True, false, or uncertain. 112-A1-3. Suppose that Ontario can produce wheat at $1/bushel and corn at $3/bushel and Quebec can produce wheat at $4/bushel and corn at $4/bushel. Ontario has an absolute advantage in corn production, but Quebec has a comparative advantage in corn production. 112-A1-4. The data in 112A1-3 tells us that trading corn from Quebec to Ontario at a price of 2 bushels of corn per bushel of wheat will make both provinces better off.

OneClass: True, false, or uncertain. 112-A1-3. Suppose that Ontario can produce wheat at $1/bushel an...

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.

112-A1-1. You have been given a pass (with no resale value) to a Taylor Swift concert (OMG!). That same night you could either; binge-watch Game of Thrones, go to a party with friends, or do your Econ homework - valued at $20.00, $30.00, and $0.05 respectively. The opportunity cost of going to the concert is $50.05.

112-A1-2. In an economy that produces only guns and butter, the opportunity cost of butter increases as more of it is produced.

112-A1-3. Suppose that Ontario can produce maple syrup for $5.00/pint or electric power for $0.10/Kwh, while Quebec can produce syrup for $4.00 or power for $0.05. Quebec has an absolute and comparative advantage in the production of both goods.

112-A1-4. The data in 112A1-3 tells us that trading syrup from Ontario to Quebec at a price of 60 Kwh of electricity per pint of syrup will make both provinces better off.

112-A1-5. Over the past few months the price of crude oil has fallen approximately 50% due to an increase in world oil supply. At some point this will lead to a decrease in the price of plastic. [Hint: Crude oil is an input to the production of plastic.]

brownant224

Gain from trade

Consider two neighboring island countries, Arcadia and Felicidad. Each has 72,000 labor hours available per month that it can use to produce jeans, wheat , or a combination of both. The following table shows the amount of labor hours required to produce one pair of jeans or one bushel of wheat.

Jeans

(Labor hours per pair)

Wheat

(Labor hours per bushel)

Initially , suppose Arcadia uses 54,000 hours of labor per month to produce jeans and 18,000 hours per month to produce Wheat, while Felicidad uses 18,000 hours of labor per month to produce jeans and 54,000 hours per month to produce wheat. Consequently, Arcadia produces 675 pairs of jeans and 1,125 bushels of wheat, and Felicidad produces 750 pairs of jeans and 4,500 busheis of wheat. Assume there are no other countries willing to trade goods, so in the absence of trade between the two countries, each country consumes the amount the of jeans and wheat it produces.

Arcadia's opportunity cost of prducing on pair of jeans is (1) ____________ ((5 bushels - 1/2 bushel - 2 bushels - 1/5 bushels )) of wheat, and Felicidad's opportunity cost of producing one pair of jeans is (2)_______________ (( 1/5 bushel - 1/2 bushel - 5 bushels - 2 bushels )) of wheat. Therefore,(3)_____________(( Arcadia - Felicidad )) has a comparative advantage in the production of jeans, and (4)______________(( Arcadia - Felicidad )) has a comparative advantage in the production of wheat.

Suppose that Arcadia completely specializes in the production of the good in which it has a comparative advantage, producing only that good. It will produce (5)____________(( 4500 - 3000 - 6000 - 900 )) (6)______________ ((Bushels of wheat - pairs of jeans )) .

Suppose also that Felicidad does not specialize and uses 54,000 hours of labor to produce jeans and 18,000 hours of labor to produce wheat. It will produce (7) __________(( 900 - 2250 - 3000 )) pairs of jeans and (8)__________(( 1500 - 4500 - 6000 )) bushels of wheat.

Suppose Arcadia and Felicidad agree to trade with each other, exchanging 1,100 pairs of jeans for 3,300 bushels of wheat. In particular, Arcadia will export the goods it produces and Felicidad will expor the goods that Arcadia does not produce.

With trade, Arcadia will (9)____________(( export - import )) jeans and (10)_____________(( export - import )) wheat. Felicidad will (11)__________(( export - import )) jeans and (12)___________(( export - import )) wheat .

When neithen country specializes, the total production of jeans is (13) _____________ (( 5625 - 2250 - 1425 - 6000 )) pairs per month, and the total production of wheat is (14) ___________ ((5625 - 2250 - 1425 - 6000 )) bushels per month .

When Arcadia specializes and Felicidad still produces the combination of goods using 54,000 hours of labor to produce jeans and 18,000 hours of labor to produce wheat, the total production of jeans becomes (15)___________ (( 2250 - 1425 - 5625 - 6000 )) pairs pers month , and the total production of wheat became (16)__________(( 2250 - 1425 - 5625 - 6000 )) bushels per month.

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