PRINCIPLES OF MACROECONOMICS QUIZ #1 – COVERING CHAPTERS 1-4ANSWERS 1.Because of the quantity and quality of its resources, the U.S. has an absolute advantage in the production of many goods and services. Does this imply that the U.S. cannot benefit from trading with a developing country that has less productive ability? Why or why not?
2. The following table shows output per hour for Martha and Stewart who make gift baskets and potholders:Output per HourMarthaStewartGift Baskets108Potholders2012What is the opportunity cost of a potholder for Martha? What is the opportunity cost of a potholder for Stewart? Who has an absolute advantage in producing potholders? Who has a comparative advantage in producing potholders?
SCENARIO 1: Assume a desert island economy in which labor is the only scarce resource and labor can be used to gather food (coconuts) or to build huts. There are six equally productive individuals on the island. Each inhabitant can gather 25 coconuts in one day or build one hut in one day.3. Refer to Scenario 1. Draw the production possibilities frontier of the trade-off between coconuts and huts.