3. Interdependence and the Gains from Trade

Before Frank and Ruby engage in trade, each of them

• consumes at a point inside his or her production possibilities frontier.

• consumes at a point on his or her production possibilities frontier

• consumes at a point outside his or her production possibilities frontier.

• consumes the same amounts of meat and potatoes as the other

After Frank and Ruby engage in trade, each of them

• consumes at a point inside his or her production possibilities frontier

• consumes at a point on his or her production possibilities frontier

• consumes at a point outside his or her production possibilities frontier

• consumes the same amounts of meat and potatoes as the other

In an hour, Mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?

• Mateo in washing, Sophia in mowing

• Sophia in washing, Mateo in mowing

• Mateo in washing, neither in mowing

• Sophia in washing, neither in mowing

Between Mateo and Sophia, who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing?

• Mateo in washing, Sophia in mowing

• Sophia in washing, Mateo in mowing

• Mateo in washing, neither in mowing

• Sophia in washing, neither in mowing

When Mateo and Sophia produce efficiently and make a mutually beneficial trade based on comparative advantage,

• Mateo mows more and Sophia washes more

• Mateo washes more and Sophia mows more

• Mateo and Sophia both wash more

• Mateo and Sophia both mow more

A nation will typically import those goods in which

• the nation has an absolute advantage.

• the nation has a comparative advantage.

• other nations have an absolute advantage.

• other nations have a comparative advantage.

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these nations trade?

• China will export aircraft, and the United States will export shirts.

• China will export shirts, and the United States will export aircraft.

• Both nations will export shirts.

• There are no gains from trade in this situation.

Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes twice as long to do each task. How should the roommates allocate the work?

• Kayla should do more of the cooking based on her comparative advantage.

• Kayla should do more of the washing based on her comparative advantage.

• Kayla should do more of the washing based on her absolute advantage.

• There are no gains from trade in this situation.

The person who can produce the good with the smaller quantity of inputs is said to have an absolute advantage in producing the good

• True

• False

Trade makes everyone better off because it allows people to specialize in those activities in which they have a comparative advantage

• True

• False