Micro Econ Chapter 3

Adam Smith

and David Ricardo both supported free trade.

Table 3-25 Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate. Maya should specialize in the production of

mixers and Miguel should specialize in the production of toasters.

Table 3-12 Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim can switch between setting up and testing computers at a constant rate. The following table applies. Which of the following points would not be on Jim's production possibilities frontier, based on a 40-hour week?

(60 computers set up, 12 computers tested)

Figure 3-23 The graph below represents the various combinations of ham and cheese (in pounds) that the nation of Bonovia could produce in a given month. For Bonovia, what is the opportunity cost of a pound of cheese?

1.25 pounds of ham

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and from the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland. As a result, Boatland produces and consumes 25 units of wheat and 125 units of fish per year while Farmland produces and consumes 125 units of wheat and 25 units of fish per year. If the political pressure were overcome and trade were to occur, each country would completely specialize in the product in which it has a comparative advantage. If trade were to occur, the combined output of the two countries would increase by

100 units of wheat and 100 units of fish.

Figure 3-21 Suppose Uzbekistan decides to increase its production of bolts by 10. What is the opportunity cost of this decision?

20 nails

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce either 2 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 according to their respective comparative advantages. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. The war has caused the combined yearly output of the two countries to decline by

20 units of corn and 20 units of wheat.

Table 3-3 Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is

24 units of cheese and 15 units of wine.

Figure 3-4 If Lisa and Bryce both spend all of their time producing jackets, then total production is

26 jackets.

Figure 3-19 Chile would incur an opportunity cost of 36 pounds of coffee if it increased its production of soybeans by

27 pounds.

Figure 3-2 If the production possibilities frontier shown is for two months of production, then which of the following combinations of peanuts and cashews could Brazil produce in two months?

3 peanuts and 150 cashews

Figure 3-20 If Canada and Mexico switch from each country dividing its time equally between the production of Good X and Good Y to each country spending all of its time producing the good in which it has a comparative advantage, then total production of Good Y will increase by

3 units.

Table 3-36 What is Barbuda's opportunity cost of one towel?

3/2 umbrellas.

Table 3-33 Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible production per month if both work the same number of 8 hour days. Given this information, Chris's opportunity cost of 1 lb. of tomatoes is

30 jars of sauce and Tony's opportunity cost of 1 lb. of tomatoes is 20 jars of sauce.

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated between the two countries, and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. Sylvania will now be able to consume a maximum of

30 units of corn and 30 units of wheat.

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be

300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland.

Figure 3-21 Azerbaijan's opportunity cost of one bolt is

4 nails and Uzbekistan's opportunity cost of one bolt is 2 nails.

Figure 3-19 Chile and Colombia would not be able to gain from trade if Colombia's opportunity cost of one pound of soybeans changed to

4/3 pounds of coffee.

Table 3-6 Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Assume that Zimbabwe and Portugal each has 180 machine minutes available. If each country divides its time equally between the production of toothbrushes and hairbrushes, then total production is

48 toothbrushes and 24 hairbrushes.

Figure 3-14 If Arturo and Dina switch from each person dividing their time equally between the production of tacos and burritos to each person spending all of their time producing the good in which they have a comparative advantage, then total production of burritos will increase by

50.

Table 3-9 Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate. Which of the following combinations of mixers and toasters could Miguel not produce in 80 hours?

6 mixers and 5 toasters.

Table 3-8 Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. Which of the following combinations of cheese and bread could England not produce in 24 hours?

8 units of cheese and 3 units of bread.

Figure 3-3 If Arturo and Dina both spend all of their time producing tacos, then total production is

800 tacos and 0 burritos.

Figure 3-15 Which of the following is not correct?

A A) Perry and Jordan could each consume 2 novels and 6 poems without trade. B) Jordan could consume 2 novels and 6 poems both with and without trade. C) Perry and Jordan could each consume 2 novels and 6 poems with trade. D) Perry and Jordan could each consume 12 poems without trade.

Table 3-38 Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. England should export

Cheese and import bread.

By definition, imports are

Goods produced abroad and sold domestically.

Table 3-35 Which good(s) does Denmark have an absolute advantage producing?

Neither ham nor eggs.

Figure 3-15 Perry has a comparative advantage in the production of

Poems and Jordan has a comparative advantage in the production of novels.

Figure 3-16 Hosne has a comparative advantage in the production of

Purses and Merve has a comparative advantage in the production of wallets.

Table 3-30 Assume that Falda and Varick can switch between producing wheat and producing cloth at a constant rate. Falda has a comparative advantage in the production of

Wheat

As a student, Anne spends 40 hours per week writing term papers and completing homework assignments. On one axis of her production possibilities frontier is measured the number of term papers written per week. On the other axis is measured the number of homework assignments completed per week. Anne's production possibilities frontier is a straight line if

she can switch between writing term papers and completing homework assignments at a constant rate.

Table 3-3 We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for France. If we were to do this, measuring wine along the horizontal axis, then

the slope of England's production possibilities frontier would be -4 and the slope of France's production possibilities frontier would be -0.4.

Table 3-10 Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate. We could use the information in the table to draw a production possibilities frontier for Japan and a second production possibilities frontier for Korea. If we were to do this, measuring cars along the horizontal axis, then

the slope of Japan's production possibilities frontier would be -0.2 and the slope of Korea's production possibilities frontier would be -0.33.

Table 3-38 Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one growing season. From the table we know that Iowa has a

​comparative advantage in the production of corn and Nebraska has a comparative advantage in the production of soybeans.

Table 3-38 Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn and soybeans each state can produce in one growing season. From this table, we can conclude that Iowa should specialize in the production of

​corn and Nebraska should specialize in the production of soybeans.

Figure 3-18 The opportunity cost of 1 cup for Juba is

2/3 bowl.

Figure 3-14 Arturo should specialize in the production of

Burritos and Dina should specialize in the production of tacos.

When describing the opportunity cost of two producers, economists use the term

comparative advantage.