CHAPTER 3

Why can trade benefit everyone in society?

Because it allows people to specialize in activities in which they have a comparative advantage.

It is impossible for one person to have a ___________ in the production of both goods.

Comparative Advantage

when a producer can switch between the production of two goods at a constant rate the PPF line will be

Straight

The producer that requires a smaller quantity of inputs to produce a amount of a good, it is said to have _______________ in producing that good

absolute advantage

the producer with the lowest opportunity cost

comparative advantage

Without engaging in international trade, any quantity outside a country's original PPF is considered ___________

infeasible

PPF shows

combination of output that can be produced with a given set of inputs and technology

If a nation has a comparative advantage in the production of a good,

it can produce that good at a lower opportunity cost than its trading partner

If a nation has an absolute advantage in the production of a good,

it can produce that good using fewer resources than its trading partner.

___________ is determined by the opportunity cost of producing a good rather than the amount of resources used to make that good.

Comparative Advantage

In an hour, Mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?

Sophia in washing, neither in mowing

Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes twice as long to do each task. How should the roommates allocate the work?

There are no gains from trade in this situation

whoever has lower opportunity cost should have the

comparative advantage

producers should specialize in the production of good that they have the _____________ & ________

comparative advantage and trade

According to the principle of comparative advantage,

countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.

A nation will typically import those goods in which

other nations have a comparative advantage.

What can a self-sufficient country do

A self-sufficient country at best can consume on its production possibilities frontier.

Suppose the world consists of two countries—the United States and Mexico. Furthermore, suppose there are only two goods—food and clothing. Which of the following statements is true? a. If the United States has an absolute advantage in the production of food, then Mexico must have an absolute advantage in the production of clothing. b. If the United States has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing. c. If the United States has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing. d. If the United States has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of food.

B

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these nations trade?

China will export shirts, and the United States will export aircraft.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

the domestic price of 1 ring is 1/3 of a watch.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

the opportunity cost of 1 watch is 3 rings

True or False: Without engaging in international trade, Freedonia and Lamponia would not have been able to consume at the after-trade consumption bundles.

true