Homework 3

Which of the following statements is not correct?

d. Absolute advantage is the driving force of specialization.

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then

d. All of the above are correct.

Which of the following combinations of coolers and radios could Aruba produce in one 40- hour week?

b) 5 coolers and 6 radios

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 table is

d) 6 chairs for Ken and 3 chairs for Traci.

Specialization and trade are closely linked to

b. comparative advantage.

Total output in an economy increases when each person specializes because

b. each person spends more time producing that product in which he or she has a comparative advantage.

Assume that Aruba and Iceland each has 80 labor hours available. If each country divides its time equally between the production of coolers and radios, then total production is

c) 60 coolers and 18 radios.

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements is true?

c) Neither country could gain from trade with each other because neither one has a comparative advantage

The gains from trade are

c. a result of more efficient resource allocation than would be observed in the absence of trade.

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy

c.rises.