Econ Macro (book Only)
6th Edition
ISBN: 9781337408745
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 17, Problem 3P
To determine
The shape of the
Introduction:
Terms of trade: The terms of trade are defined as the ratio of exports to its imports
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Students have asked these similar questions
10. Given the above set of production possibilities and consumption (trade) possibilities frontiers, what happens to the prices of wine and cloth in each country as a result of trade?
a) The price of wine in Portugal decreases from ⅓ yard/bottle to ½ yard/bottle.
b) The price of cloth in Portugal increases from 3 bottles/yard to 2 bottles/yard.
c) The price of wine in England decreases from 1 yard/bottle to ½ yard/bottle.
d) The price of cloth in England increases from 1 bottle/yard to 3 bottles/yard.
e) All of the above
12. Given this set of production possibilities and consumption (trade) possibilities frontiers, what happens to the prices of wine and cloth in each country as a result of trade?
a) The price of wine in Portugal increases from 1/3 yard/bottle to 1/2 yard/bottle.
b) The price of cloth in Portugal decreases from 3 bottles/yard to 2 bottles/yard.
c) The price of wine in England decreases from 1 yard/bottle to 1/2 yard/bottle.
d) The price of cloth in England increases from 1 bottle/yard to 2 bottles/yard.
e) All of the above
5. Comparative Advantage
The following table describes the production possibilities of two cities in the country of Baseballia:
Pairs of Red Socks per Worker per Hour Pairs of White Socks per Worker per Hour
Boston
3
Chicago
5
Without trade, the price of a pair of white socks (in terms of red socks) in Boston is
of red socks, and in Chicago it is
of red socks.
has an absolute advantage in the production of red socks, and
has an absolute advantage in the production of white
socks.
has a comparative advantage in the production of red socks, and
has a comparative advantage in the production of white
socks.
If the cities trade with each other, Boston will export
socks, and Chicago will export
socks.
The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities
better off is
v of red socks per pair of white socks, and the lowest price that makes both cities better off is
of red
socks per pair of white socks.
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Similar questions
- 10) PPFS for Countries X and Y 300 Y 200 400 tons of rice a). In the graph above, what is the opportunity cost of producing a ton of wheat for each country? b) In the graph above, which country has a comparative advantage in producing wheat? c) In the graph above, if both countries specialize in producing the good in which they have a comparative advantage, together how much will they produce of each good? Countries X and Y will produce 200 tons rice for 100 tons of wheat tons of wheatarrow_forward11. If Portugal has a total of 120 man-hours of resources available for production, while England has only 90, which country has the comparative advantage in wine? a) England b) Portugal c) Neither country has the comparative advantage in winearrow_forwardShort Answer (8.0score) 33. The chart below is the prodution cost of US. and UK. U.S. U.K. Wheat (bushels/labor hour) 6 1 Cloth (yards/labor hour) 4 2 question: (1) explain the comparative advantage of each nation; (2) what is the gain from trade if the two trade for 4 wheat for 4 cloth?arrow_forward
- 2. Comparative and absolute advantage David and Morgan are farmers. Each one owns a 16-acre plot of land. The following table shows the amount of squash and maize each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing squash or maize or to produce squash on some of the land and maize on the rest. David Morgan Squash (Pounds per acre) 8 28 Maize (Pounds per acre) 8 7arrow_forward6. Comparative advantage Raphael and Susan are farmers. Each one owns a 12-acre plot of land. The following table shows the amount of barley and alfalfa each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing barley or alfalfa or to produce barley on some of the land and alfalfa on the rest. Raphael Susan Barley (Bushels per acre) 40 28 Alfalfa (Bushels per acre) 8 7 On the following graph, use the blue line (circle symbol) to plot Raphael's production possibilities frontier (PPF), and use the purple line (diamond symbol) to plot Susan's PPF.arrow_forwardQuestion 5 (Table) Based on the table, who has a comparative advantage in making steel? Hint: Compute the comparative advantage for producing steel for the two countries: Canada's Production Possibilities Tons of Steel 15 Airplanes · 10 4 12 Mexico's Production Possibilities Tons of Steel Airplanes 9. 4 6. O A. Canada has a comparative advantage in producing steel since Canada's opportunity cost of 1 unit of steel = 0.8 vs 1.0 for Mexico. O B. Canada has a comparative advantage in producing steel since Canada's opportunity cost of 1 unit of steel = 1.0 vs 1.25 for Mexico. O C. Mexico has a comparative advantage in producing steel since Mexico's opportunity cost of 1 unit of steel = 0.8 vs 1.25 for Canada. O D. Neither country has a comparative advantage in making steel O E. Mexico has a comparative advantage in producing steel since Mexico's opportunity cost of 1 unit of steel = 1.0 vs 1.25 for Canada. 42T 20arrow_forward
