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studying.
Draw Manuelas production possibilities frontiers for reading
economies.
For the UK, what is the opportunity cost of a car? Of grain? For
Japan, what is the opportunity cost of a car? Of grain? Put this
producing grain?
Which country has a comparative advantage in producing cars? In
producing gain?
Without trade, half of each countrys workers produce cars and
half produce grain. What quantities of cars and grain does each
country produce?
Starting from a position without trade, give an example in which
trade makes each country better off?
9) Victoria and David share a flat. They spend most of their time
studying, but the leave some time for their favorite activities:
cooking pizza and making home-brew beer. Victoria takes 4 hours
to produce 1 barrel of home-brew beer and 2 hours to make a
pizza. David takes 6 hours to brew 1 barrel of beer and 4 hours to
make a pizza.
What is each flat mates opportunity cost of making a pizza? Who
has the absolute advantage in making pizza? Who has the
would make both flat mates batter off? What is the lowest price?
Explain
10)
wheat in a year.
What is the opportunity cost of producing a car in a Belgium? What
is the opportunity cost of producing a tone of wheat in Belgium?
Explain the relationship between the opportunity costs of the two
goods.
Draw Belgiums production possibilities frontier. If Belgium
chooses to consume 10 million cars, how much wheat can it
consume without trade? Label this point on the production
possibilities frontier.
Now suppose that the UK offers to buy 10 million cars from
Belgium in exchange for 20 tones of wheat per car. If Belgium
continues to consume 10 millions cars, how much wheat does this
deal allow Belgium to consume? Label this point on your diagram.
Should Belgium accept the deal?
11)
both write the chapter and gather the needed data faster than
anyone else at the university. Still, he pays a student to collect
data at the library. Is this sensible? Explain.
12)
13)
Manchester
Chelsea
worker hour
3
1
Without trade, what is the price of blue socks (In terms of red
export?
What is the range of prices at which trade can occur?
14)
Belgium?
In what sense is the cost of some goods lower in Belgium?
If Germany and Belgium traded with each other, would both
countries be better off as a result? Explain in the context of your
answers to parts (a) and (b)
15)
case.
Two countries can achieve gains from trade even if one of the
countries has an absolute advantage in the production of all
goods.
16)
importer?
18)
20)
those of a tariff.
21)
Suppose that the world apple price is below the French price
before trade, and that the French apple market is now opened to
trade. Identify the new equilibrium price, quantity consumed,
quantity produced domestically and quantity imported. Also show
the change in the surplus of domestic consumers and producers.
Has domestic total surplus increases or decreased?
24)
The world price of wine is below the price that would prevail