Chapter 3&4 Flashcards
Economists use the term opportunity cost to refer to a)only those goods with are in short supply b)value of all alternatives forgone as a result of making a particular choice c)value of next best alternative occurring as a result of making a particular choice d) either B or C
c)value of next best alternative occurring as a result of making a particular choice
Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. What is the opportunity cost of apples in terms of bananas?
In the absence of trade, what would the price of apples in terms of bananas be?____. Why?______.
1.5 bananas ; d)1.5 bananas per apple; without trade, the relative prices of the goods are equal to their relative unit labor requirements.
Consider Home’s production possibilities curve shown to the right. Which of the following does the absolute value of its slope convey? a) comparative advantage of cheese b)opportunity cost of cheese in terms of wine c)production cost of wine in Home’s currency d)opportunity cost of wine in terms of cheese
b)opportunity cost of cheese in terms of wine
This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Home for each of two goods: Home (Sausage), aLS (1 hour per pound) and Home (Gasoline), aLG (3 hours per gallon). If the price per gallon of gasoline is $9, and the hourly wage rate in gasoline sector of Home’s economy will be a)$27 b)$0.33 c)$3 d)$9
c) $3
In the graphical portrayal of world equilibrium, the relative demand curve of cheese is downward-sloping and the relative supply curve of cheese is shaped as: a)upward-sloping b)downward-sloping c)step function d)Vertical line
c)step function
This exercise applies the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Foreign and Home for each of two goods.
Home (Candy): aLC (6 hrs/per lb)
Home (Wine): aLW (5 hrs/per gallon)
Foreign (Candy): aLC (2 hours/lb)
Foreign (Wine): aLW (6 hours per gallon).
In post-trade equilibrium with Pc= Pw = $20, the wage of workers in Foreign relative to the wage of workers in Home will be equal to: a)$2.5 b)2.5 c)0.4 d)$10
b)2.5
”It has been all downhill for the West since China entered the world market; we just can’t compete with hundreds of millions of people willing to work for almost nothing.”
Assuming that the statement above fails to connect wages and productivity, which of the following statements is true? a)It is cheaper to produce some goods in the U.S. because productivity is higher here.
b)It is cheaper to produce all goods in China because wages are lower there.
c)It is cheaper to produce some goods in the U.S. because an absolute advantage exists here.
d)It is cheaper to produce all goods in China because more workers are available there.
e)It is cheaper to produce all goods in China because technology is more advanced there.
a)It is cheaper to produce some goods in the U.S. because productivity is higher here.
In the multi-good, single-factor Ricardian model the equilibrium relative wage of Home’s workers is determined by the a)relative demand and relative supply of labor b)relative prices of goods c)relative size of countries d)relative demand for goods.
The relative demand for labor function is shaped as a)vertical line b)horizontal line c)continuous downward-sloping line d)step function
a) relative demand and relative supply of labor ;
d) step function
Despite major gains, Chinese manufacturing workers have much lower productivity than their U.S. counterparts. Chinese service workers are relatively more productive, but most services aren’t tradable. So which matters for Chinese wages- manufacturing or service productivity?
a) only manufacturing matters because Chinese wages will only rise as the price of manufactured goods increases with trade.
b) only services matter because that is where Chinese workers have a comparative advantage.
c) only manufacturing matters because Chinese services cannot be traded.
d) only manufacturing matters because Chinese wages will only rise with productivity gains in manufacturing.
e) both sectors matter because Chinese wages are a function of productivity and prices in all sectors.
e)both sectors matter because Chinese wages are a function of productivity and prices in all sectors.
The overall cost of living is a lot less in China than it is in the United States or Europe. Why might this be?
The cost of living is a lot less in China than in the U.S. or Europe because a)prices in China’s manufacturing sector are high b)wages in China’s service sector are high c)low-cost Chinese services are traded to other countries d)trade equalizes prices across countries in all sectors e)labor productivity in China’s service sector is high
e)labor productivity in China’s service sector is high
Modern communications technology is making it possible to perform many services-e.g., reading X-rays or even doing legal research- from remote locations. How does this affect the potential gains from trade? With modern communications, gains from trade are a)increasing as the share of traded goods decreases b)decreasing as the potential benefits from specialization subside c)increasing as opportunities to benefit from comparative advantage increase d) decreasing as domestic industries are replaced b foreign producers
c)increasing as opportunities to benefit from comparative advantage increase
The Ricardian model of international trade makes predictions about actual international trade flows that a)are supported with qualification by the empirical evidence. b)cannot be evaluated with empirical evidence c)are supported without qualification by empirical evidence d)are contradicted by empirical evidence
a)are supported with qualification by the empirical evidence.
The degree of specialization predicted by the basic Ricardian model a)is nearly identical to that observed in real world b)is much more extreme than is observed in real world c) cannot be compared to the real world since the model is theoretical d)is much less extreme than observed in real world
b)is much more extreme than is observed in real world
The Ricardian model unequivocally asserts that countries as a whole will always gain from trade because it a)ignores the effects of trade on the distribution of income across countries.
b) ignores the effects of trade on the distribution of income within countries.
c) proves that trade raises everyone’s income.
d) shows that trade makes everyone more productive.
b)ignores the effects of trade on the distribution of income within countries.
