Econ Macro (book Only)
6th Edition
ISBN: 9781337408745
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 2, Problem 3P
(a)
To determine
The
Concept Introduction:
(b)
To determine
The country that has an absolute advantage in producing wheat and in producing cloth.
Concept Introduction:
Absolute Advantage: The ability of a country to do any economic activity more efficiently than others
Comparative Advantage: The capability of a country to produce the specialized product in which it has a lower opportunity cost
(c)
To determine
The country that has a comparative advantage in producing wheat and in producing cloth.
Concept Introduction:
Absolute Advantage: The ability of a country to do any economic activity more efficiently than others
Comparative Advantage: The capability of a country to produce the specialized product in which it has a lower opportunity cost
(d)
To determine
The country that should specialize in producing wheat and in producing cloth.
Concept Introduction:
Absolute Advantage: The ability of a country to do any economic activity more efficiently than others
Comparative Advantage: The capability of a country to produce the specialized product in which it has a lower opportunity cost
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(Figure: The Production Possibility Frontiers for Kansas and Wisconsin) Use Figure: The Production Possibility
Frontiers for Kansas and Wisconsin. In autarky, Kansas produces and consumes 30 gallons of milk and 80
bushels of corn, while Wisconsin produces and consumes 80 gallons of milk and 60 bushels of corn. If the two
states engage in trade, with each state specializing in the good in which it has a comparative advantage, world
production of milk will:
Kansas
Wisconsin
Corn
(bushels)
Corn
(bushels)
225
225
2004
200
175
175
150
150
125
125
100
100
75
75
50
50
25
1
0 25 50 75 100 125 150 175 200
25 50 75 100 125 150 175 200
Milk (gallons)
Milk (gallons)
OO
decrease by 30 gallons.
increase by 90 gallons.
increase by 120 gallons.
remain constant.
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25
0
We can conclude that Spain has a comparative advantage in the production of chairs. [True or False]
Explain your Answer
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.
Chapter 2 Solutions
Econ Macro (book Only)
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Similar questions
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