Module 3: Practice HW/Quiz

Table: Coffee and Salmon Production Possibilities Coffee Salmon Brazil 40 20 Alaska 10 10 (Table: Coffee and Salmon Production Possibilities) Look at the Table: Coffee and Salmon Production Possibilities. The table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Which of the following terms of trade would benefit both countries?

1 unit of salmon for 1.5 units of coffee

Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. With specialization, how many brownies and cookies will be made in one day for the bake sale?

40 brownies and 15 cookies

Which statement is TRUE?

All countries can gain from trade if they all specialize in production according to comparative advantage.

Ashley can pick 20 pears if she produces no peaches or pick 10 peaches if she produces no pears. Jessica can pick 10 pears if she produces no peaches or pick 8 peaches if she produces no pears. Assume that both Jessica and Ashley have straight-line production functions. Which statement is TRUE?

Ashley has an absolute advantage in producing both peaches and pears.

Suppose that Mexico and Canada each produce both steel and beef. If Canada has a lower opportunity cost than Mexico in producing steel and Mexico has a lower opportunity cost than Canada in producing beef, then:

Canada has a comparative advantage in producing steel.

Suppose you hear an economist make the assertion that, between France and Italy, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea but expressed as an assertion?

France can produce chocolate at a lower opportunity cost than Italy can.

If Honduras can produce 20,000 tractors or 60,000 bushels of corn and Belize can produce 10,000 tractors or 40,000 bushels of corn, which nation should produce tractors and which should produce corn?

Honduras should produce tractors and Belize should produce corn. The opportunity cost of producing 1 tractor is 3 bushels of corn in Honduras and 4 bushels of corn in Belize. Honduras has a comparative advantage in producing tractors and should produce them. The opportunity cost of producing a bushel of corn is 1/3 of a tractor in Honduras and ¼ of a tractor in Belize. Belize has a comparative advantage in producing corn and should produce it.

If they spend all night writing computer programs, Laurence can write 10 programs while Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 while Carrie Anne can make 4. We know that:

Laurence's opportunity cost of writing programs is less than that of Carrie Anne.

Mutt can pick 10 bananas if he produces no papayas or pick 30 papayas if he produces no bananas. Jeff can pick 20 bananas if he produces no papayas or pick 5 papayas if he produces no bananas. Assume that both Mutt and Jeff have straight-line production functions. Which statement is TRUE?

Mutt has a comparative advantage in producing papayas.

Suppose that in Australia it takes 2 hours of labor to harvest 10 bushels of apples, and 4 hours of labor to harvest 10 bushels of tomatoes. Further suppose that a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of the following statements is TRUE?

Of the two countries, Brazil has a comparative advantage in producing tomatoes.

Suppose that Chile and Peru each produce both corn and aluminum and do not trade. If Chile has a lower opportunity cost than Peru in producing corn and Peru has a lower opportunity cost than Chile in producing aluminum, then:

Peru would be made better off by producing aluminum exclusively and trading with Chile to obtain corn.

If they produce only hamburgers, in a single day Sarah can produce 10 hamburgers while Abe can produce 5 hamburgers. If they make milkshakes only, in a single day Sarah can produce 10 milkshakes while Abe can produce 4 milkshakes. We know that:

Sarah has an absolute advantage and a comparative advantage in making milkshakes.

Arnold can pick 10 mangos if he produces no papayas or pick 20 papayas if he produces no mangos. Palmer can pick 30 mangos if he produces no papayas or pick 5 papayas if he produces no mangos. Assume that both Arnold and Palmer have straight-line production functions. Which statement is TRUE?

The opportunity cost of a mango for Arnold is 2 papayas.

Suppose that one person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that one person working in Turkey for the same length of time can produce either 15 yards of cloth or 30 baskets. Which statement is then TRUE?

Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets.

Two nations can maximize their consumption by:

each nation producing only those goods in which they have a comparative advantage and then trading.

The result of free trade between nations is that:

goods can be produced in the location where their opportunity cost is the lowest.

A worker has a comparative advantage in producing a good when that worker:

has a lower opportunity cost of producing the good as compared to other people.

An economy can produce the highest standards of living if:

individuals divide tasks and trade with each other.

If a country specializes according to its own comparative advantage and then trades with other nations:

it can consume at a higher level than the domestic production possibility frontier (PPF)

As long as people have different ________, everyone has a comparative advantage in something.

opportunity costs

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization

Gains from trade arise because of:

specialization in production.

In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that:

the United States has a comparative advantage in the production of automobiles.

To achieve the gains from trade, each nation should specialize in the production of a good or service if:

the country can make the product while forgoing fewer alternative products than any other country.

If the production possibility curve for an economy that produces fish and coconuts is a straight line, we can say that:

the opportunity cost of producing more fish is constant.

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they choose from a wide variety of goods and services. What principle allows for this?

trade