Macroeconomics: Chapter 3

By definition, imports are

goods produced abroad and sold domestically

By definition, exports are

goods produced domestically and sold abroad

The production possibilities frontier illustrates

the combinations of output that an economy can produce

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

A production possibilities frontier is a straight line when

the rate of tradeoff between the two goods being produced is constant

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

the two countries' combined output of both goods will be higher than it would be in the absence of trade. Greece will produce more fish than it would produce in the absence of trade. Germany will produce more cars than it would produce in the absence of trade. All of the above are correct.

Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour.

• Susan has an absolute advantage over Paul in washing windows. • Susan has a comparative advantage over Paul in washing windows. • Paul has a comparative advantage over Susan in ironing shirts.

When a country has a comparative advantage in producing a certain good,

• the country should import the good • the country should produce just enough of that good for its own consumption • the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good NONE OF THE ABOVE ARE CORRECT.

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 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by

340 bushels of corn and 500 bushels of oats

Which of the following would not result from all countries specializing according to the principle of comparative advantage?

Each country's production possibilities frontier would shift inward.

Suppose Jim and Tom can both produce baseball bats. If Jim's opportunity cost of producing baseball bats is lower than Tom's opportunity cost of producing baseball bats, then

Jim has a comparative advantage in the production of baseball bats.

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, while Sandy can make 6 tables or 18 chairs. Given this, we know that

Mike has an absolute advantage in chairs

Trade between countries

allows each country to consume at a point outside its production possibilities frontier

Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes ceramic vases, but Regan is better at producing both goods. In this case, trade could

benefit both Jayson and Regan.