Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 26, Problem 3DQ
To determine
Theproductive efficiency.
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5. Suppose that the comparative-cost ratios of two products-
baby formula and tuna fish-are as follows in the hypotheti-
cal nations of Canswicki and Tunata:
Canswicki: 1 can baby formula = 2 cans tuna fish
1 can baby formula = 4 cans tuna fish
Tunata:
In what product should each nation specialize? Explain why
terms of trade of 1 can baby formula =
would be acceptable to both nations.
25 cans tuna fish
The theory of comparative advantage:
O a. Claims that economic well-being is enhanced if each country's citizens produce only a single product.
Ob. Claims that economic well-being is enhanced when all countries compare commodity prices after adjusting for exchange rate differences in order to standardize the prices charged by all countries.
O. Claims that economic well-being is enhanced if each country's citizens produce that which they have a comparative advantage in producing relative to the citizens of other countries, and then trade production.
O d. Claims that no country has an absolute advantage over another country in the production of any good or service.
3. The following hypothetical production
possibilities tables are for China and the
United
States. Assume that before
specialization and trade, the optimal
product mix for China is alternative B
and for the United States is alternative
U. LO20.2
a. Are comparative-cost conditions such
that
the
two
countries
should
specialize? If so, what product should
each produce?
b. What is the total gain in apparel and
chemical output that would result
from such specialization?
c. What are the limits of the terms of
trade? Suppose that the actual terms
of trade are 1 unit of apparel for 1 unit
of chemicals and 4 units of apparel for
6 units of chemicals. What are the
gains from specialization and trade for
each nation?
China Production Possibilities
Product
A
B
D
E
F
30
24
6
Apparel (in thousands)
Chemicals (in tons)
18
12
6
12
18
24
30
U.S. Production Possibilities
Product
R
U
V
K pparel (in thousands)
nemicals (in tons)
>
10
8
4
2
4
8
12
16
20
p. 579
Chapter 26 Solutions
Microeconomics
Ch. 26.2 - Prob. 1QQCh. 26.2 - Prob. 2QQCh. 26.2 - Prob. 3QQCh. 26.2 - Prob. 4QQCh. 26 - Prob. 1DQCh. 26 - Prob. 2DQCh. 26 - Prob. 3DQCh. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQ
Ch. 26 - Prob. 7DQCh. 26 - Prob. 8DQCh. 26 - Prob. 9DQCh. 26 - Prob. 10DQCh. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Prob. 13DQCh. 26 - Prob. 14DQCh. 26 - Prob. 1RQCh. 26 - Prob. 2RQCh. 26 - Prob. 3RQCh. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - Prob. 6RQCh. 26 - Prob. 7RQCh. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - Prob. 10RQCh. 26 - Prob. 11RQCh. 26 - Prob. 12RQCh. 26 - Prob. 13RQCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Prob. 3PCh. 26 - Prob. 4P
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- 3. The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade, the optimal product mix for China is alternative B and for the United States is alternative U. LO20.2 a. Are comparative-cost conditions such that the two countries should specialize? If so, what product should each produce? b. What is the total gain in apparel and chemical output that would result from such specialization? c. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1 unit of chemicals and 4 units of apparel for 6 units of chemicals. What are the gains from specialization and trade for each nation? China Production Possibilities Product A D F Apparel (in thousands) 30 24 18 12 Chemicals (in tons) 12 18 24 30 U.S. Production Possibilities Product R T. V Apparel (in thousands) hemicals (in tons) 10 8. 4 4 8. 12 16 20 p. 579arrow_forwardIn a two-country, two-product world, the statement 'Germany enjoys a comparative advantage over France in cars relative to ships' is equivalent to O a. a. Germany having a comparative advantage over France in cars and ships. O b. France having a comparative disadvantage compared to Germany in cars and ships. O c. France having no comparative advantage over Germany. O d. France should produce cars. O e. France having a comparative advantage over Germany in ships. Larrow_forwardCanada exports canola oil to Japan. Therefore, Japan must have the comparative advantage in the production of canola oil, and its autarkic price is higher than the free trade price. O Japan must have the comparative advantage in the production of canola oil, and its autarkic price is lower than the free trade price. Canada must have the comparative advantage in the production of canola oil, and its autarkic price is higher than the free trade price. Canada must have the comparative advantage in the production of canola oil, and its autarkic price is lower than the free trade price.arrow_forward
