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Questions for review FUNK

1) Explain how absolute advantage and comparative advantage differ


2) Give an example in which one persona has an absolute advantage
in doing something but another persona has a comparative
advantage.
3) Is absolute advantage or comparative advantage more important
for trade? Explain your reasoning using the example in your
answer to Question 2
4) Will a nation tend to export or import goods for which it has a
comparative advantage? Explain
5) Why do economists oppose policies that restrict trade among
nations?
6) Consider the gardener and the farmer from our example in this
chapter. Explain why the gardeners opportunity cost of producing
1 Kilogram of meet is 4 kilograms of potatoes. Explain why the
farmers opportunity cost of producing 1 kilogram of meet is 2
kilograms of potatoes.
7) Manuela can read 20 pages of economics in an hour. She can also
read 50 pages of sociology in an hour. She spends 5 hours per day

studying.
Draw Manuelas production possibilities frontiers for reading

economics and sociology.


What is Manuelas opportunity cost of reading 100 pages of
sociology?

8) UK and Japanese workers can each produce 4 cars a year. A UK


worker can produce 10 tones of grain a year, whereas a Japanese
worker can produce 5 tones of grain a year. To keep thins simple,

assume that each country has 100 million workers.


For this situation construct a table analogous to table 3.1
Graph the production possibilities frontier of the UK and Japanese

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

information in a table analogous of table 3.3


Which country has an absolute advantage in producing cars? In

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

comparative advantage in making pizza?


If Victoria and David trade foods with each other, who will trade

away pizza in exchange for home-brew?


The price of pizza can be expressed in terms of barrels of homebrew. What is the highest price at which pizza can be traded that

would make both flat mates batter off? What is the lowest price?
Explain
10)

Suppose that there are 10 million workers in Belgium, and

that each of these workers can produce either 2 cars o 30 tones of

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)

Consider a lecturer who is writing a book. The lecturer can

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)

England and Scotland both produce scones and pullovers.

Suppose that an English worker can produce 50 scones per hour or


1 pullover per hour. Suppose that a Scottish worker can produce

40 scones per hours or 2 pullovers per hour.


Which country has the absolute advantage in the production of

each good? Which country has the comparative advantage?


If England and Scotland decided to trade, which commodity will
Scotland trade to England? Explain.

If a Scottish worker could produce only 1 pullover per hour, would


Scotland still gain from trade? Would England still gain from trade?
Explain.

13)

The following table describe the production possibilities of

two cities in the country if Footballia:

Manchester
Chelsea

Pairs of red socks per

Pairs if blue socks per

worker per hour


3
2

worker hour
3
1

Without trade, what is the price of blue socks (In terms of red

socks) In Manchester? What is the price in Chelsea?


Which city has an absolute advantage in the production of each
color sock? Which city has comparative advantage in the

production of each color sock?


If the cities trade with each other, which color sock will each

export?
What is the range of prices at which trade can occur?

14)

Suppose that all goods can be produced with fewer worker

hours in Germany than in Belgium.


In what sense is the cost of all goods lower in Germany than in

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)

Are the following statements true or false? Explain in each

case.
Two countries can achieve gains from trade even if one of the
countries has an absolute advantage in the production of all
goods.

Certain very talented people have a comparative advantage in

everything they do.


If a certain trade is good for one person, it cant be good for the
other one.

16)

What does the domestic price that prevails without

international trade tell us about a nations comparative


advantage?
17)

When does a country become an export of a good? An

importer?
18)

Draw the supply and demand diagram for an importing

country. What is consumer surplus and producer surplus before


trade is allowed? What is consumer surplus and producer surplus
with free trade? What is the change in total surplus?
19)

Describe what a tariff is, and describe its economic effect.

20)

What is an import quota? Compare its economic effects with

those of a tariff.
21)

List five arguments often given to support trade restrictions.

How de economists respond to these arguments?


22)

What is the difference between the unilateral and

multilateral approaches to achieving free trade? Give an example


of each.
23)
France represents a small part of the world apple market.
Draw a diagram depicting the equilibrium in the French apple
market without international trade identify the equilibrium price,
equilibrium quantity, consumer surplus and producer surplus.

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

in France in the absence of trade.


Assuming that French imports of wine are a small part of total
world wine production, draw a graph for the French market for
wine under the free trade. Identify consumer surplus producer

surplus and total surplus in an appropriate table.


Now suppose that an outbreak of phyloxera (a sap sucking insect
with damages grape vines) in California and South America
destroys much of the grape harvest there. What effects does this
shock have on the world price of wine? Using your graph and
tables from part (a), show the effect on consumer surplus,
producer surplus and total surplus in France. Who are the winner
and losers? Is France better or worse off?