ECON 452 EXAM 1

In the United States, producing one pound of cheese requires two hours of labor, while producing one gallon of wine requires one hour of labor. The United States has 2020 hours of labor. The U.S. production possibilities frontier (PPF) is

2QC + QW = 2020

The ROW maximum production of cheese and of wine is

505 pounds of cheese, 6060 gallons of wine

The relative price of cheese in terms of wine under free trade is

6

The ROW PPF is a straight line with wine endpoint ___ and slope ___ (with cheese on the horizontal axis).

6060, -12

The ROW TPF is a straight line with wine endpoint ___ and slope ___ (with cheese on the horizontal axis).

6060, -6

The U.S. TPF is a straight line with wine endpoint ___ and slope ___ (with cheese on the horizontal axis).

6060, -6

The ROW trade possibilities frontier is

6D* C + D*W = 6060

The U.S. trade possibilities frontier (TPF) is

6DC + DW = 6060

In 2018, the United States imported $3129 billion, exported $2501 billion, and ran a trade ___ in goods and services

Deficit of $628 billion

The source of any gains from trade is that the

free trade price differs from the opportunity cost for each country

With cheese on the horizontal axis, the absolute value of the slope of the U.S. TPF indicates the

relative price of cheese in terms of wine under free trade

When drawn with cheese on the horizontal axis, the absolute value of the slope of a country's PPF indicates the

Opportunity cost of cheese in terms of wine

China importing $200 billion more of certain goods and services by 2021 is a hefty target as they only imported about _____ of goods from the United States in 2017, _____ in 2018, and _____ in 2019.

$130 billion, $120 billion, $107 Billion

In 2018, the United States imported about $540 billion from China but ran a trade deficit of around ___ due to how little was exported.

$420 billion

World relative demand for cheese to wine is RD ≡ DC/DW = PW/PC. World relative demand has points such as (RD, PC/PW):

(1/2, 2) and (1, 1)

Under free trade, the ROW produces

0 pounds of cheese, 6060 gallons of wine

The jump in world relative supply occurs along the horizontal axis at

1/6

What is the world relative supply of cheese to wine if each country produces only its comparative advantage good?

1/6

Under free trade, the United States produces

1010 pounds of cheese, 0 gallons of wine

The U.S. maximum production of cheese and of wine is

1010 pounds of cheese, 2020 gallons of wine

The ROW maximum consumption of cheese and of wine under free trade is

1010 pounds of cheese, 6060 gallons of wine

The U.S. maximum consumption of cheese and of wine under free trade is

1010 pounds of cheese, 6060 gallons of wine

The ROW opportunity cost of cheese in terms of wine is

12

World relative supply has a second step at PC/PW equals

12

The U.S. opportunity cost of cheese in terms of wine is

2

To produce one additional pound of cheese, the United States must stop producing ___ gallons of wine.

2

World relative supply has a first step at PC/PW equals

2

In autarky (prior to trade), the relative price of cheese in terms of wine in the United States is ___ and in the ROW is ____.

2, 12

The U.S. PPF is a straight line with wine endpoint ___ and slope ___ (with cheese on the horizontal axis).

2000, -2

In the rest of the world (ROW), producing one pound of cheese requires 24 hours of labor, while producing one gallon of wine requires two hours of labor. The ROW has 12,120 hours of labor. The ROW production possibilities frontier is

24Q*C + 2Q*W = 12120

Based on 2015 data, only 8% of world trade occurs in

Agricultural products

Who gains from trade?

Both the United States and the ROW

Its interpretation is how many gallons of wine is needed to

Buy a pound of cheese under free trade

In 2018, the United States ran a trade deficit in goods of $19 billion (and likely a trade surplus in goods and services_ with which country?

Canada

The ROW imports _____ and exports _____.

Cheese, wine

The United States has comparative advantage in ______ and the ROW has comparative advantage in ______.

Cheese, wine

Which country was the largest trading partner of the United States in 2015-2018 (based on the volume of trade in goods)?

China

When opening up to free trade with the United States, all workers that were making machines in the United Kingdom switch to making cars. Under free trade with the United Kingdom, the U.S. wage paid when producing machines is _________ the U.S. wage paid when producing cars.

Equal to OR More than

The U.S. PPF is ____ than the ROW PPF because the opportunity cost of cheese in terms of wine is _____ in the United States.

Flatter, lower

The gravity model states that bilateral trade between any pair of countries will be higher when either country is larger as measured by

GDP

In the past two years, US trade with China, Canada, and Mexico has been growing faster than trade with

Japan and Germany

In the United States, the wage paid making aircraft exceeds the wage paid growing oilseeds when have free trade with China. The United States must have a lower opportunity cost of ___ compared to China.

Only aircraft

In the United States, the wage paid making aircraft exceeds the wage paid growing oilseeds when have free trade with China. Does China grain from trade?

Only if China produces only oilseeds

When opening up to free trade with the United States, all workers that were making machines in the United Kingdom switch to making cars. The United States must have comparative advantage in

Only machines

When opening up to free trade with the United States, all workers that were making machines in the United Kingdom switch to making cars. Under free trade with the United Kingdom, the United States exports

Only machines

When opening up to free trade with the United States, all workers that were making machines in the United Kingdom switch to making cars. Under free trade with the United Kingdom, the United States produces

Only machines OR Both cars and machines

In the United States, the wage paid making aircraft exceeds the wage paid growing oilseeds when have free trade with China. When opening up to free trade, the relative price of aircraft to oilseeds in China

Remains the same as before international trade OR Falls so aircraft become cheaper in China due to international trade

The U.S. TPF is ____ than the ROW TPF.

Same slope

The United States imports _____ and exports _____.

Wine, cheese

In the United States, the wage paid making aircraft exceeds the wage paid growing oilseeds when have free trade with China. When opening up to free trade, the relative price of aircraft to oilseeds in the United States

rises so aircraft become more expensive in the US due to international trade