EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 1, Problem 4SP
To determine
Check whether the countries are better off or worse off by trade with example.
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Suppose that an hour of work in Brazil can produce 1 pound of coffee or 4 pounds of sugar. In Colombia, an hour of work produces 2 pounds of coffee or 5 pounds of sugar.
Which country has the absolute advantage in coffee? In sugar?
Calculate the opportunity cost of each good in each country.
Which country has the comparative advantage in each good? Why?
What would be a mutually beneficial terms of trade?
Why is it important that the country or region with the lower opportunity cost produce the good? How would you use the concept of comparative advantage to argue for reducing restrictions on trade between countries?
When 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.
Chapter 1 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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- If two parties trade based on comparative advantage and both gain, in what range must the price of the trade lie? Give an examplearrow_forwardIs absolute advantage or comparative advantage more important for trade? Give an Examplearrow_forwardConsider a hypothetical world with two countries: Country A and Country B. Each country has 45 workers, who produce cars and bicycles. If Country A shifts all its workers to one good, it can produce 1,350 cars or 2,520 bicycles. Under the same conditions, Country B can produce 1,710 cars or 2,880 bicycles. Therefore, Country B has an absolute advantage in producing both goods. Nevertheless, the two countries decide to trade, so each shift production to their areas of comparative advantage. Determine which good Country A will specialize in. Then, calculate the quantity of this good the country will produce after trade if only 40 workers are involved. If necessary, round any intermediate calculations to two decimal places and your final answer to the nearest whole number.arrow_forward
- An economy is said to have a comparative advantage in the production of a good if it can: produce that good with more resources than another economy. produce that good with a higher opportunity cost than another economy. produce that good outside its production possibilities curve. produce the good at a lower opportunity cost than another economy.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_forwardIn a situation where two goods can be produced by two different people, it is possible for one person to have a comparative advantage in the production of both goods and the other person to have the comparative advantage in the production of neither good. Group of answer choices True Falsearrow_forward
- Debra can make either 12 cakes or 16 cookies in 4 hours. Sam can make either 6 cakes or 12 cookies in 4 hours. If both Debra and Sam concentrate on producing only the product in which they have a comparative advantage, how many cakes and how many cookies will they produce?arrow_forwardAccording to the article of Jan 18, 2016 "several Canadians are nominated for Oscars" draw a production possibilities frontier with movies on the x-axis and other goods and services on the y-axis to illustrate increasing opportunity cost.arrow_forwardSuppose there are two individuals, Casey and Rick, who live in a very simplified world where only two goods are produced and consumed; rice and beans. The production opportunity cost for Casey is 4.00kg of rice for every kilogram of beans. Rick has a production opportunity cost of 2.00 kg of rice for every kilogram of beans. Casey eventually realizes that, through trade, both individuals can be better off. Rick is willing to trade. What price can be settled between these two parties such that both individuals can enjoy more rice and beans?arrow_forward
- Suppose that a tailor in Cottonland can sew either 40 cotton shirts or 10 silk shirts per week, and a tailor in Silkland can sew either 18 cotton shirts or 6 silk shirts per week. There are 20 tailors in Cottonland and 20 tailors is Silkland. Answer the following questions: 2.1. What country has the absolute advantage in sewing cotton shirts? What country has the absolute advantage in sewing silk shirts? 2.2. What country has the comparative advantage in sewing cotton shirts? What country has the comparative advantage in sewing silk shirts? Numerically 2.3. If the two countries specialize and produce according to the comparative advantage criterion, how much in terms of cotton and silk shirts each country will produce per week? Fill in the table below with your calculations. Cotton shirts/per week Silk shirts/per week Cottonland Silklandarrow_forwardAssume there are two countries, Argentina and Brazil, which produce two goods, corn and wine. Assume that land is specific to corn, capital is specific to wine, and labor is free to move between the two industries. Assume that Brazil has a comparative advantage in corn, and Argentina has a comparative in wine. Brazil and Argentina sign a free trade agreement, and we want to study the consequences of this trade agreement.arrow_forwardSuppose that an hour of work in Germany can produce 5 pastries or 4 sausages. In Denmark, an hour of work produces 4 pastries or 3 sausages. Which country has the absolute advantage in pastries? In sausages? Calculate the opportunity cost of each good in each country. Which country has the comparative advantage in each good? Why? What would be a mutually beneficial terms of trade?arrow_forward
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