ECO 2013 Module 4 Comparative Advantage and Trade

Which of the following statements is true?

All countries can gain from trade if they all specialize in production according to comparative advantage.

Ashlee can pick 20 pears if she produces no peaches or 10 peaches if she produces no pears. Jessica can pick 10 pears if she produces no peaches or 8 peaches if she produces no pears. Assume that both have straight-line production functions.

Ashlee has an absolute advantage in producing both peaches and pears.

Suppose that both Mexico and Canada produce both steel and beef. If Canada has a lower opportunity cost than Mexico in producing steel and Mexico has a lower opportunity cost than Canada in producing beef then:

Canada has a comparative advantage in producing steel.

Suppose you hear an economist make an assertion that, between the two countries, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea expressed in the assertion?

France can produce chocolate at a lower opportunity cost than Italy can.

If Honduras can produce 60,000 tractors and 20,000 bushels of corn and Belize can produce 40,000 tractors and 10,000 bushels of corn, which nation should produce tractors and which nation should produce corn?

Honduras should produce corn and Belize should produce tractors.

Mutt can pick 10 bananas if he produces no papayas or 30 papayas if he produces no bananas. Jeff can pick 20 bananas if he produces no papayas or 5 papayas if he produces no bananas. Assume that both have straight-line production functions.

Mutt has a comparative advantage in producing papayas.

Suppose that in Australia, it takes 2 hours of labor to harvest 10 bushels of apples and 4 hours of labor to harvest 10 bushels of tomatoes. Further, suppose that a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of the following statements is true?

Of these two countries, Brazil has a comparative advantage in producing tomatoes.

Suppose that both Chile and Peru produce both corn and aluminum and do not trade. If Chile has a lower opportunity cost than Peru in producing corn and Peru has a lower opportunity cost than Chile in producing aluminum then:

Peru would be made better off by producing aluminum exclusively and trading with Chile to obtain corn.

Arnold can pick 10 mangos if he produces no papayas or 20 papayas if he produces no mangos. Palmer can pick 30 mangos if he produces no papayas or 5 papayas if he produces no mangos. Assume that both have straight-line production functions.

The opportunity cost of a mango for Arnold is 2 papayas.

Suppose that one person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that one person working in Turkey for the same length of time can produce either 15 yards of cloth or 30 baskets. Which of the following statements is then true?

Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets.

Two nations can maximize their consumption by:

each nation producing only those goods in which they have a comparative advantage and then trading

The result of free trade between nations is that:

goods can be produced in the location where their opportunity cost is the lowest.

A worker has a comparative advantage in producing a good when that worker:

has a lower opportunity cost of producing the good as compared to other people.

Standards of living can be made the highest in an economy if:

individuals divide tasks and trade with each other.

If a country specializes according to its own comparative advantage and then trades with other nations:

it can consume at a higher level than the domestic production possibility frontier.

Gains from trade arise because of:

specialization.

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization.

If the production possibility curve for an economy producing fish and coconuts is a straight line, we can say:

the opportunity cost of producing more fish is constant.

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this?

trade