ECON 303 Homework 2

If a nation has no absolute​ advantage, then it A. can only gain from trade if it produces outside its production possibilities curve. B. cannot gain from trade. C. still gains from trade. D. can only gain from trade if it raises its productivity levels.

C. still gains from trade.

Output per Hour Worked The United States produces 3 computers and 6 pairs of shoes per hour. Mexico produces 1 computer and 3 pairs of shoes per hour. The opportunity cost of a pair of shoes in the United States is A. 1/2 computer. B.3 computers. C. 2 computers. D. 1 computer.

A. 1/2 computer.

Output per Hour Worked The United States produces 3 computers and 6 pairs of shoes per hour. Mexico produces 1 computer and 3 pairs of shoes per hour. The preminus−trade relative price of a computer in Mexico is A. 3 pairs of shoes. B. 1 pair of shoes. C. 1/2 pair of shoes. D. 1/3 pair of shoes.

A. 3 pairs of shoes.

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

A. its opportunity cost of producing that good is lower than elsewhere.

The economic philosophy that favors strict limits on imports and strong support for exports is called A. mercantilism. B. zero sum. C. comparative advantage. D. absolute advantage.

A. mercantilism.

Suppose that ForeignForeign uses one hour of labor to produce winewine. Then it trades that output for the other good at a price ratio of PC​/PW ​= 1. Through trade ForeignForeign can​gain: A. 5 pounds of candy B. 2 pounds of candy C. 3 pounds of candy D. 1 pound of candy

B. 2 pounds of candy

This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the output per unit of labor in Foreign and Home for each of two goods. Use this information to answer the question that follows. Candy Whiskey Home 2 pounds 4 gallons Foreign 4 pounds 5 gallons Which of the following statements is true​? A. Home has the absolute and comparative advantage in whiskey production. B.Foreign has the absolute advantage in both candy and whiskey production and the comparative advantage in whiskey production. C. Foreign has the absolute advantage in both candy and whiskey production and the comparative advantage in candy production. D. Home has the absolute advantage in both candy and whiskey production and the comparative advantage in candy production.

C. Foreign has the absolute advantage in both candy and whiskey production and the comparative advantage in candy production.

Output per Hour Worked The United States produces 3 computers and 6 pairs of shoes per hour. Mexico produces 1 computer and 3 pairs of shoes per hour. Which country or countries has an absolute advantage and a comparative advantage in​ shoes? A. The United States has an absolute and comparative advantage in shoes. B. Mexico has an absolute and comparative advantage in shoes. C. Mexico has a comparative​ advantage, and the United States has an absolute advantage in shoes. D. The United States has a comparative​ advantage, and Mexico has an absolute advantage in shoes.

C. Mexico has a comparative​ advantage, and the United States has an absolute advantage in shoes.

Which of the following is​ TRUE? A. Absolute advantage is based on comparing the opportunity costs of trading partners. B. David Ricardo proposed the theory of absolute advantage as the basis for trade. C. The Ricardian model assumes labor is perfectly mobile. D. Adam Smith proposed the theory of comparative advantage as the basis for trade in The Wealth of Nations.

C. The Ricardian model assumes labor is perfectly mobile.

Autarky is best described​ as: A. a country is controlled by the automobile industry. B. a country runs​ itself, automatically, without a government. C. a country limits itself to its own goods. D. a country is controlled by an autocrat. E. None of the above.

C. a country limits itself to its own goods.

Output per Hour Worked The United States produces 3 computers and 6 pairs of shoes per hour. Mexico produces 1 computer and 3 pairs of shoes per hour. Trade between the United States and Mexico will occur as long as the relative price of shoes is between A. 3 computers and one computer. B. 3 computers and 2 computers. C. 1/2 computer and 1/3 computer. D. 6 computers and 3 computers.

C. one−half computer and one−third computer.

For each hour​ worked, a U.S. worker can produce 4 loaves of​ bread, or 2 tons of steel. Canadian workers can produce 2 loaves of​ bread, or 1 ton of steel per hour. The information indicates that A. Canada has absolute advantage in​ bread, and the U.S. has absolute advantage in steel. B. the U.S. has absolute advantage in​ bread, and Canada has absolute advantage in steel. C. the U.S. has absolute advantage in​ bread, and the U.S also has absolute advantage in steel. D. Canada has absolute advantage in​ bread, and Canada also has absolute advantage in steel.

C. the U.S. has absolute advantage in​ bread, and the U.S also has absolute advantage in steel

Before​ trade, suppose the cost of steel is 7 loaves of bread per ton in Japan. When Japan trades with the rest of the​ world, the world price of steel is 9 loaves of bread per ton. This information allows you to conclude A. it is not possible to draw any conclusions without information on​ Japan's trade partners. B. that Japan will export bread. C. that Japan will capture all the benefits of trade. D. that Japan will export steel. E. B and C only.

D. that Japan will export steel.

This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the output per hour of labor in Foreign and Home for each of two goods. Use this information to answer the questions that follows. Candy Wine Home 5 pounds 4 gallons Foreign 1 pounds 3 gallons Which of the following statements is true​? A. Home specializes in the production of wine. B. Foreign specializes in the production of candy and wine. C. Home specializes in the production of candy and wine. D. Foreign specializes in the production of wine.

D.Foreign specializes in the production of wine.

(T/F) The gains from trade rely on overall productivity​ (absolute advantage).

False