Gain from Trade

Alex and Henry are completing group work for class. It takes Henry and Alex 1 hour to complete the worksheets, while Henry needs 2 and Alex 3 hours to finish the essays (see table).

Assuming Alex and Henry decide to specialize and trade essays and worksheets with one another, what would be a terms of trade or exchange price that would satisfy both of them?

• Any price where an essay costs less than 2 worksheets

• Any price where an essay costs between 2 and 3 worksheets

• Any price where an essay costs more than 3 worksheets

• We cannot determine a mutually agreeable trading price

• Any trading price is possible

Alex and Henry are completing group work for class. It takes Henry and Alex 1 hour to complete the worksheets, while Henry needs 2 and Alex 3 hours to finish the essays (see table).

Who has comparative advantage in producing essays?

• Alex

• Henry

• Neither Henry nor Alex

• Both Henry and Alex

• We cannot determine who has comparative advantage

Jessica can produce 2 boats in a day or 100 umbrellas in a day. Paul can produce 3 boats in a day or 120 umbrellas in a day.

This means that for every boat that Jessica produces, her opportunity cost is 50 umbrellas. For every boat Paul produces, his opportunity cost is 40 umbrellas.

Which of the following best illustrates the idea of comparative advantage?

• Jessica produces fewer boats in a day than Paul, so she has comparative advantage in producing boats.

• Paul is relatively better at producing boats because he gives up fewer umbrellas per boat.

• Paul is better at producing boats because he can produce more boats in a day.

• There is no comparative advantage in this case because Paul can produce more goods in a day.

• Jessica produces fewer umbrellas in a day than Paul, so she has comparative advantage in producing boats.

Which of the following situations would allow agents to gain from specialization and trade with one another?

• The terms of trade are between the two agents' opportunity costs.

• The agents have the same opportunity costs.

• One agent has absolute advantage in both goods.

• One agent has comparative advantage in both goods.

• Either agent has absolute advantage in either of the goods.

Which of the following statements about specialization and trade is true?

• A country should specialize in and export the good for which it has absolute advantage.

• A country should specialize in and import the good for which it has comparative advantage.

• A country should specialize in and import the good for which it has absolute advantage.

• A country should specialize in and export the good for which they have comparative advantage.

• Both countries should specialize and trade in the same good if their opportunity costs are equal

Max and Eli like to build apps and coach soccer. It takes Max 20 and Eli 15 hours to build an app and Max 5 and Eli 9 hours to plan soccer drills for their team (see table on the left).

Which person has an absolute advantage in building apps, and which person has an absolute advantage in planning soccer drills?

• Both have an absolute advantage in producing both goods.

• Eli has an absolute advantage in building apps; Max has an absolute advantage in planning soccer drills.

• Max has an absolute advantage in building apps; nobody has an absolute advantage in© planning soccer drills.

• Eli has an absolute advantage in producing both goods.

• Neither person has an absolute advantage in producing either good.

The two PPCs (production possibility curves) on the left shows how many airplanes and pizzas Country A and Country B can produce with a certain number of workers.

If the two countries were to specialize and trade with one another, which country would import airplanes?

• Country A

• Country B

• Neither

• Both

• We can't determine this

Country A and Country B are potential trading partners who can produce boats and umbrellas, as illustrated in the PPCs on the left.

Suppose the terms of trade are one boat for one umbrella.

Who would want to sell boats based on these terms of trade, and who would want to buy boats based on these terms of trade?

• Neither country would be willing to buy or sell boats given these terms of trade because the prices of these goods are not given in money.

• Country A would want to buy boats,and Country B would want to sell boats.

• Country A would want to sell boats, and Country B would want to buy boats.

• Both countries would want to sell given these terms of trade, so there will be no exchange.

• Neither country would be willing to sell given these terms of trade because neither country has comparative advantage in either good.

Eric and Melanie like to build apps and coach soccer. It takes Eric and Melanie 20 hours to build apps and Eric 5 and Melanie 10 houirs to plan soccer drills for their team (see table on the left).

Which person has a comparative advantage in the production of apps, and which person has a comparative advantage in the production of soccer drills?

• Both people have a comparative advantage in producing both goods.

• Melanie has a comparative advantage in creating soccer drills; Eric has a comparativeadvantage in building apps ,

• Melanie has a comparative advantage in building apps; Eric has a comparative advantage in creating soccer drills.

• Neither person has a comparative advantage at producing either good,

• Eric has a comparative advantage in building apps; nobody has a comparative advantage in planning soccer drills.

Martha and Dave like to make identical tacos and cakes. It takes Martha 10 and Dave 15 minutes to make tacos and Martha 20 and Dave 30 minutes to make cakes (see table on the left).

Which person has an absolute advantage in the production of tacos, and which person has an absolute advantage in the production of cakes?

• Martha has an absolute advantage in tacos; Dave has an absolute advantage in cakes.

• Martha has an absolute advantage in producing both goods.

• Neither Dave nor Martha has an absolute advantage at producing either good.

• Dave has an absolute advantage in producing both goods.

• Both Martha and Dave have an absolute advantage in producing both goods.