Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 2, Problem 4DQ
To determine
The advantages of using a capital in the production process and specialization.
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Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor
is the sole factor of production in the two countries. Greece is endowed with Lº =30,000
labor hours (1. hrs) and Finland is endowed with L =15,000 labor hours (1. hrs). In Greece it
takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton
of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity
in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower
relative to labor productivity in good (D) in Greece.
Consumer preferences in the two countries are rigid in the sense that whatever the relative
prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the
country's production, and residents in Finland consume two-thirds (2/3) of its production.
Questions
I Suppose the two countries engage in international trade, and that the international relative
price…
Which of the following statements is true about comparative advantage?
O.a) Comparative advantage is interesting theoretically, but it is not relevant when evaluating real-world economic conditions.O.b) Comparative advantage exists whenever one person, firm, or nation can do something at lower opportunity costs than some other individual, firm, or nation.O.c) Comparative advantage exists whenever one person, firm, or nation can do something at higher opportunity costs than some other individual, firm, or nation.O.d) Only technologically advanced economies can have a comparative advantage in the production of a good or service.
Greece and Finland produce and consume two goods, timber (T) and dairy product (D). Labor
is the sole factor of production in the two countries. Greece is endowed with Lº = 30,000
labor hours (1. hrs) and Finland is endowed with L =15,000 labor hours (I. hrs). In Greece it
takes one (1) 1. hr to produce a ton of good (T), and one fourth (1/4) of a 1. hr to produce a ton
of good (D). In Finland, labor productivity in good (T) is twice as high as labor productivity
in good (T) in Greece, and labor productivity in good (D) is twenty-five percent (25%) lower
relative to labor productivity in good (D) in Greece.
Consumer preferences in the two countries are rigid in the sense that whatever the relative
prices of the two goods are, residents in Greece always consume three-fourths (3/4) of the
country's production, and residents in Finland consume two-thirds (2/3) of its production.
a. What is the opportunity cost of the two goods in the two countries?
b. Derive the algebraic expression for…
Chapter 2 Solutions
Microeconomics
Ch. 2.2 - Prob. 1QQCh. 2.2 - Prob. 2QQCh. 2.2 - Prob. 3QQCh. 2.2 - Prob. 4QQCh. 2 - Prob. 1DQCh. 2 - Prob. 2DQCh. 2 - Prob. 3DQCh. 2 - Prob. 4DQCh. 2 - Prob. 5DQCh. 2 - Prob. 6DQ
Ch. 2 - Prob. 7DQCh. 2 - Prob. 8DQCh. 2 - Prob. 9DQCh. 2 - Prob. 10DQCh. 2 - Prob. 11DQCh. 2 - Prob. 12DQCh. 2 - Prob. 13DQCh. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4P
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- Suppose there exist two imaginary countries, Yosemite and Sequoia. Their labor forces are each capable of supplying four million hours per day that can be used to produce pistachios, chinos, or some combination of the two. The following table shows the amount of pistachios or chinos that can be produced by one hour of labor. Country Yosemite Sequoia Pistachios (Pounds per hour of labor) 8 LO 5 Chinos (Pairs per hour of labor) 16 20arrow_forwardThe U.S. and Canada both produce aircraft engines and tons of chemicals, which are sold for the same price in both countries. Suppose that with one unit of labor and one unit of capital, the U.S. can produce either 20 engines or 38 tons of chemicals and Canada can produce either 15 engines or 35 tons of chemicals. Which country has an absolute advantage producing chemicals?arrow_forwardSuppose, under license from Apple, a factory in China buys all the components for an iPhone from multiple manufacturers for $150 They assemble the iPhone and sell it to Apple for $350. Apple then sells the phone to customers for $699. How much value does Apple add during their step in the production process? Ⓒ$1.50 1200 O $349 O $350arrow_forward
- Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?arrow_forwardSuppose Italy has the comparative advantage in producing wine and Germany has the comparative advantage in producing machine tools. Suppose further that each country produces both goods when operating in autarky. When the countries move from autarky to mutually beneficial trade, profits in the German machine tool industry will ,everything else held constant. Select one: O A. decrease O B. be ambiguous O C. remain unchanged D. increasearrow_forwardAssume that Germany has 1200 units of labor available and it can produce two goods: apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. France has a labor force of 800. Foreign's unit labor requirement in apple production is 5, while in banana production it is 1. a) Graph both countries' PPF. Clearly state which trade theory you are using and explain the reason. Note that the shape of the production possibility frontier depends on the theory. b) Show relative autarky price in Germany and France country. c) Which country has a comparative advantage in the production of apple? Why?arrow_forward
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