PRINCIPLES OF MACROECONOMICS-CONNECT ACC
7th Edition
ISBN: 9781264088485
Author: Frank
Publisher: MCG
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Chapter 16, Problem 2RQ
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In 2017, Ecuador's biggest export was crude (unprocessed) petroleum, 63% of which it exported to the United States, and
Ecuador's biggest import was refined (processed) petroleum, of which 70% was imported from the United States. What does
this tell you about the countries' comparative advantages in extracting petroleum and refining petroleum?
This information suggests that
has a comparative advantage in refining petroleum, and
the United States
must I
ntage in extracting petroleum.
Ecuador
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:
Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choose what kinds of non-toxic, all-natural products they'd like to use and get them in a bundle. Families can choose all kinds of products from food to hygiene necessities and cleaning supplies. Suppose they are thinking of expanding their business into five domestic markets: Phoenix, Dallas, Chicago, New York, and Atlanta. Assume their primary goal of business is to maximize economic profits, although they want to do business honestly.Show all your calculations and process. Describe your answer for each question in three- to five-complete sentences.
You are a business adviser for Alba and Gavigan. Describe a skimming price and a penetration price, and advise them whether they should charge a skimming price or a penetration price, with supportive reasoning for and against each pricing alternative.
Are they…
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PRINCIPLES OF MACROECONOMICS-CONNECT ACC
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- Assume 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_forwardIf country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. Which of the following must be true? (check all that apply) A and B have the same access to resources A has the absolute advantage in producing Y A has the absolute advantage in producing X B has the comparative advantage in producing Yarrow_forwardIf country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. If these countries were going to trade after specializing in their respective comparative advantages, which of the following trades would be considered to be mutually beneficial where BOTH countries gain from trade (and are strictly better off than in autarky, the situation where they both self-reliant and do not trade with one another)? trade at a rate of 3X for 4Y trade at a rate of 2X for 3Y trade at a rate of 5X for 8Y trade at a rate of 3X for 5Yarrow_forward
- If country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. What is the opportunity cost of producing 50 units of Y in country B? (hint: your answer should be measured in the positive number of units of good X that must be given up - round your answer to two decimal places only if necessary)arrow_forwardIf country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. What is the opportunity cost of producing 10 units of X in country A? (hint: your answer should be measured in the positive number of units of good Y that must be given up - round your answer to two decimal places only if necessary)arrow_forwardIf country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y. If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y. Both countries have (linear) straight line PPFs. Which of the following must be true? check all that apply A and B have the same access to resources (inputs) A can produce more X than B with the same resources A can produce more Y than B could with the same resources B can produce Y at a lower opportunity cost than Aarrow_forward
- With 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 in the country of England, two goods can be produced on available agricultural land: wine and wool. Suppose that the opportunity costs of production are constant, so that the PPF is a straight line. Further, when all resources are devoted to wine production, England can produce 200 (thousand) barrels. When all resources are devoted to wool production, England can produce 400 (thousand) bushels of wool. Suppose that a bushel of wool could be traded for a barrel of wine, one-for-one, on the international market. Draw a diagram illustrating the original situation, and this new situation, with wool on the X-axis and wine on the Y-axis.arrow_forwardpart C and D needed only Consider the Production Possibility Frontiers of two countries, Australia and Brazil. Assume both have linear PPFs and the two countries both produce the same two goods: fruits and grain. Given its resources, Australia can produce either 2 units of grain per day or 1 unit of fruits; Brazil can produce either 5 units of grain or 4 units of fruits. (You may, for your own use, find it helpful to draw the Production Possibilities Frontiers for each country, though these won't be included in the answers you provide in you online responses.) a. If there were no trade, what would be the local price of fruits in each country, measured in units of grain? b. If trade is allowed, which country will export fruits and which country will export grain (if any)? c. What are the gains from trading a unit of fruit if the international price of fruit is equal to the average of the local prices in the two countries? d. How are the gains from trade distributed? Comment…arrow_forward
- Suppose there exist two imaginary countries, Everglades and Yosemite. Their labor forces are each capable of supplying four million hours per day that can be used to produce chinos, pistachios, or some combination of the two. The following table shows the amount of chinos or pistachios that can be produced by one hour of labor. Country Everglades Yosemite Chinos Pistachios (Pairs per hour of labor) (Pounds per hour of labor) 4 6 16 12 Suppose that initially Yosemite uses 1 million hours of labor per day to produce chinos and 3 million hours per day to produce pistachios, while Everglades uses 3 million hours of labor per day to produce chinos and 1 million-hours per day to produce pistachios. As a result, Everglades produces 12 million pairs of chinos and 16 million pounds of pistachios, and Yosemite produces 6 million pairs of chinos and 36 million pounds of pistachios. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two…arrow_forwardThe typical Canadian worker is able to produce 100 board feet (a unit of measure) of lumber or 1000 light bulbs per year. The world price of a board foot of lumber is $20 and that of a light bulb is $1. Draw the production possibilities frontier for the average Canadian worker by manipulating the line segment labeled PPF.arrow_forwardSuppose the United States is currently producing 140 tons of hamburgers and 63 tons of tacos and Mexico is currently producing 14 tons of hamburgers and 35 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of _____ additional ton(s) of hamburgers can be produced for the two countries combined (enter a numeric response using an integer) and a total of ____ additional ton(s) of tacos can be produced.arrow_forward
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