5. When a country places tariffs on imported goods,
they are not only harming domestic consumers
but also lowering welfare for foreign producers.
Therefore, it’s entirely likely that other countries
Study Prob lems
1. a. The opportunity cost of producing meatballs
in Quahog is 2 clams. The opportunity cost of
producing clams in Quahog is one- half of a
meatball.
To see this, notice that an hour of work in
Quahog can produce either 4,000 meatballs or
8,000 clams. Therefore, the opportunity cost
4,000/8,000 “ 1/2 meatball.
Hints and Common Errors: Note that
the opportunity cost of a clam is the
reciprocal of the opportunity cost of a
meatball.
opportunity cost of 1,000 clams in Pawnee is
2,000 meatballs. Scaling this down, we can
say that the opportunity cost of 1 clam is
2,000/1,000 “ 2 meatballs.
Questions for Review
1. Three prob lems with trade restrictions are that
they raise the prices of imported goods for con-
sumers and create inefficiency because they pre-
crucial for national security reasons, infant
industries need to be protected so that they can
mature and become competitive, and trade
restrictions prevent dumping by other countries
in domestic markets.
Hints and Common Errors: A fourth
argument for trade restrictions is that certain
special interests need to be “protected.”
2. If all foreign trade were eliminated, the standard
of living in the United States would decrease sig–
3. One way to gain comparative advantage is to be
more efficient in producing a good than your
trading partners could be. Because a nation’s
endowment of natu ral resources, labor, and cli-
mate affect how productive that nation can be in
Hints and Common Errors: If the
demand for a foreign product is inelastic enough,
it is even pos si ble that foreign producers would be
better off under the quota than they would be
with free trade!
Solutions to Chapterfi19 Text Prob lems
when it is higher than what it costs the seller to
produce the good. The terms of trade, 1 mango “
3 cans of sardines, is setting the price of 1 mango
at 3 cans of sardines. Because Mangolia is
specializing in mangoes, Mangolia will be the
seller of mangoes, and Sardinia will be the buyer
imports are tariffs— taxes on imported goods—
and quotas— limits on the quantity of a good that
can be imported. These sorts of policies benefit
domestic producers but harm domestic consum-
ducer has a comparative advantage in two
products (see the explanation in question 1c, for
example).
Hints and Common Errors: Students
confuse comparative advantage with absolute
advantage. Remember that a comparative
Hints and Common Errors: Again,
note that the opportunity cost of a clam is the
reciprocal of the opportunity cost of a
meatball.
c. Pawnee has a comparative advantage in pro–
ducing meatballs. Quahog has a comparative
Hints and Common Errors: When
there are two trading partners, two goods, and
dif fer ent opportunity costs of production,
each trading partner will have a comparative
Mangolia: Opportunity cost of a mango is 2
cans of sardines. Opportunity cost of 1 can of
sardines is 1/2 mango.
Sardinia: Opportunity cost of a mango is 4
cans of sardines. Opportunity cost of 1 can of
sardines is 1/4 mango.