EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Question
Chapter 3, Problem 4PA
Subpart (a):
To determine
Calculate the
Subpart (b):
To determine
Draw
Subpart (c):
To determine
Specialization and increase in consumption.
Expert Solution & Answer
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Students have asked these similar questions
Country A
Country B
200
corn
600
150
375 100
50
50 75100
150
200
cars
25
50
75
100
cars
a) What is the opportunity cost of making cars in each country? Make clear how you find this
and what it means.
b) If the countries were to specialize and trade, which country should specialize in making cars?
Why?
c) If the countries specialize completely according to comparative advantage (i.e.each
produces only what they have the comparative advantage in) what would be the total
production of cars and corn? How does this compare to the total production at their original
pre-trade production points?
d) Suppose the country that specializes in making only cars trades with the country that makes
no cars. The car-maker sends the other country as many cars as they were consuming before
trade. How much corn could the corn-making country trade for these cars and have both
countries be better off than they were before trade?
England and Scotland both produce scones and sweaters. Suppose that an English works can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour.
a. Which country has the absolute advantage in the production of each good? Which country has the comparative advantage?
b. If England and Scotland decide to trade, which commodity will Scotland trade to England? Explain.
c. If a Scottish worker could produce only 1 sweater per hour, would Scotland still gain from trade? Would England still gain from trade? Explain.
Points on Production Possibilities Frontier
Canada
China
Wheat
Computers
Wheat
Computers
A
150
0
90
0
B
100
25
60
60
C
50
50
30
120
D
0
75
0
180
Draw the production possibilities graph for Canada and China and label all of the points on the graph.
For which good does Canada have a comparative advantage?
For which good does China have a comparative advantage?
If Canada and China decide to specialize and trade, how many more computers and bushels of wheat would be available for consumption by both countries? Show the increase on your graphs.
Canada and China decide to impose trade restrictions in the form of a tariff on the computers and wheat. What are the costs or benefits to the consumer, producer and government for each country?
Chapter 3 Solutions
EBK ESSENTIALS OF ECONOMICS
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- Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef In Brazil? What is the opportunity cost of producing one pound of beef in the United States?arrow_forward1. Consider the countries of Canada and Mexico. In one month, Canada can produce a maximum of 150 wheat or 200 barley. Mexico can also maximize production of 150 wheat, but their maximum barley output is 150. a. Assuming each country devotes half of its resources to growing each crop, calculate the production level of each crop in each country and overall production. b. Determine comparative advantage in each and show how you found this. c. Calculate production levels in each country of each crop under specialization and also overall production. d. How much of each crop was gained by specialization? 2. Using cheddar cheese, explain in two sentences or fewer the following: a. Income Effectb. Substitution Effectc. Law of Diminishing Marginal Returnsarrow_forwardSuppose that in a year, a worker in China can produce 100 books or 20 televisions, while a worker in India can produce 100 books or 10 televisions. a. What is the opportunity cost of producing an additional book in each country? b. If the two countries trade with each other, which country should export which good and why? For trade to occur between China and India, what must be the international price of books? c. Suppose that China and India each have 100 workers. If each country decides to devote half of its workers to each industry, how many books and televisions does each country produce? What is the world output of books and televisions? d. Now, suppose that each country specializes by devoting all of its workers to the industry in which it has a comparative advantage. In this case, what is the world output of books and televisions?arrow_forward
