9 a the cost of all goods is lower in germany than in

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9. a. The cost of all goods is lower in Germany than in France in the sense that all goods can be produced with fewer worker hours. b. The cost of any good for which France has a comparative advantage is lower in France than in Germany. Though Germany produces all goods with less labor, that labor may be more valuable in the production of some goods and services. So the cost of production, in terms of opportunity cost, will be lower in France for some goods. c. Trade between Germany and France will benefit both countries. For each good in which it has a comparative advantage, each country should produce more goods than it consumes, trading the rest to the other country. Total consumption will be higher in both countries as a result. 10. a. True; two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods. All that's necessary is that each country have a comparative advantage in some good. b. False; it is not true that some people have a comparative advantage in everything they do. In fact, no one can have a comparative advantage in everything. Comparative advantage reflects the opportunity cost of one good or activity in terms of another. If you have a comparative advantage in one thing, you must have a comparative disadvantage in the other thing. c. False; it is not true that if a trade is good for one person, it can't be good for the other one. Trades can and do beneft both sides especially trades based on comparative advantage. If both sides didn't beneft, trades would never occur. 19
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Chapter 4 Quick Quizzes 1. A market is a group of buyers (who determine demand) and a group of sellers (who determine supply) of a particular good or service. A competitive market is one in which there are many buyers and many sellers of an identical product so that each has a negligible impact on the market price. 2. Here’s an example of a demand schedule for pizza: Price of Pizza Slice Number of Pizza Slices Demanded $ 0.00 10 0.25 9 0.50 8 0.75 7 1.00 6 1.25 5 1.50 4 1.75 3 2.00 2 2.25 1 2.50 0 The demand curve is graphed in Figure 1. Figure 1 20
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Examples of things that would shift the demand curve include changes in income, prices of related goods like soda or hot dogs, tastes, expectations about future income or prices, and the number of buyers. A change in the price of pizza would not shift this demand curve; it would only lead us to move from one point to another along the same demand curve. 3. Here is an example of a supply schedule for pizza: Price of Pizza Slice Number of Pizza Slices Supplied $ 0.00 0 0.25 100 0.50 200 0.75 300 1.00 400 1.25 500 1.50 600 1.75 700 2.00 800 2.25 900 2.50 1000 The supply curve is graphed in Figure 2. Figure 2 Examples of things that would shift the supply curve include changes in prices of inputs like tomato sauce and cheese, changes in technology like more efficient pizza ovens or automatic dough makers, changes in expectations about the future price of pizza, or a change in the number of sellers.
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