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Study - 1 C absolute advantage country A has an absolute...

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1. C - absolute advantage : country A has an absolute advantage in production of good X if it takes fewer units of labor to produce a unit of good X in country A than in B pg. 26 2. E - autarky : a country’s self-sufficiency, no trade. In autarky, each nation must produce whatever its residents want to consume, for there’s no other way to obtain goods for consumption. According to Smith, mutually beneficial trade requires each country to have an absolute advantage in one of the goods. This requirement rules out many potential trading relationships in which one of the two countries has an absolute advantage in both goods. pg. 20, 27 3. F - Before solving, try to draw a diagram of autarky equilibrium --- did you show the tangency of the indifference curve and PPF? Without information on the location of the tangency, you can't solve autarky production or consumption. discussion board 4. E - This problem is for a Ricardian Model. Ricardo says that in free trade a country should specialize in the good for which it has comparative advantage and trade for the other good. In this scenario Brazil has comparative advantage in apples because their opportunity cost for apples (12/5) is less than Colombia's (5/2). So Brazil puts all of their labor into producing apples and they produce no coffee because they trade with Colombia who has comparative advantage for coffee. discussion board 5. C - capital abundant : country A is capital abundant if A has more capital per unit of labor than does country B. pg. 58
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6. A - opportunity cost : the opportunity cost of good X is the number of units of good Y forgone to produce an additional unit of good X.
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