Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 3, Problem 9PA
To determine
Classifying the statements as true or false.
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Suppose that each U.S. worker can produce 8 units of food or 2 units of clothing daily. In Fredonia, which has the same number of workers, each worker can produce 7 units of food or 1 unit of clothing daily. Why does the United States have an absolute advantage in both goods? Which country enjoys a comparative advantage in food? Why?
please simple easy explanation with simple example to understand
e.
Which country has an absolute advantage in the production of which good(s)?
Which country has a comparative advantage in the production of which good(s)?
f.
If the countries start trading with each other, which country will specialize and
export which good?
In Country T, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In Country Y, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Country T has a comparative advantage over Country Y in cocoa. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion stems from which of these inaccurate assumptions?
Multiple Choice
We have assumed constant returns to scale.
We have assumed the prices of resources and exchange rates in the two countries are dynamic.
We have assumed there are barriers to the movement of resources from the production of one good to another within the same country.
We have assumed that agrarian nations do not specialize in producing particular products.
We have assumed diminishing returns to specialization.
Chapter 3 Solutions
Principles of Macroeconomics (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_forwardIn Germany it takes three workers to make one television and four workers to make one video camera. In Poland It takes six workers to make one television and 12 workers to make one video camera. Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell? Calculate the opportunity cost of producing one additional television set in Germany and In Poland. (Your calculation may involve fractions, which Is tine.) Which country has a comparative advantage in the production of televisions? Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras? In this example, is absolute advantage the same as comparative advantage, or not? In what product should Germany specialize? In what product should Poland specialize?arrow_forwardIn Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios. Who has the absolute advantage in the production of rubber or radios? How can you tell? Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine,) Which country has a comparative advantage in the production of radios? Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? In this example, does each country have an absolute advantage and a comparative advantage in the same good? In what product should Japan specialize? In what product should Malaysia specialize?arrow_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_forwardWhich of the following statements regarding absolute and comparative advantage is true? A. A nation can have a comparative advantage in the production of a good only if it also has an absolute advantage. B. A nation can have a comparative advantage in the production of every good, but not an absolute advantage. C. A nation cannot have an absolute advantage in the production of every good. D. A nation cannot have a comparative advantage in the production of every good.arrow_forward1. A) With the following data decide which country has comparative advantage for which good. Show your math. Good X Good Y Country A 75 75 Country B 60 70 B) Using the data above prove both countries can be better off trading with each other than if they do not trade. C)Why do we use comparative advantage to decide which country produces which good? Support your answer.arrow_forward
- What does it mean to have an absolute advantage? What does it mean to have a comparative advantage?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_forwardIs it possible to not have a comparative advantage at anything? Why or why not?arrow_forward
- #4. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios? #5. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? #6. In this example, does each country have an absolute advantage and a comparative advantage in the same good?arrow_forwardAssume that country A can use its resources to produce 320 computers or 320,000 books, while country B can produce 16 computers or 32,000 books. Can we determine which country has an absolute advantage in producing computers? Who has the comparative advantage in producing computers? Draw the possibility frontiers for both countries and find their slopes. In the case the two countries trade, which country exports what? Show graphically if country A benefits from trade.arrow_forwardWhen countries specialize based on their comparative advantage and trade with each other, how does it lead to gains from trade for both countries (even if one country has an absolute advantage in both goods)?arrow_forward
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