International Economics Exam Questions With Complete Solutions

Assume the U.S. currently grows 2.3 million tons of fresh winter fruit and that the resources absorbed in the production of this fruit could have produced 300,000 laptop computers. Therefore, the opportunity cost of those 2.3 million tons of fruit is ??? computers. Suppose that South America could have instead produced those 2.3 million tons of fruit at an opportunity cost of 150,000 laptops. Because of the difference in opportunity costs between the two regions, it can be shown that trade gives the possibility of? - Answer 300,000; a mutually beneficial rearrangement of world production. Suppose that the resource base in Country X can produce either 100 units of alpha or 300 units of beta. Similarly, suppose that Country Y's resource base is capable of producing 100 units of alpha or 200 betas. Clearly, the opportunity cost of 100 alphas is lower in ??? Based on this result, it would be best for Country X to concentrate on good ??? - Answer country Y; beta Hypothetical Changes in Production Country X: -100 alpha, +300 beta Country Y: +100 alpha, -200 beta Total: 0 alpha, +100 beta Economists use the term opportunity cost to refer to? - Answer the value of the next best alternative occurring as a result of making a particular choice. The potential for gains from the rearrangement of production among countries is due to? - Answer differing opportunity costs. A country has a comparative advantage in producing a good if? - Answer its opportunity cost of producing that good is lower than elsewhere. 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. a. Using the line drawing tool, draw Home's production possibility frontier. Label the curve PPF. b. What is the opportunity cost of apples in terms of bananas? c. In the absence of trade, what would the price of apples in terms of bananas be? Why? - Answer a. Draw a line from 600(y) to 400(x). b. 1.5 bananas c. 1.5 bananas per apple; without trade, the relative prices of the goods are equal to their relative unit labor requirements. This exercise employs aspects of the basic Ricardian model of one factor and two goods. The table below contains the unit labor requirements in Home for each of the two goods. Chocolate: aLC= 1 hour per pound Whiskey: aLW= 3 hours per gallon