolute and comparative advantage in cloth, whereas the US a comparativeadvantage in wheat.e) There is no basis for trade between these two countries because the UK would benefit morethan the US.
- 3. Gains from trade Suppose there exist two imaginary countries, Everglades and Denali. Their labor forces are each capable of supplying four million hours per week that can be used to produce shorts, almonds, or some combination of the two. The following table shows the amount of shorts or almonds that can be produced by one hour of labor. Country Shorts Almonds (Pairs per hour of labor) (Pounds per hour of labor) Everglades 5 20 Denali 8 16 Suppose that initially Denali uses 1 million hours of labor per week to produce shorts and 3 million hours per week to produce almonds, while Everglades uses 3 million hours of labor per week to produce shorts and 1 million hours per week to produce almonds. As a result, Everglades produces 15 million pairs of shorts and 20 million pounds of almonds, and Denali produces 8 million pairs of shorts and 48 million pounds of almonds. Assume there are no other countries willing to engage in trade, so, in the absence of…Multiple-Choice Questions 1. If a nation has an absolute advantage in the production of a good, a. b. C. d. e. 2. If a nation has a comparative advantage in the production of a good, it can produce that good at a lower opportunity cost than its trading partner. it can produce that good using fewer resources than its trading partner. it can benefit by restricting imports of that good. it will specialize in the production of that good and export it. none of the above is true. a. b. it can produce that good at a lower opportunity cost than its trading partner. it can produce that good using fewer resources than its trading partner. it can benefit by restricting imports of that good. C. d. it must be the only country with the ability to produce that good. none of the above is true. e. 3. Which of the following statements about trade is true? a. Unrestricted international trade benefits every person in a country equally. b. People that are skilled at all activities cannot benefit from…3. Gains from trade Suppose there exist two imaginary countries, Sequoia 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. Pistachios Chinos Country (Pounds per hour of labor) (Pairs per hour of labor) Sequoia Glacier 5 8 20 16 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 Sequoia uses 3 million hours of labor per day to produce pistachios and 1 million hours per day to produce chinos. As a result, Sequoia produces 15 million pounds of pistachios and 20 million pairs of chinos, and Glacier produces 8 million pounds of pistachios and 48 million pairs of chinos. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two…
- B) Comparative Advantage 1. Country A has 100 workers and Country B has 100 workers. Every worker in Country A can produce 6 tons of wheat per year, or can produce 12 tons of corn per year. Every worker in Country B can produce 2 tons of wheat per year, or can produce 10 tons of corn per year. a. Which country has an absolute advantage in wheat? b. Which country has an absolute advantage in corn? c. Which country has a comparative advantage in wheat? d. Which country has a comparative advantage in corn? Suppose initially the countries do not trade and Country A has 50 workers producing corn and 50 producing wheat. Country B has 30 workers producing corn and 70 producing wheat. Fill out the following table: Country A Country B Corn Produced Wheat Produced Now the two countries trade with one another. e. What good does Country A specialize in? f. What good does Country B specialize in? If these countries have all workers produce the product that their country has a comparative advantage…2. Suppose that two countries can produce wheat or cotton. If country A produces only wheat it can produce 55 units of wheat, and if it produces only cotton it can produce 35 units of cotton. If country B produces only wheat it can produce 65 units of wheat, and if it produces only cotton it can produce 45 units of cotton. Given the production possibilities curves above, which of the following would be feasible terms of trade between country A and country B? a. one unit of wheat for 0.75 unit of cotton. b. one unit of cotton for 1.5 units of wheat. c. one unit of wheat for 0.55 unit of cotton. d. one unit of cotton for 1.67 units of wheat. e. all of the above are feasible terms of trade. f. none of the above are feasible terms of trade.3. Gains from trade Consider two neighboring island countries called Bellissima and Dolorium. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor. Country Rye Jeans (Bushels per hour of labor) (Pairs per hour of labor) Bellissima 8 16 Dolorium 5 20 Initially, suppose Bellissima uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Dolorium uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Bellissima produces 8 million bushels of rye and 48 million pairs of jeans, and Dolorium produces 15 million bushels of rye and 20 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country…