Micro Test 3 Answers

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Figure 2-9 shows the production possibilities frontier for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. 1. What is the opportunity cost of producing 1 pound of cashews in Indonesia? 2. Which country has comparative advantage in the production of cotton?

1. 2 2/3 of a bolt of cotton 2. Indonesia

Table 2-7 shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles. 1. What is Barney's opportunity cost of making a unicycle? 2. What is Fred's opportunity cost of making a pogo stick?

1. 2 pogo sticks 2. 1/3 unicycle

Suppose the government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this. 1. With the tariff in place, the United States consumes? 2. The loss in domestic consumer surplus as a result of the tariff is equal to the area 3. The tariff causes domestic consumption of rice...

1. 31 million pounds of rice 2. C+D+E+F 3. to fall by 11 million pounds

Table 2-9 shows the number of labor hours to produce a canoe and a sailboat in Guatemala and Honduras. 1. Does either Guatemala or Honduras have an absolute advantage and if so, in what product? 2. If the two countries specialize in trade, who should export sailboats? 3. If the two countries specialize in trade, who would export canoes?

1. Guatemala has an absolute advantage in producing both products 2. Guatemala 3. Honduras

For each surfboard that Australia produces, it gives up the opportunity to make 25 boomerangs. New Zealand can produce 1 surfboard for every 15 boomerangs it produces. Which of the following is true about the comparative advantage between the two countries?

Australia has the comparative advantage in boomerangs

Assume that Bulgaria has a comparative advantage in producing sandals and Finland imports sandals from Bulgaria. We can conclude that...

Bulgaria has a lower opportunity cost of producing sandals relative to Finland.

The opportunity cost of going to an outdoor music festival is...

Equal to the highest value of an alternative use of the time and money spent on the festival

Figure 9-1 shows the US demand and supply for leather footwear. 1. Under autarky, the producer surplus is... 2. Suppose the government allows imports of leather footwear into the United States. What will be the quantity demanded? 3. Suppose the government allows imports of leather footwear into the United States. The market price falls to $18. What is the value of domestic producer surplus?

1. $105 2. 20 units 3. $40

Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota. 1. What is the area that represents revenue to foreign producers who are granted permission to sell in the US market when there is a quota? 2. What is the area that represents the DWL as a result of the quota? 3. If there was no quota, how many pounds of peanuts would be imported?

1. I+J+K+L 2. E+M 3. 30 million

Which of the following statements is used to justify protectionism?

A country should not rely on other countries for goods that are critical to its national defense.

When Roxane, a US citizen, purchases a designer dress from Barney's of New York that was made in Milan, the purchase is...

a US import and an Italian export

Which of the following is the best example of a quota?

a limit on the quantity of tires that can be imported from a foreign country.

Countries that engage in trade will tend to specialize in the production of goods and services in which they have _______________ and will _______________ these goods and services.

a comparative advantage; export

The points outside the production possibilities frontier are...

unattainable

If Japanese workers are more productive than French workers then trade between Japan and France...

will take place so long each country has a comparative advantage in a good or service that the buyers in the country want


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