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ECON 3100 Lecture Notes - Lecture 1: Hypotenuse, Autarky, Indifference Curve

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School
Clemson University
Department
Economics
Course
ECON 3100
Professor
Scott Baier

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Document Summary

Absolute advantage: the idea that a country would export goods that it was more efficient at producing than other countries, and import goods that other countries were more efficient at producing. Country with the absolute advantage simply has the higher productivity. Comparative advantage: countries specialize in and export goods in which it has the lowest opportunity cost of production relative to other countries, regardless of the absolute costs. Countries specialize in what they do best, or are the most efficient in, since they cannot do it all. Opportunity cost: how much of product b a person must give up to produce one unit of product a. Autarky: a situation in which a country does not exchange goods and services with the rest of the world; the country is self-sufficient and consumes everything they produce. Terms of trade: the price at which the exchange of imports for exports takes place; defined by price of exports divided by price of imports.

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Related Questions

If a country is absolutely more efficient than any other country in producing everything, then it would:

A. simply export goods and services and import money

B. not trade with others because there would be no benefit in doing so

C. still benefit that nation to specialize and trade those goods in which it possesses a comparative advantage

D. make it unnecessary for other nations to produce anything for themselves

E. represent a refutation of the concept of comparative advantage

PART B – Questions 10 – 27 Use the following assumptions to answer all questions: • There are three countries – Argentina, Britain and Canada. • Each country produces and consumes two kinds of goods – crude oil and beef. • All countries make their goods from a single type of input – labor – and each country has 700 hours of labor available to produce crude oil and beef. • Each country demands 5 (five) barrels of crude oil. This assumption simply means that a country must have exactly 5 barrels of crude oil – it may produce them domestically, it may import them from abroad, or it makes some domestically and imports the rest. • Countries produce goods using the technology described in the table below Technology Hours of labor needed to produce one unit of good Using the above assumptions, answer the following questions: • Calculate the quantities of crude oil and beef produced in each country in autarky (when they do not trade and each country produces its own crude oil and beef) • Order the countries according to their absolute advantage in production of crude oil • Order the countries according to their absolute advantage in production of beef • Consider the case where countries are free to specialize and trade. In the table below calculate each country’s opportunity cost of producing one unit of each good. • Calculate the quantities of crude oil and beef produced in each country, consistent with the country’s comparative advantage. Based on the above calculations, answer questions 10 through 27: Consider autarky, when countries do not trade and each country produces its own crude oil and beef. 10. In autarky, Argentina produces _____ barrels of oil. a. 0 b. 5 c. 10 d. 15 11. In autarky, Britain produces _____ barrels of oil. a. 0 b. 5 c. 10 d. 15 12. In autarky, Canada produces _____ barrels of oil. a. 0 b. 5 c. 10 d. 15 13. In autarky, Argentina produces _____ pounds of beef. a. 0 b. 70 c. 150 d. 400 14. In autarky, Britain produces _____ pounds of beef. a. 0 b. 70 c. 150 d. 400 15. In autarky, Canada produces _____ pounds of beef. a. 0 b. 70 c. 150 d. 400 16. Country of _____ has absolute advantage in production of crude oil. a. Argentina b. Britain c. Canada d. No country 17. Country of _____ has absolute advantage in production of beef. a. Argentina b. Britain c. Canada d. No country Consider effects of specialization, when countries are allowed to trade. 18. When countries specialize, Argentina produces _____ barrels of oil. a. 0 b. 5 c. 10 d. 15 19. When countries specialize, Britain produces _____ barrels of oil. a. 0 b. 5 c. 10 d. 15 20. When countries specialize, Canada produces _____ barrels of oil. a. 0 b. 5 c. 10 d. 15 21. When countries specialize, Argentina produces _____ pounds of beef. a. 0 b. 700 c. 150 d. 400 22. When countries specialize, Britain produces _____ pounds of beef. a. 0 b. 700 c. 150 d. 400 23. When countries specialize, Canada produces ____ pounds of beef. a. 0 b. 700 c. 150 d. 400 24. Country of __C___ has comparative advantage in production of crude oil. a. Argentina b. Britain c. Canada d. No country 25. Country of ___A__ has comparative advantage in production of beef. a. Argentina b. Britain c. Canada d. No country 26. Countries gain from trade because specialization increases ____. a. Trade deficit b. Unemployment c. Efficiency d. Inflation 27. Countries should trade with trading partners that _____. a. Are equally technologically advanced b. Use superior technology in every industry c. Use less advanced technology in every industry d. Use different technologies, because trade benefits all

6. According to the theory of comparative advantage in international trade, a country will export a good only if

a. It can produce it using less labor than other countries.

b. Its productivity is higher in producing the goods than the productivity of other countries in producing it.

c. Its wage rate in producing the good is lower than in other countries.

d. Its cost of producing the good, relative to other goods, is at least as low as in other countries.