- Suppose that each worker in France can produce either 20 units of food per hour or 80 units of machinery per hour. At the same time, workers in Belgium can produce either 80 units of food per hour or 320 units of machinery per hour. a.Explain which country has an absolute advantage in the production of food. Which country has an absolute advantage in the production of machinery? b.Calculate the opportunity costs for food and machinery in France and Belgium.arrow_forwardQuestion 28 The table shows the maximum quantity of cars or motorcycles that can be produced by two countries, X and Y, using equal amounts of resources. Motorcycles Cars 10 60 20 80 Based on the data in the table, which of the following is true? A B D Country X Country Y E Country X has a comparative advantage in producing cars. Country Y has a comparative advantage in producing cars. Country X has an absolute advantage in producing cars. Country X has an absolute advantage in producing motorcycles. Country Y has a comparative advantage in producing motorcycles.arrow_forwardThe countries of Sanaton and Microtania each produce two goods: Airplanes and Computers. The table below lists the opportunity costs associated with producing each good, for each country. Country Opportunity cost of producing 1 Airplanes Opportunity cost of producing 1 Computers Sanaton 4 Computers 0.25 Airplanes 2 Airplanes Microtania 0.5 Computers Currently, Sanaton does not trade with Microtania, and on its own produces 19 Airplanes and 24 Computers. On their own, Microtania produces 30 Airplanes and 35 Computers. Calculate total world supply: Airplanes: → Computers: If Sanaton decided to change its production of Airplanes by -2, calculate the change in the production of Computers: If Microtania changed its production of Airplanes by 8, calculate the change in production of Computers: Aarrow_forward
- Suppose there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the opportunity cost of producing 1 bushel of wheat is 3 bushels of corn. For Nebraska the opportunity cost of producing 1 bushel of corn is 3 bushels of wheat. At present, Iowa produces 20 million bushels of wheat and 120 million bushels of corn, while Nebraska produces 20 million bushels of corn and 120 million bushels of wheat. a. If each state specialized in their respective comparative advantage: Iowa would produce million bushels of corn and million bushels of wheat. Nebraska would produce million bushels of wheat and million bushels of corn. Now assume Nebraska trades 120 million bushels of wheat for 120 million bushels of corn. With specialization and this trade, Nebraska will end up with million bushels of corn and million bushels of wheat, while Iowa will end up with million bushels of corn and million bushels of wheat. b.…arrow_forwardBob and Doug spend their workdays making beer and donuts. Bob's Opportunity Cost of producing a unit of donuts is 0.8 units of beer; Doug's Opportunity Cost of producing a unit of donuts is 0.25 units of beer. From this information alone, we know that A. B. C. D. Doug has an Absolute Advantage in the production of donuts and Bob has an Absolute Advantage in the production of beer. Doug has a Comparative Advantage in the production of both donuts and beer. Bob's Opportunity Cost of producing a unit of beer is 1.25 units of donuts and Doug's Opportunity Cost of producing a unit of beer is 4 units of donuts. None of the above answers are correct.arrow_forwardAn average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans in 50 minutes and an ounce of coffee in 75 minutes.a. Who has the absolute advantage in coffee? Explain.b. Who has the comparative advantage in cof-fee? Explain.c. If the two countries specialize and trade with each other, who will import coffee? Explain.d. Assume that the two countries trade and that the country importing coffee trades 2 ounces of soybeans for 1 ounce of coffee. Explain why both countries will benefit from this trade.arrow_forward
- Suppose that the United States and Canada both produce only two products: televisions and food. Their maximum output of each good and their opportunity costs are shown in this table. ed States Canada Maximum output level Televisions Food (units) (pounds) 100 300 150 330 Opportunity cost Televisions 1.5 pounds of food 1.1 pounds of food Food 2/3 televisions 10/11 televisions Which of these trades would make both the United States and Canada better off? Choose one or more: A. The United States could trade Canada 20 pounds of food for 17 televisions. B. The United States could trade Canada 75 pounds of food for 60 televisions. C. The United States could trade Canada 100 pounds of food for 98 televisions. D. None of the answer options are correct.arrow_forwardSuppose a worker in Germany can produce 15 cars or 5 tonnes of grain per month. Suppose a worker in Poland can produce 4 cars or 4 tonnes of grain per month. For simplicity, assume that each country has only one worker. a. Fill out the following table? Cars in number Grain in tonnes Germany Poland b. Graph the production possibilities frontier for each country? c. What is the opportunity cost of a Car in Germany? What is the opportunity cost of a tonne of Grain in Germany? d. What is the opportunity cost of a Car in Poland? What is the opportunity cost of a ton of Grain in Poland?arrow_forwardSuppose that Hungary and Wales both produce boots and wheat. Hungary's opportunity cost of producing a bushel of wheat is 4 pairs of boots while Wales's opportunity cost of producing a bushel of wheat is 12 pairs of boots.arrow_forward
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