Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 33.1, 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?
Chapter 33 Solutions
Economics (MindTap Course List)
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- Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by __________?arrow_forwardIn 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.arrow_forwardConsider an international trade model consisting of three countries X, Y, and Z. Suppose X uses domestically, sends of its production to Y, and sends of its production to Z. Suppose Y uses domestically, sends of its production to X, and sends of its production to Z. Suppose Z uses sends of its production to X and sends of its production to Y. Assume this is a closed Leontief model. If we know country Z produced 28 thousand units of goods, then country X produces country Y produces thousand units of goods. of its production of its production of its domestic goods, thousand units of goods andarrow_forward
- Suppose Country A can produce 200 tons of capital-intensive goods or 200 tons of labor-intensive goods in one day. Suppose Country B can produce 80 tons of capital-intensive goods or 160 tons of labor-intensive goods in one day. What is one possible price of capital-intensive goods (in terms of labor-intensive goods) that would make BOTH countries better off as the result of trade?arrow_forwardCreate 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_forward
- True 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_forwardConsider 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_forward
- Suppose 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_forwardConsider two nations, Nation A and Nation B: "Excellent," the representative from Nation A says. "We will now open up to trade. We will produce 2000 units of wheat. Half of this will be traded to you in exchange for apples as agreed." "We are in agreement!" the representative from Nation B says. "We'll produce 1000 apples and will trade 800 of them to you in exchange for half of your wheat." As a result of these terms of trade, Nation A will have units of wheat to consume and will import apples from Nation B. O 2000; 1000 O 1000; 1000 O 2000; 800 O 1000; 800 Question 9 2.5 pts MacBook Air 吕口 F3 000 D00 F4 F5 F6 F7 F8 F9 $ & 4 7 8 Rarrow_forwardIt has been shown that the US has a comparative advantage in capital-intensive goods while China has a comparative advantage in labour-intensive goods. Suppose as a result of trade the US's economy is going to grow by 30% and that of China by 40%. Based on this information, which of the following statements is correct? a) The US has the stronger bargaining power in the determination of the relative price after trade. b) In the US, the employers are better off while the workers are worse off as a result of trade. c) Specialization means that China will produce all the capital-intensive goods. d) China has the stronger bargaining power in the determination of the relative price after trade.arrow_forward
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