- Question 1 Suppose that Country A and Country B have unit labour requirements for producing one tonne of steel and one tonne of oil shown in the following table: (Look at the image) (a) Determine which country has a comparative advantage in each good.(b) If Country A and Country B each have 100 units of labour, calculate the maximum production of each good for both countries (c) In the absence of trade, Country B uses 20% of its total labour units to produce steel and the rest to produce oil. Country A uses 60% of its total labour units to produce steel and the rest to produce oil. Calculate how many tonnes of steel and oil can be produced by both countries. (d) Both countries agree that one tonne of steel can be exchanged for one tonne of oil. Calculate the gains after trade is allowed if Country A consumes 30 tonnes of oil domestically.arrow_forward5. Comparative Advantage The following table describes the production possibilities of two cities in the country of Baseballia: Pairs of Red Socks per Worker per Hour Pairs of White Socks per Worker per Hour Boston Chicago 4 3. Without trade, the price of a pair of white socks (in terms of red socks) in Boston is of red socks, and in Chicago it is of red socks. has an absolute advantage in the production of red socks, and has an absolute advantage in the production of white socks. has a comparative advantage in the production of red socks, and has a comparative advantage in the production of white socks. If the cities trade with each other, Boston will export socks, and Chicago will export socks. The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities better off is of red socks per pair of white socks, and the lowest price that makes both cities better off is of red socks per pair of white socks.…arrow_forward1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why? Consider the following pairs of Which would you expect to have the more elastic demand? Why? water or diamonds insulin or nasal decongestant spray food in general or breakfast cereal gasoline over the course of a week or gasoline over the course of a year personal computers or IBM personal computersarrow_forward
- 5. Comparative Advantage The following table describes the production possibilities of two cities in the country of Baseballia: Boston Chicago socks. Pairs of Red Socks per Worker per Hour Pairs of White Socks per Worker per Hour 5 2 Without trade, the price of a pair of white socks (in terms of red socks) in Boston is of red socks. socks. 4 has an absolute advantage in the production of red socks, and has a comparative advantage in the production of red socks, and If the cities trade with each other, Boston will export 3 of red socks, and in Chicago it is has an absolute advantage in the production of white has a comparative advantage in the production of white socks, and Chicago will export socks. The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities of red socks per pair of white socks, and the lowest price that makes both cities better off is better off is of red socks per pair of white…arrow_forward4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFs) for Freedonia and Sylvania. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of potatoes and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. (insert graph here)arrow_forward4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Candonia and Desonia. Both countries produce lemons and tea, each initially (i.e., before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of tea, as indicated by the grey stars marked with the letter A. Candonia Desonia 48 48 42 42 36 36 PPF 30 30 24 24 18 PPF 18 12 12 A 6 6 12 18 24 30 36 42 48 6 12 18 24 30 36 42 48 LEMONS (Millions of pounds) LEMONS (Millions of pounds) Candonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of . Suppose that Candonia and Desonia specialize in the production of the goods in which each has a…arrow_forward
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