- The fictional country of Anastialia is a small country with rich resources in minerals. In a day it can produce 100 pounds of silver or 50 pounds of copper. Another country, West Burma, can produce 25 pounds of silver or 5 pounds of copper in a day. From this data, which country has the comparative advantage in copper production by producing it at a lower opportunity cost? O Neither country has a comparative advantage. O Anastialia O West Burmaarrow_forwardWhich of the following statements about trade is true? O a. Unrestricted international trade benefits every person in a country equally. O b. Trade can potentially benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage. Oc. People that are skilled at all activities cannot benefit from trade. O d. Trade can potentially benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage.arrow_forwardFor each hour worked, a U.S. worker can produce 4 dozen baguettes, or 2 tonnes of aluminum. Canadian workers can produce 2 dozen baguettes, or 1 tonne of aluminum per hour. The information indicates that O A. Canada has comparative advantage in aluminum, and the U.S. has comparative advantage in baguettes. OB. neither country has comparative advantage in aluminum or baguettes. O C. Canada has comparative advantage in baguettes, and the U.S. has comparative advantage in aluminum. O D. the U.S. has comparative advantage in both alyminum and baguettes.arrow_forward
- Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?arrow_forwardSuppose that one country (Country A) subsidizes its exports and the other country (Country B) imposes a "countervailing" tariff that offsets its effect, so that in the end relative prices in the second country are unchanged. What happens to the terms of trade? What about welfare in the two countries? O A. From Country A's perspective, world relative supply will increase and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect so Country A will definitely gain and Country B definitely loses. O B. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect so Country A will definitely gain and Country B definitely loses. C. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will worsen its terms of trade. The countervailing…arrow_forwardAnswer the question on the basis of the following production possibilities tables for two countries, Latalia and Trombonia Latalia's Production Possibilities с 2 10 Pork (Tons) Beans (Tons) Pork (Tons) Beans (Tons) A 4 0 3 5 8 0 1 15 Trombonia's Production Possibilities с 4 12 D 0 20 2 18 E O 24 Refer to the tables. If these two nations specialize on the basis of comparative advantage: Trombonia will produce beans and Latalia will produce pork. Trombonia will produce both beans and pork Latalia will produce both beans and pork and Trombonia will produce neither. Latalia will produce beans and Trombonia will produce pork.arrow_forward
- The table below shows the monetary value of the production of gems and steel respectively in the calendar year of2019 for the nations of Turkey and Zimbabwe. Use it to answer questions regarding a possible trade scenario between the two nations. Year -2019 Gems in billions of USD Steel in billions of USD Zimbabwe 0.2 Turkey 10 Which of the nations has an absolute advantage in terms of the production of gems? O a Neither O b Zimbabwe Turkeyarrow_forwardPoland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. Suppose that Poland has 1,000 hours of labor and that it completely specializes according to its comparative advantage. How many units of which product will it produce? 250 tons of coal 1,000 bushels of wheat O100 bushels of wheat 4,000 tons of coal One of the main reasons for China to actively invest in foreign companies is to enhance the competitiveness of Chinese firms globally. take advantage of low wages in foreign countries. Omake best use of its technological expertise in the world market. meet the growing demand of the high population in China.arrow_forwardSuppose that two countries can produce wheat or cotton. If country A produces only wheat it can produce 38 units of wheat, and if it only produces cotton it can produce 45 units of cotton. If country B produces only wheat it can produce 27 units of wheat, and if it only produces cotton it can produce 35 units of cotton. Given the production possibilities frontiers above which of the following would be feasible terms of trade between country A and country B? O a. One unit of cotton for 0.92 units of wheat. O b. One unit of cotton for 0.72 units of wheat. O c. One unit of wheat for 1.08 units of cotton. O d. One unit of wheat for 1.35 units of cotton. O e. None of the other answers are feasible terms of trade.arrow_forward
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