Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples. The production possibilities schedules in the table below describe their potential output in tons per year. Suppose the two islands agree to trade 10 pearls for 10 pineapples. (a) If Alpha produced 6 pearls and 15 pineapples and Beta produced 30 pearls and 8 pineapples before they decided to trade, how much would each be producing after trade became possible? Assume that the two countries specialize just enough to maintain their consumption of the item they export, and make sure each island trades the item for which it has a comparative advantage. Alpha would produce pineapples and pearls. Beta would produce pineapples and pearls. (b) i) How much would the combined production of pineapples increase for the two islands due to trade? Combined production of pineapples increases by . ii) How much would the combined production of pearls increase? Combined production of pearls increases by .\
Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples. The production possibilities schedules in the table below describe their potential output in tons per year. Suppose the two islands agree to trade 10 pearls for 10 pineapples. (a) If Alpha produced 6 pearls and 15 pineapples and Beta produced 30 pearls and 8 pineapples before they decided to trade, how much would each be producing after trade became possible? Assume that the two countries specialize just enough to maintain their consumption of the item they export, and make sure each island trades the item for which it has a comparative advantage. Alpha would produce pineapples and pearls. Beta would produce pineapples and pearls. (b) i) How much would the combined production of pineapples increase for the two islands due to trade? Combined production of pineapples increases by . ii) How much would the combined production of pearls increase? Combined production of pearls increases by .\
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Related questions
A bowed out PPF reflects which of the following ideas?
i.increasing opportunity cost
ii. resources are not equally productive in all activities
iii. prices of goods increase over time
I only |
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I and iii |
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ii and iii |
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I and ii |
1 point
QUESTION 2
With no international trade, a country ________ consume at a point outside of its PPF; with international trade, a country ________ consume at a point outside of its PPF.
can; cannot |
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cannot; can |
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cannot; cannot |
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can; can |
1 point
QUESTION 3
If the production possibilities frontier between two goods is a straight line, then the
the line does not qualify as a production possibilities frontier because the unattainable production points are too close to the inefficient production points. |
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opportunity cost is not a ratio. |
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increasing opportunity costs. |
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resources are equally productive in both goods. |
1 point
QUESTION 4
As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?
It might increase, decrease, or remain constant depending on how much people value the additional units of the good. |
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It decreases. |
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It increases. |
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It remains constant. |
1 point
QUESTION 5
"Comparative advantage" is defined as a situation in which one person can produce
more of a good than another person. |
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a good for a lower dollar cost than another person. |
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a good for a lower opportunity cost than another person. |
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more of all goods than another person. |
1 point
QUESTION 6
When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost
increases. |
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decreases. |
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might increase, decrease, or remain constant depending on how much people value the additional units of the good. |
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remains constant. |
1 point
QUESTION 7
A bowed out production possibility frontier shows that the
opportunity cost relationship is linear. |
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the opportunity cost of a good is constant as more of the good is produced. |
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the opportunity cost of a good increase as more of the good is produced. |
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the opportunity cost of a good decrease as more of the good is produced. |
1 point
QUESTION 8
Which of the following statements is correct?
The production possibilities frontier shows that there are no limits to production. |
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Any point on or within the PPF is production efficient. |
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If capital is idle, the economy is producing at its full potential. |
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A tradeoff is a limit that forces an exchange or a substitution of one thing for something else. |
1 point
QUESTION 9
A major earthquake occurs in the central part of the United States. What impact would this have on the nation's production possibilities frontier and why?
