Chapter 3 Homework

Assume the U.S. currently grows 3.0 million tons of fresh winter fruit and that the resources absorbed in the production of this fruit could have produced 225,000 laptop computers.​ Therefore, the opportunity cost of those million tons of fruit is Suppose that South America could have instead produced those 3.0 million tons of fruit at an opportunity cost of​ 150,000 laptops. Because of the difference in opportunity costs between the two​ regions, it can be shown that trade gives the possibility of A. unfair competition for South American laptop makers. B. unfair competition for U.S. winter fruit producers. C. U.S. exploitation of its poorer neighbors to the south. D. a mutually beneficial rearrangement of world production.

225,000 D. a mutually beneficial rearrangement of world production. Because opportunity costs​ differ, specialization by the two regions will raise total global output.

The claim that trade exploits a country and makes it worse off if its workers receive much lower wages than workers in other countries is shown by the Ricardian model to A. be incorrect because it is based on relative poverty and not absolute poverty. B. miss the point because it fails to consider the​ alternative, which would be even lower wages. C. be true because countries with lower wages have greater levels of poverty. D. be true because autarky or isolationism makes countries unambiguously better off.

B. miss the point because it fails to consider the​ alternative, which would be even lower wages. The model refutes this claim of exploitation as it indicates that the country with lower wages accrues benefits from trade and is better off with trade than without trade.

The degree of specialization predicted by the basic Ricardian model A. is much less extreme than is observed in the real world. B. is nearly identical to that observed in the real world. C. is much more extreme than is observed in the real world. D. cannot be compared to the real world since the model is theoretical.

C. is much more extreme than is observed in the real world. The basic Ricardian model predicts that specialization will be complete. In other​ words, it predicts that only nontraded goods will be produced by more than one country. In the real​ world, specialization is incomplete.

A country has a comparative advantage in producing a good if A. it produces the good at a lower money cost. B. it can produce more of the good than other countries. C. its opportunity cost of producing that good is lower than elsewhere. D. it is more economically advanced than its trading partners.

C. its opportunity cost of producing that good is lower than elsewhere. Comparative advantage is based strictly upon opportunity cost. A country has a comparative advantage in a good if it sacrifices fewer​ "other goods" to produce the good than do other countries.

Suppose that the resource base in Country X can produce either 150 units of alpha or 400 units of beta.​ Similarly, suppose that Country​ Y's resource base is capable of producing 150 units of alpha or 300 betas.​ Clearly, the opportunity cost of alphas is lower in ....... Based on this​ result, it would be best for Country Y to concentrate on good.... Complete the following table to reveal the changes in production if country X stops producing alphas while country Y shifts resources out of its beta industry to concentrate on alphas. Hypothetical changes in Production: country X units of alpha − units of beta + country Y units of alpha + units of beta - total enter your response here +enter your response here

Country Y - Fewer betas are sacrificed when Country Y specializes in alphas. Alpha - And Country X should specialize in good beta. OK Hypothetical changes in Production: country X units of alpha − 150 units of beta + 400 country Y units of alpha + 150 units of beta - 300 total county X total units of alpha − 150 + units of alpha + 150 = 0 country Y total units of beta + 400 + units of beta - 300 = +100

Despite major​ gains, Chinese manufacturing workers have much lower productivity than their U.S. counterparts. Chinese service workers are relatively more​ productive, but most services​ aren't tradable. So which matters for Chinese wages—manufacturing or service​ productivity? For Chinese​ wages, A. only manufacturing matters because Chinese services cannot be traded. B. only manufacturing matters because Chinese wages will only rise as the price of manufactured goods increases with trade. C. only manufacturing matters because Chinese wages will only rise with productivity gains in manufacturing. D. both sectors matter because Chinese wages are a function of productivity and prices in all sectors. E. only services matter because that is where Chinese workers have a comparative advantage.

D. both sectors matter because Chinese wages are a function of productivity and prices in all sectors.

(pt. 2) In the absence of international​ trade, Home will have to produce both calico and steel for itself. ​ However, it will do so only if A. PC/aLC = PS/aLS B. PC/PS = aLC/aLS C. Workers are indifferent as to where (Calico or Steel) they work. D. A and B are correct. E. All of the above are correct

E. All of the above are correct

(pt. 1) This exercise applies the basic Ricardian model of one factor​ (labor) and two goods to the national economy of Home. Assume the​ following: aLS ​= # of labor hours needed to produce a unit of steel in​ Home aLC = # of labor hours needed to produce a unit of calico in​ Home PS = the price per ton of steel​ PC = the price per bolt of calico Which of the following represents the opportunity cost of calico​?

aLC/aLS