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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
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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 benet 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
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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,
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
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 benets 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 benet both sidesespecially 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
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
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.
