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practicequizquestionsecon4sp2007key - KEY Answers in Blue...

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KEY – Answers in Blue Practice Questions for upcoming quiz and exam #2. We will go over these on Monday, 3/26. True – False Questions with some multiple choice questions mixed 1. Robert can produce 100 units of product A in 3 hours and 200 units of product B in 4 hours. George can produce 100 units of product A in 7 hours and 200 units of product B in 5 hours. Even though Robert has the absolute advantage in producing both products A and B, George has the comparative advantage in producing product B. This is a true statement – Robert does have an absolute advantage (less inputs to do either task relative to George). Also, George does have a comparative advantage in producing B since his opportunity costs of producing 200 units of B is 5/7 X 100 units of A which is lower than the OC of Robert producing 200 units of B (4/3 X 100 units of A). 2. We argued that the US has more flexible labor markets than many of our trading partners which implies that the US is more likely to benefit from free trade than our trading partners. True – we often take our “flexible” labor markets for granted. We discussed how different labor markets are else where (Japan, France, S. Korea). Recall that the key to exploiting the gains from trade via the Law of Comparative advantage depends critically on the ability of workers to change occupations as in Dub’s lawn mower learning how to weed. For example, if Dub’s lawnmower was in a powerful union (ui.e., inflexible labor) chances are that it would never learn to weed and thus the gains from trade would not be realized. The plight of US Steel workers would be a real world example . 3. The economist who is a proponent of “Jurassic Park” economics is accused by the other economist of “trying to revive dinosaurs that were once slain.” The “dinosaurs” referred to in this quote are those “inefficient industries” that need protection just to survive.
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