Ch. 20- Problems

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, Big Country needs to give up

3/4 of a unit of Y for 1 unit of X and should produce good X. Small Nation needs to give up 1 unit of X for 1 unit of Y and should produce good Y.

Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds?

California

Consider the following statement: "The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China." Which ideas of Adam Smith and David Ricardo are represented?

China does not need Smith's absolute advantage to specialize in toys, rather it needs Ricardo's comparative advantage.

Which of the following represents land-, labor-, and capital-intensive commodities, respectively?

Corn, clothing, and aircraft

In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles?

Country A

In Country A, a worker can make 5 bicycles per hour. In Country B, a worker can make 7 bicycles per hour. Which country has an absolute advantage in making bicycles?

Country B

True or False: If Country B has an absolute advantage over Country A in producing bicycles, it will also have a comparative advantage over Country A in producing bicycles.

False.

Suppose that the opportunity-cost ratio for fish and lumber is 1F ≡ 1L in Canada but 2F ≡ 1L in Iceland. Then ____________ should specialize in producing fish while ___________ should specialize in producing lumber.

Iceland; Canada

We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don't we see full specialization—for instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in China? Choose the best answer from among the following choices.

Increasing opportunity costs

American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer?

Quota

In 2018, manufacturing workers in the United States earned average compensation of $21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of $3.20 per hour. U.S. manufacturers can possibly compete if

U.S. workers are more productive

If the fictitious country of Islandia puts all of its production resources into fish, it can produce 36 units of fish. If it puts all of its production resources into coconuts, it can produce 27 units of coconuts. If the fictitious country of Mountania puts all of its production resources into fish, it can produce 40 units of fish. If it puts all of its production resources into coconuts, it can produce 25 units of coconuts. Assume that both countries have constant cost functions for both products. a. What is the opportunity cost of producing 1 unit of fish in Islandia? b. What is the opportunity cost of producing 1 unit of coconuts in Islandia? c. What is the opportunity cost of producing 1 unit of fish in Mountania? d. What is the opportunity cost of producing 1 unit of coconuts in Mountania? e. (blank) has a comparative advantage in the production of coconuts. f. What will be the terms of trade for fish? g. What will be the terms of trade for coconuts?

a. .75 units of coconuts. b. 1.33 units of fish c. .625 units of coconuts d. 1.6 units of fish e. Mountania f. Between [.625] and [.75] units of coconuts. g. Between [1.33] and [1.6] units of fish.

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? b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula ≡ 5.5 cans tuna fish: ii. 1 can baby formula ≡ 4 cans tuna fish: iii. 1 can baby formula ≡ 8 cans tuna fish:

a. Canswicki should produce [baby formula], and Tunata should produce [tuna fish] b. 1.) Yes 2.) No 3.) No

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? b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula ≡ 2½ cans tuna fish: ii. 1 can baby formula ≡ 1 can tuna fish: iii. 1 can baby formula ≡ 5 cans tuna fish:

a. Canswicki should produce [baby formula], and Tunata should produce [tuna fish]. b. 1.) Acceptable 2.)Not Acceptable 3.) Not Acceptable

The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative D and for the United States is alternative S. (see pictures on phone for table) a. Are comparative-cost conditions such that the two countries should specialize? If so, what product should each produce? b. What is the total gain in apparel and chemical output that would result from such specialization? c. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1,000 units of apparel for 1½ tons of chemicals and that 16,000 units of apparel are exchanged for 24 tons of chemicals. What are the gains from specialization and trade for each nation?

a. Yes. China should produce [chemicals] The United States should produce [apparel] b. Apparel: 8000 units Chemicals: 8 tons c. 1000 units of apparel for 1 ton of chemicals and 1000 units of apparel for 2 tons of chemicals. [The United States] has a gain of [8000] units of apparel. [China] has a gain of [8] ton(s) of chemicals.

Distinctions between land-, labor-, and capital-intensive commodities are important because

an abundant supply of one type of resource gives a country a comparative cost advantage in products using that resource.

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. The limits of the terms of trade between these two countries will be

between 1 unit of good X for a unit of good Y and 4/3 units of good X for a unit of good Y.

The use of artificial trade barriers, such as tariffs and import quotas,

can increase domestic output and employment in the short run, but that is not likely to last in the long run.

Tariffs and import quotas can reduce unemployment in a U.S. import industry, but

foreign countries could impose nontariff barriers on U.S. goods, reducing jobs in an export industry.

Over the past few decades, offshoring has

increased to countries with an educated labor force such as India.

The net outcome of either tariffs or quotas for the world economy is

negative, since the costs to consumers substantially exceed the gains to producers and government.

All manufacturing is not done in Mexico and other low-wage countries because

of trade barriers.

Protective tariffs might reduce both the imports and the exports of the nation that levies tariffs because

other countries may follow with their own import tariffs.

Distinctive products

provide an export niche for a country.

Import competition can lead to

quality improvements and cost reductions by American firms.

Offshoring of white-collar service jobs

refers to jobs relating to data entry, book composition, and software coding.

Consider the following statement: "The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China." We import these toys from China because

the United States has an absolute advantage in producing toys, but China has a comparative advantage in producing toys.

A quota that results in the same level of imports as a tariff is more detrimental to an economy because

the government loses tax revenue.