A tradeoff would occur to replace the resources and goods destroyed. |
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It would shift inward because some of the nation's resources, such as capital and labor, would be destroyed. |
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It would shift outward because unemployment would be reduced. |
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Nothing would happen because the nation would still have the same capabilities. |
1 point
QUESTION 10
When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods
must increase. |
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must decrease. |
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must remain the same. |
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must change but they might increase or decrease. |
1 point
QUESTION 11
Moving along a country's PPF, a reasonable opportunity costs increase is that
unemployment increases as a country produce more and more of one good. |
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unemployment decreases as a country produces more and more of one good. |
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some resources are better suited for producing one good rather than the other. |
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technology declines as a country produce more and more of one good. |
1 point
QUESTION 12
A reason the production possibilities frontier exists is
scarcity of resources and unlimited technology. |
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unemployment. |
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scarcity of resources. |
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unlimited resources and technology. |
1 point
QUESTION 13
Moving from one point to another on a production possibilities frontier implies
increasing the production of one good and decreasing the production of another. |
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increasing the production of both goods. |
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decreasing the production of both goods. |
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holding the production levels of both goods constant. |
1 point
QUESTION 14
Specialization and trade make a country better off because with trade the country can consume at a point
outside its production possibilities frontier. |
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on its trading partner's production possibilities frontier. |
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inside its production possibilities frontier. |
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on its production possibilities frontier. |
1 point
QUESTION 15
The production possibilities frontier is the
the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing. |
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the minimum output that can be produced when resources are used inefficiently. |
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the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology. |
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maximum output that can be produced at an opportunity cost of zero. |
1 point
QUESTION 16
The opportunity cost of economic growth is ________ and the benefit of economic growth is ________.
decreased current consumption; decreased future consumption |
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decreased current consumption; increased future consumption |
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increased current consumption; increased future consumption |
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increased current consumption; decreased future consumption |
1 point
QUESTION 17
In terms of a nation's production possibilities frontier, what impact does international trade have?
International trade shifts the nation's production possibilities frontier outward. |
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International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported. |
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International trade shifts the nation's production possibilities frontier inward. |
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International trade allows the nation to consume at a point outside its production possibilities frontier. |
1 point
QUESTION 18
The production possibilities frontier illustrates the
goods and services that people want. |
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limits to people's wants. |
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resources the economy possesses, but not it is the level of technology. |
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maximum combinations of goods and services that can be produced. |
1 point
QUESTION 19
As we move along the production possibilities frontier,
the possibilities of tradeoffs diminish. |
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the production of one good increases as the production of the other good decreases. |
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more of both goods can be produced. |
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a tradeoff is not possible because nations need all goods. |
1 point
QUESTION 20
What is the opportunity cost of economic growth?
Eliminate scarcity |
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Land. |
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Capital goods. |
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Consumption of goods. |
1 point
QUESTION 21
Which of the following statements is correct?
i.As the economy grows, the opportunity costs of economic growth decrease.
ii. Economic growth has no opportunity cost.
iii. The opportunity cost of economic growth is current consumption forgone.
ii only |
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iii only |
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I only |
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I and iii |
1 point
QUESTION 22
Does economic growth depend upon which of the following?
i. Increasing the quantity of labor.
ii. Lowering the prices of goods and services.
iii. Advancing technology.
ii only. |
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I only. |
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I and iii. |
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iii only. |
1 point
QUESTION 23
When drawing a production possibilities frontier, which of the following is held constant?
the amount of money in the economy |
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the prices of goods and services |
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the quantity of the goods and services that are produced |
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the available factors of production and the state of technology |
1 point
QUESTION 24
To increase its economic growth, a nation should
encourage spending on goods and services. |
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increase in current consumption. |
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encourage education because that increases the quality of labor. |
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limit the number of people in college because they produce nothing. |
1 point
QUESTION 25
The opportunity cost of one more slice of pizza in terms of sodas is the
some pizza slices we have to give up to get one extra soda. |
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the total number of sodas that we have divided by the total number of pizza slices that we have. |
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the total number of pizza slices that we have divided by the total number of sodas that we have. |
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the number of sodas we have to give up to get one extra pizza slice. |
3. Gains from trade
Consider two neighboring island countries called Felicidad and Arcadia. They each have 4 million labor hours available per month that they can use to produce jeans, rye, or a combination of both. The following table shows the amount of jeans or rye that can be produced using 1 hour of labor.
