EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 19, Problem 2SP
To determine
The theory of specialization.
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Assume that the comparative-cost ratios of two products-baby formula and tuna fish-are as follows in the nations of Canswicki and
Tunata:
Canswicki: 1 can baby formula = 5 cans tuna fish
Tunata: 1 can baby formula = 7 cans tuna fish
a. In what product should each nation specialize?
Canswicki should produce baby formula
and Tunata should produce tuna fish
b. Would the following terms of trade be acceptable to both nations?
i. 1 can baby formula = 4 cans tuna fish: (Click to select) v
iI. 1 can baby formula = 8 cans tuna fish: (Click to select) v
es
iII. 1 can baby formula = 5.5 cans tuna fish: (Click to select)
Assume that the comparative-cost ratios of two products-baby formula and tuna fish-are as follows in the nations of Canswicki and
Tunata:
Canswicki: 1 can baby formula = 3 cans tuna fish
Tunata: 1 can baby formula = 5 cans tuna fish
a. In what product should each nation specialize?
Canswicki should produce [(Click to select), and Tunata should produce [(Click to select) ♥
b. Would the following terms of trade be acceptable to both nations?
i. 1 can baby formula = 2 cans tuna fish: (Click to select)
ii. 1 can baby formula = 3.5 cans tuna fish: (Click to select)
iii. 1 can baby formula = 6 cans tuna fish: (Click to select)
Assume that the comparative-cost ratios of two products-baby formula and tuna fish-are as follows in the nations of Canswicki and
Tunata:
Canswicki: 1 can baby formula = 2 cans tuna fish
Tunata: 1 can baby formula
= 4 cans tuna fish
a. In what product should each nation specialize?
Canswicki should produce (Click to select) ♥
and Tunata should produce | (Click to select) ♥
b. Would the following terms of trade be acceptable to both nations?
i. 1 can baby formula = 2.5 cans tuna fish: (Click to select)
ii. 1 can baby formula = 1 can tuna fish: (Click to select) v
iii. 1 can baby formula = 5 cans tuna fish: | (Click to select) v
Chapter 19 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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- Assume that the comparative-cost ratios of two products— baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 2 cans tuna fish Tunata: 1 can baby formula ≡ 4 cans tuna fishIn what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula ≡ 2 1 2 cans tuna fish; (b) 1 can baby formula ≡ 1 can tuna fish; (c) 1 can baby formula ≡ 5 cans tuna fish?arrow_forwardComparative advantage and gains from trade Consider two neighboring island countries called Bellissima and Felicidad. They each have 4 million labor hours available per month that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor. Corn Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Bellissima 8 16 Felicidad 5 20 Initially, suppose Bellissima uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Felicidad uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Bellissima produces 8 million bushels of corn and 48 million pairs of jeans, and Felicidad produces 15 million bushels of corn and 20 million pairs of jeans. Assume there are no other countries willing to trade goods, so in the absence of trade between…arrow_forwardAssume that the comparative-cost ratios of two products-baby formula and tuna fish-are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula = 4 cans tuna fish Tunata: 1 can baby formula = 6 cans tuna fish a. In what product should each nation specialize? Canswicki should produce (Click to select) V, and Tunata should produce (Click to select) V b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula = 3 cans tuna fish: (Click to select) V ii. 1 can baby formula = 7 cans tuna fish: (Click to select) V iii. 1 can baby formula = 4.5 cans tuna fish: (Click to select) ♥arrow_forward
- Consider a two country, two goods, one factor (labor) model of international trade. Suppose home country require 1 units of labor to produce a unit of cloth and 1 unit of labor to produce a unit of wine (regardless of output levels). Foreign country requires 2 unit of labor to produce 1 unit of cloth and 1.5 units of labor to produce 1 unit of wine (regardless of output levels). (a) Which country has the comparative advantage in producing wine? Justify your answer. (b) Which country has the absolute advantage in producing wine? (c) Which country will have higher autarky price of wine in terms of cloth?arrow_forwardConsider a two country, two goods, one factor (labor) model of international trade. Suppose home country require 1 units of labor to produce a unit of cloth and 1 unit of labor to produce a unit of wine (regardless of output levels). Foreign country requires 2 unit of labor to produce 1 unit of cloth and 1.5 units of labor to produce 1 unit of wine (regardless of output levels). (a) Which country has the comparative advantage in producing wine? Justify your answer. (b) Which country has the absolute advantage in producing wine? (c) Which country will have higher autarky price of wine in terms of cloth? (d) Suppose after trade, the international relative price settles at a level strictly between the autarky relative prices of the two countries. At the trade equilibrium, show which country will produce wine and which country will produce cloth.arrow_forwardSuppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000. (g) If the terms of trade is 2 to 1 in favour of the country with the comparative advantage in food. Determine the combination of the two goods that each country will consume after trade if the country with the comparative advantage in fuel imports 4000 units of food. Label this point B and B* respectively. h) Who gains from trade? Who loses? What is the impact if any on the world? (i) What should the terms of trade be to make trade beneficial for BOTH Japan and Peru? Explain.arrow_forward
- Which of the following best explains the concept of "Comparative Advantage" in international trade? a) A country should produce goods in which it has an absolute advantage and trade for those where it does not. b) A country should only export goods and import nothing to maintain a positive trade balance. c) A country should specialize in the production of goods for which it has the lowest opportunity cost compared to other countries. d) A country should diversify its production across various sectors to avoid dependence on a single export commodity.arrow_forwardIn Country T, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In Country Y, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Country T has a comparative advantage over Country Y in cocoa. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion stems from which of these inaccurate assumptions? Multiple Choice We have assumed constant returns to scale. We have assumed the prices of resources and exchange rates in the two countries are dynamic. We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. We have assumed that agrarian nations do not specialize in producing particular products. We have assumed diminishing returns to specialization.arrow_forwardSuppose 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_forward
- 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 comparative advantage. After specialization, the two countries can produce a total ofarrow_forwardThe table below for the United States and Mexico shows maximum feasible production rates per acre of wheat if no rice is produced and maximum feasible production rates per acre of rice if no wheat are produced. Assume that the opportunity costs of producing these goods are constant in both countries. Output per Acre with Trade Wheat 80 tons United States Mexico 55 tons For the United States, the opportunity cost of 1 ton of wheat is tons of rice. (Enter your response rounded to two decimal places.) has a comparative advantage in wheat, and has a comparative advantage in rice. Now consider the following table that shows the production and consumption of wheat and rice if there is no trade. Output per Acre with No Trade Wheat 40.0 tons 27.5 tons United States Mexico Total output of wheat if the two countries do not trade tons. (Enter your response rounded to one decimal place.) Total output of rice if the two countries do not trade tons. (Enter your response rounded to one decimal place)…arrow_forwardAssume that there are two countries, Country A, which earns $5,000 per capita GDP, and Country B, which earns $50,000 per capita GDP. Using Country A and Country B and two products that you choose, thoroughly and clearly explain an example of how these countries can gain from trade pursuant to the doctrine of Comparative Advantage.arrow_forward
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