Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 3, Problem 4PA
Subpart (a):
To determine
Calculate the
Subpart (b):
To determine
Draw
Subpart (c):
To determine
Specialization and increase in consumption.
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The figure below depicts the production possibilities
curve (PPC) of a country. It also depicts the
consumption possibilities curve (CPC) when the country
is engaged in trade with one other country. Point C is
this country's consumption when that trade occurs.
Quantity of 350
good y
300
250
200
150
100
50
0
0
20
40
19
C
60
80
100
120
Quantity of good x
Calculate how much this country trades with the other
country in good y when the two countries engage in
free trade. Enter a whole number only. Enter a positive
number if this country exports good y, and a negative
number if it imports it. Enter O if the answer cannot be
obtained with the information given. Since this is a
graphical question, approximate answers (within 20 of
the exact answer) are accepted. Hint: consider how
much the country produces and consumes this good.
Gary and Brenda both have similar businesses in the garment industry making caps and backpacks. In one day, Gary can make 60 caps and 12 backpacks when he divides his production resources equally between the two products. In one day, Brenda can produce 80 caps and 20 backpacks. Answer the following questions and show all calculations to support your answers.
a. Who has the comparative advantage in producing backpacks? Explain with calculations.b. What is Brenda's opportunity cost of making a cap compared to Gary's? Explain with calculations.c. Based on your calculations in a) and b) above, who should specialize in making what if they intend to trade? Explain with calculations.d. If Gary and Brenda decide to specialize in what they do best, what would be the new production per day for each of them? Explain with calculations.e. If Gary and Brenda decide to trade, what would be the terms of trade for a backpack and how does each benefit from trading? Explain with calculations.
Question 1: Germany and India only produce two goods. They have the same fixed resources,
are equally efficient, and both countries have constant opportunity costs between the two
goods. In one month, Germany can produce 200,000 automobiles or 60,000 hand-held
computers. India can produce 150,000 automobiles or 50,000 hand-held computers.
A. Graph the given information.
B. What is the opportunity cost for Germany to produce automobiles?
C. What is the opportunity cost for India to produce automobiles?
D. What is the opportunity cost for Germany to produce hand-held computers?
E. What is the opportunity cost for India to produce band-held computers?
F. Which nation has the absolute advantage in automobiles, which has the absolute
advantage in hand-held computers?
G. Which nation has the comparative advantage in automobiles, which has the
comparative advantage in hand-held computers?
H. Can these nations benefit from trade? Explain how. Be detailed, use numbers and
prove your answer.
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Essentials of Economics (MindTap Course List)
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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_forwardCountry 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?arrow_forwardEngland 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.arrow_forward
- 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?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 the United States, the opportunity cost of producing a motor engine is 4 auto bodies. In Canada, the opportunity cost of producing a motor engine is 2 auto bodies. a. What is the opportunity cost of producing an auto body for the United States? b. What is the opportunity cost of producing an auto body for Canada? c. Which country has a comparative advantage in the production of auto bodies? d. Which country has a comparative advantage in the production of motor engines? Blank 1 Blank 1arrow_forward
- Suppose 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_forwardSuppose 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_forward
- The 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_forwardSuppose 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_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
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