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Chapter 20: Q4. (page 430)
Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds?
Hawaii
California
Neither
The correct option is: b) California
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In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles?
Country A
Country B
Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the Euro Zone; and (d) NAFTA.
Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity? On your diagram show a protective tariff that eliminates approximately one-half of the assumed imports. What are the price-quantity effects of this tariff on (a) domestic consumers, (b) domestic producers, and (c) foreign exporters? How would the effects of a quota that creates the same amount of imports differ?
Suppose that the current international price of wheat is \(6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in the United States end up higher or lower than \)6?
Higher.
Lower.
It will stay the same.
The accompanying hypothetical production possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. Plot the production possibilities data for each of the two countries separately. Referring to your graphs, answer the following:
New Zealand’s Production Possibilities Table (Millions of Bushels)
Production Alternatives | ||||
Product | A | B | C | D |
Apples | 0 | 20 | 40 | 60 |
Plums | 15 | 10 | 5 | 0 |
Spain’s Production Possibilities Table (Millions of Bushels)
Production Alternatives | ||||
Product | R | S | T | U |
Apples | 0 | 20 | 40 | 60 |
Plums | 60 | 40 | 20 | 0 |
What is each country’s cost ratio of producing plums and apples?
Which nation should specialize in which product?
Show the trading possibilities lines for each nation if the actual terms of trade are 1 plum for 2 apples. (Plot these lines on your graph.)
Suppose the optimum product mixes before specialization and trade were alternative B in New Zealand and alternative S in Spain. What would be the gains from specialization and trade?
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