Chapter 3.

TRADE

1. Before Frank and ruby engage in trade, each of them

a. consumes at a point inside his or her production possibilities frontier.

b. consumes at a point on his or her production possibilities frontier.

c. consumes at a point outside his or her production possibilities frontier.

d. consumes the same amounts of meat and potatoes as the other.

2. After Frank and ruby engage in trade, each of them

a. consumes at a point inside his or her production possibilities frontier.

b. consumes at a point on his or her production possibilities frontier.

c. consumes at a point outside his or her production possibilities frontier.

d. consumes the same amounts of meat and potatoes as the other.

3. in an hour, mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1
lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in
lawn mowing?

a. mateo in washing, Sophia in mowing

b. Sophia in washing, mateo in mowing

c. mateo in washing, neither in mowing

d. Sophia in washing, neither in mowing

Opportunity cost of

1 car 1 lawn

Mateo 1/2 lawn 2 cars

Sophia 1/3 lawn 3 cars

4. Between mateo and Sophia, who has the comparative advantage in car washing, and who
has the comparative advantage in lawn mowing?

a. mateo in washing, Sophia in mowing

b. Sophia in washing, mateo in mowing

c. mateo in washing, neither in mowing

d. Sophia in washing, neither in mowing

5. When mateo and Sophia produce efficiently and make a mutually beneficial trade based on
comparative advantage,

a. mateo mows more and Sophia washes more.

b. mateo washes more and Sophia mows more.

c. mateo and Sophia both wash more.

d. mateo and Sophia both mow more.

6. A nation will typically import those goods in which

a. the nation has an absolute advantage.

b. the nation has a comparative advantage.

c. other nations have an absolute advantage.

d. other nations have a comparative advantage.

7. Suppose that in the united States, producing an aircraft takes 10,000 hours of labor and
producing a shirt takes 2 hours of labor. in china, producing an aircraft takes 40,000 hours of
labor and producing a shirt takes 4 hours of labor. What will these nations trade?

a. china will export aircraft, and the united States will export shirts.

b. china will export shirts, and the united States will export aircraft.

c. Both nations will export shirts.

d. there are no gains from trade in this situation.

Opportunity cost of

1 aircraft 1 shirt

US 5,000 shirts 1/5000 aircraft

China 10,000 shirts 1/10000 aircraft

8. kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. her roommate
takes twice as long to do each task. how should the roommates allocate the work?

a. kayla should do more of the cooking based on her comparative advantage.

b. kayla should do more of the washing based on her comparative advantage.

c. kayla should do more of the washing based on her absolute advantage.

d. there are no gains from trade in this situation.

9. Maria 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.

a. Draw Maria’s production possibilities frontier for reading economics and sociology.

Pages of economics

100

250 Pages of
sociology

b. What is Maria’s opportunity cost of reading 100 pages of sociology?

Opportunity cost of

1 page of economics 1 page of sociology

2,5 pages of sociology 0,4 page of economics

 Maria’s opportunity cost of reading 100 pages of sociology is 40 pages of economics

10. American and Japanese workers can each produce 4 cars per year. An American worker
can produce 10 tons of grain per year, whereas a Japanese worker can produce 5 tons of grain
per year. To keep things simple, assume that each country has 100 million workers.

a. For this situation, construct a table analogous to the table in Figure 1.

Production/worker/year Total production per year (100m

workers)

Cars Tons of Cars Tons of

grain grain
 America 4 10 America 400m 1000m

Japan 4 5 Japan 400m 500m

b. Graph the production possibilities frontiers for the American and Japanese economies.

cars (millions) America

Japan

100

500 1000 grain (millions of tons)

c. For the United States, 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 to Table 1.

Opportunity cost of

1 car 1 ton of grain

America 2,5 tons of grain 0,4 car

Japan 1,25 tons of grain 0,8 car

d. Which country has an absolute advantage in producing cars? In producing grain?

 America in producing grain, neither in producing cars

e. Which country has a comparative advantage in producing cars? In producing grain?

 Japan in producing cars, neither in producing grain

f. Without trade, half of each country’s workers produce cars and half produce grain. What
quantities of cars and grain does each country produce?

Total production per year (50m workers produce cars and 50m workers produce
grain)
 Cars Tons of grain

America 200m 500m

Japan 200m 250m

g. Starting from a position without trade, give an example in which trade makes each country
better off.

 Ex: America changes 1 worker from producing cars to producing grain and Japan
changes 1 worker from producing grain to producing cars. Therefore, America has 4
fewer cars and 10 additional tons of grain while Japan has 4 more cars and 5 fewer
tons of grain. Suppose that America offers to trade 6 tons of grain to Japan for 4 cars.
If Japan takes the trade, both America and Japan will get the same amount of cars as
before and additional tons of grain (4 tons for America and 1 ton for Japan).

American Japan
Cars Tons of grain Cars Tons of grain
No trade
Production & 200m 500m 200m 250m
consumption
Trade
Production -4 +10 +4 -5
Trade +4 -6 -4 +6
Benefits from
trade
Consumption 0 +4 0 +1
increases