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Exam 3: Interdependence and the Gains From Trade

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Question 101

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The gains from trade are

A) evident in economic models, but seldom observed in the real world.
B) evident in the real world, but impossible to capture in economic models.
C) a result of more efficient resource allocation than would be observed in the absence of trade.
D) based on the principle of absolute advantage.

E) C) and D)
F) All of the above

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Question 102

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Figure 3-7 Mary's Production Possibilities Frontier Kate's Production Possibilities Frontier ​ -Refer to Figure 3-7. Who has a comparative advantage in making muffins?

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Question 103

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As long as two people have different opportunity costs, each can gain from trade with the other, since trade allows each person to obtain a good at a price lower than his or her opportunity cost.

Gary and Diane must prepare a presentation for their marketing class. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Gary 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Diane 12 hours to do the calculations and 20 hours to prepare the slides. a.How much time would it take the two to complete the project if they divide the calculations equally and the slides equally? b.How much time would it take the two to complete the project if they use comparative advantage and specialize in calculating or preparing slides? c.If Diane and Gary have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

Figure 3-6 The production possibilities frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Greg's Production Possibilities Catherine's Production Possibilities ​ -Refer to Figure 3-6. What is Greg's opportunity cost of producing cake? Explain how you derived your answer.

Table 3-11 Assume that Bahamas and Denmark can switch between producing coolers and producing radios at a constant rate. ​ ​ -Refer to Table 3-11. At which of the following prices would both Bahamas and Denmark gain from trade with each other?

Sally can make 8 cups of soup per hour or 20 crackers per hour. Harry can make 10 cups of soup per hour or 30 crackers per hour. Can Sally and Harry gain from trade? If so, what is the range of prices of crackers for soup at which they would both find trade advantageous?

The gains from specialization and trade are based on ______ advantage.

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

​Trade does not benefit a nation if that nation has a comparative advantage in the production of that good.

Table 3-2 ​ ​ ​ ​ -Refer to Table 3-2. Which of the following combinations of pastrami and milk could France produce in 20 hours?

Figure 3-4 -Refer to Figure 3-4. If point A represents Alvina's production and point B represents Betty's production,