MICROECONOMICS
11th Edition
ISBN: 9781266686764
Author: Colander
Publisher: MCG
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Question
Chapter 9, Problem 3QE
(a)
To determine
The trade between Nebraska and Lowa.
(b)
To determine
Identify the amount that trader gets.
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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.…
Suppose that Portugal and Austria both produce rye and cheese. Portugal's opportunity cost of producing a pound of cheese is 5 bushels of rye while
Austria's opportunity cost of producing a pound of cheese is 10 bushels of rye.
By comparing the opportunity cost of producing cheese in the two countries, you can tell that
has a comparative advantage in the
production of cheese and
has a comparative advantage in the production of rye.
Suppose that Portugal and Austria consider trading cheese and rye with each other. Portugal can gain from specialization and trade as long as it
receives more than
of rye for each pound of cheese it exports to Austria. Similarly, Austria can gain from trade as long as it
receives more than.
of cheese for each bushel of rye it exports to Portugal.
Based on your answer to the last question, which of the following prices of trade (that is, price of cheese in terms of rye) would allow both Austria and
Portugal to gain from trade? Check all that apply.
O 9…
Two countries, Nicaragua and Argentina can both produce bananas and wheat. Their production possibility frontiers are shown below. Based on this we can say that Nicaragua has a comparative advantage in producing__________. Both countries can gain from trade if Nicaragua produces___________ and Argentina produces __________ and trade.
Bananas; bananas; wheat.
Bananas; wheat; bananas.
Wheat; wheat; bananas
Wheat, bananas; bananas
Chapter 9 Solutions
MICROECONOMICS
Ch. 9.1 - Prob. 1QCh. 9.1 - Prob. 2QCh. 9.1 - Prob. 3QCh. 9.1 - Prob. 4QCh. 9.1 - Prob. 5QCh. 9.1 - Prob. 6QCh. 9.1 - Prob. 7QCh. 9.1 - Prob. 8QCh. 9.1 - Prob. 9QCh. 9.1 - Prob. 10Q
Ch. 9 - Prob. 1QECh. 9 - Prob. 2QECh. 9 - Prob. 3QECh. 9 - Prob. 4QECh. 9 - Prob. 5QECh. 9 - Prob. 6QECh. 9 - Prob. 7QECh. 9 - Prob. 8QECh. 9 - Prob. 9QECh. 9 - Prob. 10QECh. 9 - Prob. 11QECh. 9 - Prob. 12QECh. 9 - Prob. 13QECh. 9 - Prob. 14QECh. 9 - Prob. 15QECh. 9 - Prob. 16QECh. 9 - Prob. 17QECh. 9 - Prob. 18QECh. 9 - Prob. 19QECh. 9 - Prob. 1QAPCh. 9 - Prob. 2QAPCh. 9 - Prob. 3QAPCh. 9 - Prob. 4QAPCh. 9 - Prob. 5QAPCh. 9 - Prob. 1IPCh. 9 - Prob. 2IPCh. 9 - Prob. 3IPCh. 9 - Prob. 4IPCh. 9 - Prob. 5IP
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- 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?arrow_forwardIf Italy is said to have an absolute advantage over the United States in the production of wheat, this means that, given the same resources, the United States must have a comparative advantage over Italy in the production of wheat. Italy must have an absolute advantage over the United States in producing all goods. the United States must have an absolute advantage in producing some good other than wheat. Italy can produce more wheat than the United States. Italy has an absolute advantage in all goods that are complements to wheat.arrow_forwardWhen can two countries gain from trading two goods? when the first country can only produce the first good and the second country can only produce the second good when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost when the first country is better at producing both goods and the second country is worse at producing both goods Two countries could gain from trading two goods under all of the above conditions.arrow_forward
- 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.arrow_forwardSuppose that Greece and Sweden both produce oil and cheese. Greece's opportunity cost of producing a pound of cheese is 4 barrels of oil while Sweden's opportunity cost of producing a pound of cheese is 10 barrels of oil. By comparing the opportunity cost of producing cheese in the two countries, you can tell that has a comparative advantage in the production of cheese and has a comparative advantage in the production of oil. Suppose that Greece and Sweden consider trading cheese and oil with each other. Greece can gain from specialization and trade as long as it receives more than of oil for each pound of cheese it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than of cheese for each barrel of oil it exports to Greece. Based on your answer to the last question, which of the following prices of trade (that is, price of cheese in terms of oil) would allow both Sweden and Greece to gain from trade? Check all that apply.…arrow_forward*** Which of the following statements about production and trade is FALSE? 1. If a country has an absolute advantage in producing a good, then it also has the comparative advantage in the production of that good. II. Rich countries will generally have the comparative advantage in the production of all goods. III. If a country has the absolute advantage in the production of a good, then this country will be made better off by specializing in the production of that good. Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. b C d Specialization and Trade Q4 Homework Answered *** I only. I and II only. I, II and III. Ill only. Answered-Incorrect 1 attempt left Specialization and Trade Q9 Homework Unanswered X Your answer Resubmitarrow_forward
- Based on your answer to the last question, which of the following prices of trade (that is, price of wheat in terms of ale) would allow both Liechtenstein and Ireland to gain from trade? Check all that apply. 10 kegs of ale per bushel of wheat 15 kegs of ale per bushel of wheat 7 kegs of ale per bushel of wheat 3 kegs of ale per bushel of wheatarrow_forwardThe table below shows the maximum quantities of two goods that each country can produce. If the countries follow the principle of comparative advantage, which of the following is a potential benefit of trade? Vibranium (tons) Gold (tons) Wakanda 8 tons 2 tons Zamunda 2 tons 1 ton Group of answer choices Trade can allow each country to increase consumption beyond its production possibilities frontier. Trade can allow each country to shift its production possibilities frontier outward to higher levels of production. Trade can allow each country to become less vulnerable to the actions of the other country. All of these answers are correct.arrow_forward3. Gains from trade Consider two neighboring island countries called Bellissima and Felicidad. They each have 4 million labor hours available per month that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor. Rye Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Bellissima 6. 12 Felicidad 4 16 Initially, suppose Bellissima uses 1 million hours of labor per month to produce rye and 3 million hours per month to produce jeans, while Felicidad uses 3 million hours of labor per month to produce rye and 1 million hours per month to produce jeans. Consequently, Bellissima produces 6 million bushels of rye and 36 million pairs of jeans, and Felicidad produces 12 million bushels of rye and 16 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of rye…arrow_forward
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