PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 16, Problem 3P
(a)
To determine
Illustrate the
(b)
To determine
Illustrate the consumption possibilities for Costa Rica in the case of an open economy.
(c)
To determine
Explain the answer based on the assumption that 1 computer traded for 80 pounds of coffee on world markets.
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Suppose that a worker in Country A can produce either 6 units of corn or 2 units of wheat per year, and a worker in Country B can
produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Country A produces and
consumes 30 units of corn and 10 units of wheat per year. Country B produces and consumes 10 units of corn and 30 units of
wheat. Suppose that trade is then initiated between the two countries, and Country A sends 30 units of corn to Country B in
exchange for 30 units of wheat. Country A will now be able to consume a maximum of
Select one:
a.30 units of corn and 30 units of wheat.
b.40 units of corn and 20 units of wheat.
c.40 units of corn and 30 units of wheat.
d.10 units of corn and 40 units of wheat.
Q2. Suppose that there are two countries (A and B) and two goods (a labor-intensive good X, textile, and a capital-intensive good Y, electronics). The two countries have identical demand for the two goods but different labor and capital endowments. Suppose (Px/Py)A < (Px/Py)B in autarky.
Identify the capital-abundant country and the labor-abundant country, respectively.
Use a PPF-indifference-curve graph to identify the autarky equilibrium for country B.
In the same graph, show country B's gains from trade when the two countries trade at a level of Px/Py that is between the two countries' autarky price ratios.
In the above graph, identify the trade triangle (including export and import quantities) for country B.
What would be the effect of trade on country B's relative nominal wage rate, i.e., the ratio of nominal wage rate relative to nominal capital rental rate (w/r)? Illustrate your answer graphically.
Your answer:
Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- Assume that Bangladesh can make 100 square yards of textiles (T) OR 20 computer chips (CC) per day, while Taiwanese worker can make 60 square yards of textiles (T) OR 90 computer chips (CC) per day. Assume that: at of 1) in autarky, each country produced at the midpoint of their PPCS uestion 2) each country completely specializes in the appropriate product 3) 40 square yards of T are exchanged for 40 units of CC. What are their gains from trade? Select one: O a. Bangladesh 10 T and 30 CC: Taiwan 10 Tand 5 C. O b. None of the answers offered are correct. O C. Bangladesh 40 T ahd 60 CC Taiwan 50 T and 40 C. O d. Bangladesh 0 T and 30 CC Taiwan 20 Tand 0 C. Oe. Bangladesh 10 T and 10 CC Taiwan 15 Tand 15 Carrow_forwardWith its given resources, Nicaragua can produce either 20 thousand pounds of chicken or 80 thousand pounds of quinoa per year. Costa Rica can produce either 100 thousand pounds of chicken or 200 thousand pounds of quinoa per year. Suppose the countries completely specialize and they decide to trade 14 thousand pounds of chicken for 42 thousand pounds of quinoa. After trade, Nicaragua will consume thousand pounds of chicken and thousand pounds of quinoa. After trade, Costa Rica will consume thousand pournds of chicken and thousand pounds of quinoa. Round to the nearest whole number.arrow_forwardSuppose 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_forward
- 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_forwardAssume that the world economy is composed of only two countries (Canada and the United States) and only two goods (steel and wheat). The table below reports the units of steel or wheat per unit of labor in Canada and in the United States Steel per Wheat per unit of labor unit of labor Canada United States 9. 3 Suppose both the US and Canada have 10 units of labor. Use the joint PPF to answer the following: If the two countries are producing 25 units of wheat, what is the opportunity cost of wheat? Hint: draw the PPF and ask what is the slope when 25 units are being produced? 2.5 2.75 3arrow_forwardThe country of "Econoland" can use its resources to produce either 500 tons of crab or 200 tons of plywood. Its rival, "Arcadonia," is able to produce either 200 tons of crab or 100 tons of plywood.From this passage, it can be concluded that Arcadonia should specialize in producing plywood. Econoland has a comparative advantage in plywood. Arcadonia has an absolute advantage in the production of both crab and plywood. Econoland should specialize in producing plywood, and trade them with Arcadonia for crabs.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_forwardThe following graph shows a PPC for the imaginary country of Caldonia producing flyboats and time-stopping watches. Suppose a technological change improves production of time-stopping watches. So Caldonia can make more time-stopping watches with the same amount of resources, whereas production of time-stopping watches does not change. Adjust the vertical and horizontal intercepts of the PPC to show the effect of the the technological change on Caldonia's economy. (Hint: Do not move the intercept if the production of a good is not affected.) Quantity of time-stopping watches PPC Quantity of flyboats Before the technological change, point X was first box unattainable inefficient efficient second box unattainable inefficient efficient PPC and after the event, it isarrow_forwardBecause the two countries produce more rye and more jeans under specialization, each country is able to gain from trade. Calculate the gains from trade-that is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption"). Euphoria Contente Rye (Millions of bushels) Jeans (Millions of pairs) Rye (Millions of bushels) Jeans (Millions of pairs) Without Trade Production 15 20 8 48 Consumption 15 20 8 48 With Trade Production Trade action Consumption Gains from Trade Increase in Consumptionarrow_forward
- The production possibilities frontiers in the figure to the right show how many bananas and coconuts you (Y) and your neighbor (N) can consume without trade. Suppose you are initially consuming 6 bananas and 6 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. You give your neighbor half of your production for half of what he produces. (Enter all responses as integers.) If you trade with your neighbor, then you will have additional coconut(s) after the trade and banana(s). additional At the same time, your neighbor will be able to consume additional banana(s) and will be as a result of trade. Quantity of coconuts 287 26- 24- 22- 20- 18- 16- 14- 12- 10- 8- 6- 4- 2- 0- Your PPF 0 N Neighbor's PPI 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Quantity of bananasarrow_forwardThe production possibilities frontiers in the figure to the right show how many bananas and coconuts you (Y) and your neighbor (N) can consume without trade. Suppose you are initially consuming 7 bananas and 3 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. You give your neighbor half of your production for half of what he produces. (Enter all responses as integers.) If you trade with your neighbor, then you will have additional coconut(s) after the trade and additional banana(s). At the same time, your neighbor will be able to consume as a result of trade additional banana(s) and will be Quantity of coconuts 28 26- 24- 22- 20- 4- Your PPF N Neighbor's PPF Y 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Quantity of bananas Q Garrow_forwardWhen a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Lamponia. Both countries produce lemons and sugar, each initially (that is, before specialization and trade) producing 12 million pounds of lemons and 6 million pounds of sugar, as indicated by grey points (star symbols) labeled point A. 12 28 24 12 Freedonia has a comparative advantage in the production of production of B (spuned to cons 4 24 advantage), the most the two countries can produce is 0 20 12 16 28 O 12 8 Note: Dashed drop lines will automatically extend to both axes. 20 0 0 PPF 24 PPF 4 Suppose that Freedonia and Lamponia specialize and open up to international trade, and the terms of trade in the world market are 1 pound of…arrow_forward
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