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Chapter 3 Problems and Applications Answers

Chapter 3 provides answers to various economic questions related to production, trade, and comparative advantage. It includes examples of absolute and comparative advantages between countries, as well as graphical representations of production possibilities. The chapter emphasizes the benefits of trade and the conditions under which different countries can gain from it.

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49 views2 pages

Chapter 3 Problems and Applications Answers

Chapter 3 provides answers to various economic questions related to production, trade, and comparative advantage. It includes examples of absolute and comparative advantages between countries, as well as graphical representations of production possibilities. The chapter emphasizes the benefits of trade and the conditions under which different countries can gain from it.

Uploaded by

adibaibnath770
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 3: Problems and Applications - Answers

Q. No. Answer
1.a Straight line with endpoints (100,0) and
(0,50)
1.b 2 pages of economics (because 1 sociology
= 50 pages, 50/20 = 2)
2.a Table: 100M American workers produce
400M cars or 1000M tons grain; Japanese
produce 400M cars or 500M tons grain
2.b Graph with straight-line frontiers showing
trade-off between cars and grain
2.c US: 1 car = 2.5 tons of grain; Japan: 1 car =
1.25 tons of grain
2.d Absolute advantage in grain: US; cars:
neither (equal)
2.e Comparative advantage in cars: Japan; in
grain: US
2.f US: 200M cars + 500M tons grain; Japan:
200M cars + 250M tons grain
2.g E.g., US specializes in grain, Japan in cars;
both gain via trade
3.a Diego OC pizza = 2 hours; Darnell OC pizza
= 4 hours. Diego has AA & CA in pizza
3.b Diego trades pizza for root beer; Darnell
trades root beer for pizza
3.c Price range: 1–2 gallons of root beer per
pizza
4.a OC car = 15 bushels wheat; OC wheat =
1/15 car; OC are inverses
4.b PPC endpoints: (0,300M bushels), (10M
cars, 0)
4.c New point after trade: (10M cars, 100M
bushels – 20M = 80M). Canada gains
5.a AA in both: England; CA: England in shirts,
Scotland in sweaters
5.b Scotland exports sweaters, England exports
shirts
5.c Yes, trade still beneficial if relative
opportunity costs differ
6.a Boston: 1 white sock = 1 red sock; Chicago:
1 white = 0.5 red
6.b AA: Boston (white), Chicago (red); CA:
Boston (white), Chicago (red)
6.c Boston exports white, Chicago exports red
6.d Price range: 1 white sock = between 0.5
and 1 red sock
7.a Gains if X < 300 (because France OC wine
must be < Germany’s)
7.b Germany exports cars, France exports wine
if X < 300
8.a US: OC of computer = 5 shirts; China: OC =
10 shirts
8.b US exports computers, China exports shirts
9.a False: gains possible even if only
comparative advantage exists
9.b True: CA depends on relative not absolute
advantage
9.c False: trade may not benefit all individuals
equally
9.d False: trade benefits depend on
distribution effects
9.e False: trade benefits some, but not
necessarily all equally

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