978-1305971509 Chapter 3 Solutions Manual

SOLUTIONS TO TEXT PROBLEMS:

Quick Quizzes

1. Figure 1 shows Robinson Crusoe’s production possibilities frontier for gathering

Figure 1

2. Crusoe’s opportunity cost of catching one sh is 10 coconuts, since he can gather

3. If the world’s fastest typist happens to be trained in brain surgery, she should hire

Chapter Quick Quiz

1. d

Questions for Review

31

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Chapter 3/Interdependence and the Gains from Trade ❖ 32

1. The production possibilities frontier will be linear if the opportunity cost of

2. Absolute advantage re6ects a comparison of the productivity of one person, rm,

opportunity costs of the persons, rms, or nations. While a person, rm, or nation

4. Comparative advantage is more important for trade than absolute advantage. In

5. For trade to benet both parties, the price for the trade must lie between the

6. Economists oppose policies that restrict trade among nations because trade

Problems and Applications

1. a. See Figure 2. If Maria spends all 5 hours studying economics, she can read

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Chapter 3/Interdependence and the Gains from Trade ❖ 33

Figure 2

b. It takes Maria 2 hours to read 100 pages of sociology. In that time, she could

2. a.

Workers needed to make:

One Car One Ton of Grain

U.S. 1/4 1/10

Japan 1/4 1/5

b. See Figure 3. With 100 million workers and 4 cars per worker, if either

economy were devoted completely to cars, it could make 400 million cars.

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Chapter 3/Interdependence and the Gains from Trade ❖ 34

Figure 3

c. Because a U.S. worker produces either 4 cars or 10 tons of grain, the

opportunity cost of one car is 2 1/2 tons of grain, which is 10/4. Similarly, the

Opportunity Cost of:

One Car (in terms of

tons of grain given up)

One Ton of Grain (in

terms of cars given

up)

U.S. 2 1/2 2/5

Japan 1 1/4 4/5

d. Neither country has an absolute advantage in producing cars, because they

e. Japan has a comparative advantage in producing cars, because it has a lower

f. With half the workers in each country producing each of the goods, the United

States would produce 200 million cars (50 million workers times 4 cars each)

g. From any situation with no trade, in which each country is producing some

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Chapter 3/Interdependence and the Gains from Trade ❖ 35

3. a. Pat’s opportunity cost of making a pizza is 1/2 gallon of root beer, because she

could brew 1/2 gallon in the time (2 hours) it takes her to make a pizza. Kris’s

b. Because Pat has a comparative advantage in making pizza, she will make

pizza and exchange it for root beer that Kris makes.

c. The highest price of pizza in terms of root beer that will make both roommates

better oA is 2/3 of a gallon of root beer. If the price were higher than that, then

4. a. Because a Canadian worker can make either 2 cars a year or 30 bushels of

b. See Figure 4. If all 10 million workers produce 2 cars each, they produce a

total of 20 million cars, which is the vertical intercept of the production

frontier is a straight line.

If Canada chooses to consume 10 million cars, it will need 5 million workers

c. If the United States buys 10 million cars from Canada and Canada continues

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Chapter 3/Interdependence and the Gains from Trade ❖ 36

Figure 4

5. a. English workers have an absolute advantage over Scottish workers in

producing scones, because English workers produce more scones per hour (50

vs. 40). Scottish workers have an absolute advantage over English workers in

b. If England and Scotland decide to trade, Scotland will produce sweaters and

c. Even if a Scottish worker produced just one sweater per hour, the countries

would still gain from trade, because Scotland would still have a comparative

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Chapter 3/Interdependence and the Gains from Trade ❖ 37

6. a. With no trade, 1 pair of white socks trades for 1 pair of red socks in Boston,

b. Boston has an absolute advantage in the production of both types of socks,

because a worker in Boston produces more (3 pairs of socks per hour) than a

hour).

d. Trade can occur at any price between 1 and 2 pairs of red socks per pair of

white socks. At a price lower than 1 pair of red socks per pair of white socks,

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Chapter 3/Interdependence and the Gains from Trade ❖ 38

7. a. Gains from trade will be possible when X does not equal 3. Gains from trade

are possible when a comparative advantage exists. The opportunity cost of 1

car in Germany is 200 cases of wine (400 hours/2 hours per case of wine).

b. Germany will export cars and import wine for all values of X<3. For Germany

to export cars, it must have the comparative advantage in producing cars and

8. a. The production possibilities frontiers for the two countries are shown in Figure

Figure 5

b. China would export shirts because it has the lower opportunity cost of shirts.

For China, the opportunity cost of 1 shirt is 1/10 computer. For the United

The price of a shirt will fall between 1/5 and 1/10 of a computer. An example

would be a price of 1/7 computer. Suppose China produced only shirts (100

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Chapter 3/Interdependence and the Gains from Trade ❖ 39

c. The price of a computer would fall between 5 and 10 shirts. If the price were

below 5, the United States would not be willing to export computers because

d. Once the productivity is the same in the two countries, the benets of trade

9. a. True; two countries can achieve gains from trade even if one of the countries

b. False; no one can have a comparative advantage in everything. Comparative

c. False; trades can and do benet both sidesespecially trades based on

d. False; to be good for both parties, the trade price must lie between the two

e. False; trade that makes the country better oA can harm certain individuals in

the country. For example, suppose a country has a comparative advantage in

in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise

on a password-protected website or school-approved learning management system for classroom use.