Quiz 3 Micro

Assume that Cuba and Denmark can switch between the production of coolers and radios at a constant rate. Refer to Table 1. Cuba and Denmark each have 8 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of radios increased by

12

table 3-7 Serena and John run a business that sets up and tests computers. Assume that Serena and John can switch between setting up and testing at a constant rate. The number of minutes needed by Serena to test a computer is

30

Figure 3-4 Both Alvina and Jane

face a consistent trade-off between producing pitchers of lemonade and pizzas

The production possibilities frontier illustrates

the combination of output that an economy can produce

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

then specializing in the production of that good and trading for other goods could allow that country to consume at a point beyond its production possibilities frontier.

Suppose there are are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

they choose not to trade with one another.

The opportunity cost of an item is

what you give up to get that item

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

380 bushels of corn and 100 bushels of oats

If the production possibilities frontier shown is for 32 hours of production, then how long does it take Peru to make one pound of peanuts

4 hours

Table 3-2 Assume that England and France each has 10 labor hours available. If each country divides its time equally between the production of pastrami and milk, the the total production is

6 units of pastrami and 3.75 units of milk

Table 3-4 Assume that Kenya and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Assume Kenya nd Portugal each has 240 machine minutes available. If each country divides its time equally between the production of toothbrushes and hair brushes, then total production is

64 toothbrushes and 240 hairbrushes

In an economy consisting of two people producing two goods, it is possible for one person to have the absolute advantage and the comparative advantage in both goods.

False

T/F A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce.

False

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn

T/F An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside its production possibilities frontier.

True

T/F Interdependence among individuals and interdependence among nations are both based on the gains from trade.

True

T/F Opportunity cost measures the trade-off between two goods that each producer faces.

True

The gains from trade are

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

Trade between countries

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

Both Ryan and Daunuta produce hair scarves and brooches. However, Ryan is better at producing both goods. In this case, trade could

benefit both Danuta and Ryan