Macroeconomics HW 3

T/F Difference in opportunity cost allows for gains from trade

True

T/F For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.

True

T/F It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.

True

An economy's production possibilities frontier is also its consumption possibilities frontier

When the economy is self-sufficient

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know the opportunity cost of one chair is

1/6 of a table for Ken and 1/3 table for Traci

T/F opportunity cost refers to how many inputs a producer requires to produce a good

False

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

Has an absolute advantage in the production of that good

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

Is equal to 1

Referring to the fact that we all

Rely upon one another for the goods and services we consume

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume

Adam smith asserted that a person should never attempt to make at home

what will cost him more to make than buy