PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 16, Problem 5RQ
To determine
Check whether the statement is true or false.
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In 2017, Ecuador's biggest export was crude (unprocessed) petroleum, 63% of which it exported to the United States, and
Ecuador's biggest import was refined (processed) petroleum, of which 70% was imported from the United States. What does
this tell you about the countries' comparative advantages in extracting petroleum and refining petroleum?
This information suggests that
has a comparative advantage in refining petroleum, and
the United States
must I
ntage in extracting petroleum.
Ecuador
Aniva and kartaly are small countries that protect their economic growth from rapidly advancing globalization by limiting the import of televisions to
20 million. To this end, each country imposes a different type of trade barrier when the world price (Pw) is $3,000. In Aniva, the government decides
to impose a tariff of $2,000 per television; In Kartaly, the government implements a quota of 20 million televisions.
Assume that Aniva and Kartaly have identical domestic demand (D₁) and supply (S) curves for televisions as shown on the following graph. Under
these conditions, the price of televisions is $5,000 per television in each country.
PRICE (Dollars per television)
10000
9000
8000
7000
6000
5000
4000
3000
2000 +
1000
0
-S:-100
-Y: 11000
0
Do
P
D₁
True
S:-100
7:13.000
False
(40,5000)
(20,3000)
Slope:100
(60,7000 1600
☆
Country
Aniva (tariff = $2,000)
Kartaly (quota = 20 million televisions)
S
70,6000)
(60,5000) (80,5000)
Suppose that in both countries, demand for televisions rises…
In 2020, Spain had a population of 46 million and its capital stock was US$90,000 billion. The corresponding figures for Australia were 26 million and US$75,000 billion. Suppose computer-chips manufacturing is capital-intensive relative to food processing. As such, in a two-factor, two-commodity and two-country world, Australia would have exported computer-chips to Spain and imported processed foods from Spain. Do you agree? Justify your answer using an appropriate trade model
Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- Consider a two country, two goods, one factor (labor) model of international trade. Suppose home country require 1 units of labor to produce a unit of cloth and 1 unit of labor to produce a unit of wine (regardless of output levels). Foreign country requires 2 unit of labor to produce 1 unit of cloth and 1.5 units of labor to produce 1 unit of wine (regardless of output levels). (a) Which country has the comparative advantage in producing wine? Justify your answer. (b) Which country has the absolute advantage in producing wine? (c) Which country will have higher autarky price of wine in terms of cloth?arrow_forwardConsider a two country, two goods, one factor (labor) model of international trade. Suppose home country require 1 units of labor to produce a unit of cloth and 1 unit of labor to produce a unit of wine (regardless of output levels). Foreign country requires 2 unit of labor to produce 1 unit of cloth and 1.5 units of labor to produce 1 unit of wine (regardless of output levels). (a) Which country has the comparative advantage in producing wine? Justify your answer. (b) Which country has the absolute advantage in producing wine? (c) Which country will have higher autarky price of wine in terms of cloth? (d) Suppose after trade, the international relative price settles at a level strictly between the autarky relative prices of the two countries. At the trade equilibrium, show which country will produce wine and which country will produce cloth.arrow_forwardAssume that the comparative-cost ratios of two products-baby formula and tuna fish-are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula = 3 cans tuna fish Tunata: 1 can baby formula = 5 cans tuna fish a. In what product should each nation specialize? Canswicki should produce [(Click to select), and Tunata should produce [(Click to select) ♥ b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula = 2 cans tuna fish: (Click to select) ii. 1 can baby formula = 3.5 cans tuna fish: (Click to select) iii. 1 can baby formula = 6 cans tuna fish: (Click to select)arrow_forward
- Suppose that a worker in Country A can produce either 6 units of corn or 2 units of wheat per year, and a worker in Country B can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Country A produces and consumes 30 units of corn and 10 units of wheat per year. Country B produces and consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated between the two countries, and Country A sends 30 units of corn to Country B in exchange for 30 units of wheat. Country A will now be able to consume a maximum of Select one: a.30 units of corn and 30 units of wheat. b.40 units of corn and 20 units of wheat. c.40 units of corn and 30 units of wheat. d.10 units of corn and 40 units of wheat.arrow_forwardConsidering that resources are scarce, is it a good decision to allow China to explore and use up the resources in the West Philippine Sea in exchange of financial aid? Is it a good “trade off”? (Trade off is an economic principle which means “giving up one thing to get another thing”.arrow_forwardAssume that the comparative-cost ratios of two products-baby formula and tuna fish-are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula = 2 cans tuna fish Tunata: 1 can baby formula = 4 cans tuna fish a. In what product should each nation specialize? Canswicki should produce (Click to select) ♥ and Tunata should produce | (Click to select) ♥ b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula = 2.5 cans tuna fish: (Click to select) ii. 1 can baby formula = 1 can tuna fish: (Click to select) v iii. 1 can baby formula = 5 cans tuna fish: | (Click to select) varrow_forward
- Freedonia has a comparative advantage in the production of (grain, tea, neither grain nor tea, both grain and tea), while Desonia has a comparative advantage in the production of (grain, tea, neither grain nor tea, both grain and tea). If each fully specializes that is, produces only the good for which each has a comparative advantage, the most the two countries can produce is ( )million pounds of grain and ( )million pounds of tea. As you did for Freedonia, use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Desonia. Then place the black point (plus symbol) on the trading possibilities line to indicate Desonia’s consumption after specialization and trade. True or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumption bundles. (Hint: Base your answer to this question on the answers you previously entered on this page.) a) True b) Falsearrow_forwardSuppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000. (g) If the terms of trade is 2 to 1 in favour of the country with the comparative advantage in food. Determine the combination of the two goods that each country will consume after trade if the country with the comparative advantage in fuel imports 4000 units of food. Label this point B and B* respectively. h) Who gains from trade? Who loses? What is the impact if any on the world? (i) What should the terms of trade be to make trade beneficial for BOTH Japan and Peru? Explain.arrow_forwardEcuador’s biggest export is crude petroleum (unprocessed), 63% of which it exports to the United States, and Ecuador’s biggest import is refined petroleum (processed), of which it imports 70% from the United States. Based on this information, which of the following statements is true? Group of answer choices Ecuador has comparative advantage in extracting crude petroleum; the US has comparative advantage in producing refined petroleum. Not enough information. The US has comparative advantage in extracting crude petroleum; Ecuador has comparative advantage in producing refined petroleum. Ecuador has absolute advantage in extracting crude petroleum and the US has absolute advantage in producing refined petroleum.arrow_forward
- Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by __________?arrow_forwardSuppose that a worker in Freedonia can produce either 12 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 12 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 60 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 60 units of wheat. Then suppose that trade is initiated between the two countries, and Freedonia sends 60 units of corn to Sylvania in exchange for 60 units of wheat. What maximum amounts will Freedonia now be able to consume? 0 units of corn and 60 units of wheat 0 units of corn and 120 units of wheat 60 units of corn and 60 units of wheat 120 units of corn and 120 units of wheatarrow_forwardThe country of "Econoland" can use its resources to produce either 500 tons of crab or 200 tons of plywood. Its rival, "Arcadonia," is able to produce either 200 tons of crab or 100 tons of plywood.From this passage, it can be concluded that Arcadonia should specialize in producing plywood. Econoland has a comparative advantage in plywood. Arcadonia has an absolute advantage in the production of both crab and plywood. Econoland should specialize in producing plywood, and trade them with Arcadonia for crabs.arrow_forward
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