Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 21.1, Problem 1ST
To determine
The favorable terms of trade between Country U and Country UK
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The table below for the United States and Mexico shows maximum feasible production rates per acre of wheat if no rice is produced and maximum feasible production rates per acre of rice if no
wheat are produced. Assume that the opportunity costs of producing these goods are constant in both countries.
Output per Acre with Trade
Wheat
80 tons
United States
Mexico
55 tons
For the United States, the opportunity cost of 1 ton of wheat is tons of rice. (Enter your response rounded to two decimal places.)
has a comparative advantage in wheat, and
has a comparative advantage in rice.
Now consider the following table that shows the production and consumption of wheat and rice if there is no trade.
Output per Acre with No Trade
Wheat
40.0 tons
27.5 tons
United States
Mexico
Total output of wheat if the two countries do not trade
tons. (Enter your response rounded to one decimal place.)
Total output of rice if the two countries do not trade
tons. (Enter your response rounded to one decimal place)…
Happyland can produce 40 tones of marshmallows or 20 tones of chocolate in a year. Friendshipland can produce 80 tones of marshmallows or 40 tones of chocolate in a year. Can these countries benefit from trade with each other based on specialization and comparative advantage?
Yes
No
Suppose that a worker in Freedonia can produce either 6 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 6 units of wheat per year. Each nation has 10 workers. For many years the two countries traded, each completely specializing in producing the grain for which it has a comparative advantage. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 30 units of wheat. By how much has the combined yearly output of the two countries declined?
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- Create a diagram similar to Figure 1.4 in which demand in both countries is identical and trade arises because of differences in supply. Do another diagram in which supply is identical across nations but differences in demand lead to trade.arrow_forwardSuppose that country A using one unit of labor can produce 80 pounds of apples or 20 pounds of oranges, while country B using the same unit of labor can produce 40 pounds of apples or 15 pounds of oranges. This shows that: A) B has a comparative advantage in the production of apples. B) If A and B trade, A should specialize in the production of oranges. C) B has a comparative advantage in the production of oranges.arrow_forwardTrue or False. Both Countries would be better off if they produced the good in which they have a comparative advantage and then traded 300 million tons of grain for 200 million cars.arrow_forward
- Consider two countries, the U.S. and Bangladesh, trading two goods, shoes and food. There are two factors of production, labor and capital. Assume that the production of shoes is relatively more capital intensive than the production of food in the U.S. Instead, the production of shoes is relatively more labor intensive in Bangladesh than the production of food. Assume that the U.S. is the capital abundant country and that Bangladesh is labor abundant. Both goods are produced by both countries in equilibrium. Illustrate the initial factor prices and factor intensities in a carefully drawn and labeled diagram with capital on the y-axis and labor on the x-axis, and indicate the cone(s) of diversification. Assume that the world price of shoes declines, but that both countries' continue to produce both goods. Illustrate the effect of this change in either the same or a new diagram. How do the real returns to both factors change in the two countries? Explain whether your findings are…arrow_forwardSuppose Canada can produce cars at an opportunity cost of 2 computers for each car it produces. Suppose Mexico can produce cars at an opportunity cost of 8 computers for each car it produces. Indicate how both countries can gain from free trade.arrow_forwardSuppose that a worker in Freedonia can produce either 12 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 12 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 60 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 60 units of wheat. Then suppose that trade is initiated between the two countries, and Freedonia sends 60 units of corn to Sylvania in exchange for 60 units of wheat. What maximum amounts will Freedonia now be able to consume? 0 units of corn and 60 units of wheat 0 units of corn and 120 units of wheat 60 units of corn and 60 units of wheat 120 units of corn and 120 units of wheatarrow_forward
- Assume that the global economy consists of only two countries called F and G. It is said that there are only two goods, X and Y, at the same time. Below are the different combinations the two countries can each produce. Assuming that the cost of production is constant, what is the pre-trade opportunity cost of X 1 unit in Y? 1. (1) Country F: X 10 units or Y 20 units. (2) Country G: X 10 units or Y 10 units. 2. (1) Country F: X 2 units or Y 4 units. (2) Country G: X 3 units or Y 6 units. 3. (1) Country F: X 20 units or Y 5 units. (2) Country G: X 18 units or Y 2 units. 4. Among the cases presented in (1)-(3) above, which case satisfies the following conditions? Choose all State F exports good Y and imports good X (In which situations country F will export good Y and import good X.) 5. Which of the cases presented in (1)-(3) above satisfies the following conditions? Choose all Situation where trade does not occur (In which situations no trade will take place.)arrow_forwardSuppose the United States can produce cars at an opportunity cost of two computers for each car it produces. Suppose Mexico can produce cars at an opportunity cost of eight computers for each car it produces. Discuss how both countries can gain from free trade.arrow_forwardChoose four countries. One country in North America, another country in Central America, another country in the Caribbean and another country in South America and indicate, using the gravity model, which factors should increase or reduce trade between those countries. After that, choose a country in Europe and indicate, using the Gravity Model, how the intensity of trade changes with five countries. You must take into account the concept of the gravity model and the factors that affect trade such as language, culture, trade agreements, among others. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
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