Country | Jeans | Rye |
---|---|---|
(Pairs per hour of labor) | (Bushels per hour of labor) | |
Felicidad | 8 | 32 |
Arcadia | 12 | 24 |
Initially, suppose Arcadia uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce rye, while Felicidad uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce rye. Consequently, Felicidad produces 24 million pairs of jeans and 32 million bushels of rye, and Arcadia produces 12 million pairs of jeans and 72 million bushels of rye. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and rye it produces.
Felicidad's opportunity cost of producing 1 pair of jeans is _____ of rye, and Arcadia's opportunity cost of producing 1 pair of jeans is _____ of rye. Therefore, _____ has a comparative advantage in the production of jeans, and ____ has a comparative advantage in the production of rye.
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces jeans will produce ______ millions pairs per month, and the country that produces rye will produce ______ millions bushels per month.
In the following table, enter each country's production decision on the third row of the table (marked "Production").
Suppose the country that produces jeans trades 26 million pairs of jeans to the other country in exchange for 78 million bushels of rye.
In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumption."
When the two countries did not specialize, the total production of jeans was 36 million pairs per month, and the total production of rye was 104 million bushels per month. Because of specialization, the total production of jeans has increased by ____ million pairs per month, and the total production of rye has increased by _____ million bushels per month.
Because the two countries produce more jeans and more rye under specialization, each country is able to gain from trade.
Calculate the gains from tradeâthat is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").
Felicidad | Arcadia | |||
---|---|---|---|---|
Jeans | Rye | Jeans | Rye | |
(Millions of pairs) | (Millions of bushels) | (Millions of pairs) | (Millions of bushels) | |
Without Trade | ||||
Production | 24 | 32 | 12 | 72 |
Consumption | 24 | 32 | 12 | 72 |
With Trade ? ? ? ? | ||||
Production | ? | ? | ? | ? |
Trade action | ? | ? | ? | ? |
Consumption | ? | ? | ? | ? |
Gains from Trade ? ? ? ? | ||||
Increase in Consumption | ? | ? | ? | ? |
3. Gains from trade
Consider two neighboring island countries called Euphoria and Contente. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor.
Country | Rye | Jeans |
---|---|---|
(Bushels per hour of labor) | (Pairs per hour of labor) | |
Euphoria | 8 | 32 |
Contente | 12 | 24 |
Initially, suppose Contente uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans, while Euphoria uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Euphoria produces 24 million bushels of rye and 32 million pairs of jeans, and Contente produces 12 million bushels of rye and 72 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of rye and jeans it produces.
Euphoria's opportunity cost of producing 1 bushel of rye isï¼ ï¼ of jeans, and Contente's opportunity cost of producing 1 bushel of rye isï¼ ï¼ of jeans. Therefore, ï¼ ï¼has a comparative advantage in the production of rye, andï¼ ï¼ has a comparative advantage in the production of jeans.
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces rye will produce ï¼ ï¼million bushels per week, and the country that produces jeans will produce ï¼ ï¼ million pairs per week.
In the following table, enter each country's prod uction decision on the third row of the table (marked "Production").
Suppose the country that produces rye trades 26 million bushels of rye to the other country in exchange for 78 million pairs of jeans.
In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumption."
When the two countries did not specialize, the total production of rye was 36 million bushels per week, and the total production of jeans was 104 million pairs per week. Because of specialization, the total production of rye has increased byï¼ ï¼million bushels per week, and the total production of jeans has increased by ï¼ ï¼million pairs per week.
Because the two countries produce more rye and more jeans under specialization, each country is able to gain from trade.
Calculate the gains from tradeâthat is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").
Euphoria | Contente | |||
---|---|---|---|---|
Rye | Jeans | Rye | Jeans | |
(Millions of bushels) | (Millions of pairs) | (Millions of bushels) | (Millions of pairs) | |
Without Trade | ||||
Production | 24 | 32 | 12 | 72 |
Consumption | 24 | 32 | 12 | 72 |
With Trade | ||||
Production | ||||
Trade action | ||||
Consumption | ||||
Gains from Trade | ||||
Increase in Consumption |