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Exam 3: Interdependence and the Gains From Trade

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Question 151

Multiple Choice

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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.

E) B) and C)
F) B) and D)

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Question 152

Multiple Choice

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Figure 3-10 -Refer to Figure 3-10. If point A represents Alice's production and point B represents Betty's production,

A) Alice produces 200 pitchers of lemonade and 100 pizzas while Betty produces 180 pitchers of lemonade and 180 pizzas.
B) Alice produces 180 pitchers of lemonade and 180 pizzas while Betty produces 200 pitchers of lemonade and 100 pizzas.
C) Alice produces 100 pitchers of lemonade and 200 pizzas while Betty produces 180 pitchers of lemonade and 180 pizzas.
D) Only Alice can benefit from specialization and trade.

E) A) and C)
F) A) and D)

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Question 153

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Interdependence among individuals and interdependence among nations are both based on the gains from trade.

Figure 3-4 -Refer to Figure 3-4. Suppose Perry is willing to trade 4 poems to Jordan for each novel that Jordan writes and sends to Perry. Which of the following combinations of novels and poems could Jordan then consume, assuming Jordan specializes in novel production and Perry specializes in poem production?

Trade allows a country to consume outside its production possibilities frontier.

Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated between the two countries, and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. Sylvania will now be able to consume a maximum of

Figure 3-4 -Refer to Figure 3-4. If Perry and Jordan each divides their time equally between writing novels and writing poems, then total production is

Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer spends 1 hour less producing corn and 1 hour more producing beans, he reduces his output of corn by 2 bushels and raises his output of beans by 3 bushels. In view of these assumptions, the farmer's production possibilities frontier is bowed out.

Which of the following statements is not correct?

David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.

Table 3-9 Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim can switch between setting up and testing computers at a constant rate. The following table applies. -Refer to Table 3-9. The number of minutes needed by Barb to test a computer is

Table 3-1 Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate. -Refer to Table 3-1. Which of the following combinations of wheat and beef could Zardia not produce in one 10-hour day?

The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers.Alpha's Production Possibilities Frontier Omega's Production Possibilities Frontier a.Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A. b.If these countries choose not to trade, what would be the total world production of popcorn and peanuts? c.Now suppose that each country decides to specialize in the good in which each has a comparative advantage. By specializing, what is the total world production of each product now? d.If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country would receive from trade. Label these points B.

Pocoyo bakes cookies and Pato grows vegetables. In which of the following cases is it impossible for both Pocoyo and Pato to benefit from trade?

Figure 3-3 -Refer to Figure 3-3. If Arturo and Dina switch from each person dividing their time equally between the production of tacos and burritos to each person spending all of their time producing the good in which they have a comparative advantage, then total production of burritos will increase by

Table 3-1 Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate. -Refer to Table 3-1. Andia has an absolute advantage in the production of

Table 3-4 Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate. -Refer to Table 3-4. The opportunity cost of 1 pound of potatoes for the farmer is

Table 3-15 The following table contains some production possibilities for an economy for a given month. $\begin{array} { | c | c | } \hline \text { Bragel: } & \text { Donut: } \\\hline 40 & 150 \\\hline \text { 60 } & ? \\\hline \text { 80 } & 50 \\\hline\end{array}$ -Refer to Table 3-15. If the production possibilities frontier is a straight line, then "?" must be

If a country has a lower opportunity cost than its potential trading partner, the country should decide to be self-sufficient.

Which of the following is not correct?