ans03 - 42 Chapter 3/Interdependence and the Gains from...

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42 Chapter 3/Interdependence and the Gains from Trade This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. Figure 1 shows Robinson Crusoe’s production possibilities frontier for gathering coconuts and catching fish. If Crusoe lives by himself, this frontier limits his consumption of coconuts and fish, but if he can trade with natives on the island, he will possibly be able to consume at a point outside his production possibilities frontier. Figure 1 2. Crusoe’s opportunity cost of catching one fish is 10 coconuts, since he can gather 10 coconuts in the same amount of time it takes to catch one fish. Friday’s opportunity cost of catching one fish is 15 coconuts, since he can gather 30 coconuts in the same amount of time it takes to catch two fish. Friday has an absolute advantage in catching fish, since he can catch two per hour, while Crusoe can catch only one per hour. But Crusoe has a comparative advantage in catching fish, since his opportunity cost of catching a fish is less than Friday’s. 3. If the world’s fastest typist happens to be trained in brain surgery, she should hire a secretary because the secretary will give up less for each hour spent typing. Although the brain surgeon has an absolute advantage in typing, the secretary has a comparative advantage in typing because of the lower opportunity cost of typing. Questions for Review 1. Economists oppose policies that restrict trade among nations because trade allows all countries to achieve greater prosperity by allowing them to receive the gains from comparative advantage. Restrictions on trade hurt all countries. 2. Many examples are possible. Suppose, for example, that Roger can prepare a meal of hot dogs and macaroni in just ten minutes, while it takes Anita 20 minutes. Also suppose that Roger can do all the laundry in three hours, while it takes Anita four hours. Roger has an absolute advantage in both cooking and doing the laundry, but Anita has a comparative
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Chapter 3/Interdependence and the Gains from Trade 43 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. advantage in doing the laundry. For Anita, the opportunity cost of doing the laundry is 12 meals; for Roger, it is 18 meals. 3. A nation will export goods for which it has a comparative advantage because it has a smaller opportunity cost of producing those goods. As a result, citizens of all nations are able to consume quantities of goods that are outside their production possibilities frontiers. 4.
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ans03 - 42 Chapter 3/Interdependence and the Gains from...

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