Homework 3

18. Refer to Table 2. Assume that the farmer and the rancher each has 24 labor hours available. If each person spends all his time producing the good in which he has a comparative advantage, then total production is a. 3 pounds of meat and 4 pounds of potatoes. b. 8 pounds of meat and 12 pounds of potatoes. c. 11 pounds of meat and 16 pounds of potatoes. d. 15 pounds of meat and 12 pounds of potatoes.

b. 8 pounds of meat and 12 pounds of potatoes.

12. Refer to Table 2. The opportunity cost of 1 pound of potatoes for the rancher is a. 1/2 pound of meat. b. 1/2 hour of labor. c. 2 pounds of meat. d. 6 hours of labor.

c. 2 pounds of meat.

10. Refer to Table 2. The opportunity cost of 1 pound of meat for the rancher is a. 1/2 pound of potatoes. b. 2 hours of labor. c. 2 pounds of potatoes. d. 3 hours of labor.

a. 1/2 pound of potatoes.

11. Refer to Table 2. The opportunity cost of 1 pound of potatoes for the farmer is a. 1/4 pound of meat. b. 2 hours of labor. c. 4 pounds of meat. d. 8 hours of labor.

a. 1/4 pound of meat.

2. As long as two people have different opportunity costs, each can gain from trade with the other, since trade allows each person to obtain a good at a price lower than his or her opportunity cost. a. True b. False

a. True

3. Trade between countries a. allows each country to consume at a point outside its production possibilities frontier. b. limits a country's ability to produce goods and services on its own. c. must benefit both countries equally; otherwise, trade is not mutually beneficial. d. can best be understood by examining the countries' absolute advantages.

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

8. Refer to Table 1. Iceland should export a. coolers and import radios. b. radios and import coolers. c. both goods and import neither good. d. neither good and import both goods.

a. coolers and import radios.

14. Refer to Table 2. The rancher has an absolute advantage in the production of a. meat. b. potatoes. c. both goods. d. neither good.

a. meat.

16. Refer to Table 2. The rancher has a comparative advantage in the production of a. meat. b. potatoes. c. both goods. d. neither good.

a. meat.

19. Refer to Table 2. Assume that the farmer and the rancher each has 24 labor hours available. If each person spends all his time producing the good in which he has a comparative advantage and trade takes place at a price of 1 pound of meat for 2 pounds of potatoes, then a. the farmer and the rancher will both gain from this trade. b. the farmer will gain from this trade, but the rancher will not. c. the rancher will gain from this trade, but the farmer will not. d. neither the farmer nor the rancher will gain from this trade.

a. the farmer and the rancher will both gain from this trade.

20. Refer to Table 2. Without trade, the farmer produced and consumed 2 pounds of meat and 4 pounds of potatoes and the rancher produced and consumed 4 pounds of meat and 2 pounds of potatoes. Then, each person agreed to specialize in the production of the good in which they have a comparative advantage and trade 3 pounds of meat for 6 pounds of potatoes. As a result, the farmer gained a. 1 pound of meat and 2 pounds of potatoes and the rancher gained 0 pounds of meat and 5 pounds of potatoes. b. 1 pound of meat and 2 pounds of potatoes and the rancher gained 1 pound of meat and 4 pounds of potatoes. c. 3 pounds of meat and 6 pounds of potatoes and the rancher gained 5 pounds of meat and 6 pounds of potatoes. d. 4 pounds of meat and 12 pounds of potatoes and the rancher gained 6 pounds of meat and 8 pounds of potatoes.

b. 1 pound of meat and 2 pounds of potatoes and the rancher gained 1 pound of meat and 4 pounds of potatoes.

If a country has the comparative advantage in producing a product, then that country must also have the absolute advantage in producing that product. a. True b. False

b. False

17. Refer to Table 2. The farmer should specialize in the production of a. meat and the rancher should specialize in the production of potatoes. b. potatoes and the rancher should specialize in the production of meat. c. both goods and the rancher should specialize in the production of neither good. d. neither good and the rancher should specialize in the production of both goods.

b. potatoes and the rancher should specialize in the production of meat.

13. Refer to Table 2. The farmer has an absolute advantage in the production of a. meat. b. potatoes. c. both goods. d. neither good.

b. potatoes.

15. Refer to Table 2. The farmer has a comparative advantage in the production of a. meat. b. potatoes. c. both goods. d. neither good.

b. potatoes.

Table 1: Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 Cooler Radio Aruba 2 5 Iceland 1 4 7. Refer to Table 1. Aruba should export a. coolers and import radios. b. radios and import coolers. c. both goods and import neither good. d. neither good and import both goods.

b. radios and import coolers.

Table 2: Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate. Labor Hours Needed to Make 1 Pound of Pounds Produced in 24 Hours Meat Potatoes Meat Potatoes Farmer 8 2 3 12 Rancher 3 6 8 4 9. Refer to Table 2. The opportunity cost of 1 pound of meat for the farmer is a. 1/4 pound of potatoes. b. 1/4 hour of labor. c. 4 pounds of potatoes. d. 8 hours of labor.

c. 4 pounds of potatoes.

5. A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton a. is equal to 0. b. is between 0 and 1. c. is equal to 1. d. is greater than 1.

c. is equal to 1.

4. Which of the following would not result from all countries specializing according to the principle of comparative advantage? a. The size of the economic pie would increase. b. Worldwide production of goods and services would increase. c. The well-being of citizens in each country would be enhanced. d. Each country's production possibilities frontier would shift inward.

d. Each country's production possibilities frontier would shift inward.

6. If Korea is capable of producing either shoes or soccer balls or some combination of the two, then a. Korea should specialize in the product in which it has an absolute advantage. b. it would be impossible for Korea to have an absolute advantage over another country in both products. c. it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. d. Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls.

d. Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls.