Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 3, Problem 8SPPA
To determine
Tom and Abby
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The New York Times (Nov. 30, 1993) reported that “the inability of OPEC to agree last week to cut production has sent the oil market into turmoil . . . [leading to] the lowest price for domestic crude oil since June 1990.”
Statements
True
False
The members of OPEC were trying to agree to cut production so they could save more oil for the future.
OPEC was unable to agree on cutting production because each country has an incentive to cheat on any agreement.
The newspaper also noted OPEC's view “that producing nations outside the organization, like Norway and Britain, should do their share and cut production.”
What does the phrase “do their share” suggest about OPEC's desired relationship with Norway and Britain?
OPEC would like Norway and Britain to act competitively.
OPEC would like Norway and Britain to keep their production levels high.
OPEC would like Norway and Britain to join the cartel.
Tom and Abby produce rackets and balls.
The graphs show their production
possibilities.
Tom uses all his resources and produces
2 rackets and 20 balls an hour. Abby uses
all her resources and produces 2 rackets
and 40 balls an hour.
40-
30-
20-
10-
0+
0
80-
60-
40-
20-
Balls (per hour)
0+
Tom's PPF
1 2 3 4
Rackets (per hour)
Balls (per hour)
Abby's PPF
3 4 5
1
2
Rackets (per hour)
5
If Tom and Abby specialize and then trade balls and rackets at 15 balls per 1 racket,
A. Tom gains 2 rackets while Abby gains 40 balls an hour
B. Tom gains 10 balls while Abby gains 1 racket and 15 balls an hour
C. Tom gains 1 racket and 15 balls while Abby gains 10 balls an hour
D. Tom gains 10 balls and Abby gains 10 balls an hour
O E. together they gain 80 balls and 4 rackets an hour
o
N
PA
no
Page 5
8. Pat and Kerry are considering a partnership. With all Pat's resources, Pat can produce 50 X or
20 Y. With all of Kerry's resources, Kerry can produce 30 X or 30 Y. Assume the
resources can be easily substituted to make either product. They are starting by using half
of the resources to make each item. These relationships are shown in the following table. Use
this information to answer the following questions:
Kerry
Product X
(Xylophones)
Product Y
(Yams)
50
0
Pat
25
Pat make?
10
0
20
Pat make?
30
0
15
15
0
30
a. Who has an absolute advantage in producing X? Pat
b. Who is a comparative advantage in producing Y?
Partnership
be gained from before they started trading?
c. If Pat and Kerry decided to take all the gains from trade in X, how much X would
40
25
d. If Pat and Kerry decided to take all the gains from trade in X, how much X would
Gain
be gained from before they started trading?
e. If Pat and Kerry decided to take all the gains from trade in Y, how much Y would
f.…
Chapter 3 Solutions
Foundations of Economics (8th Edition)
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