A is relatively more efficient than Country B in producing textiles, as evidenced by the fact that 0.6 < 0.625.
References
Multiple Choice Difficulty: 2 Medium
69.
Award: 1.00 point
Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Country B can produce 8 yards of textiles
or 5 pounds of food per unit of input.
Country A is relatively more efficient than Country B in the production of textiles.
Country B is relatively more efficient than Country A in the production of food.
Country A has an absolute advantage over Country B in the production of food and textiles.
all of the options
To find the opportunity cost of producing one additional pound of food for either country, divide the textile output by food
output for each country for one unit of production. For Country A, it costs 10/6 = 1.67 yards of textiles to produce one
additional pound of food, and for Country B, it costs 8/5 = 1.6 yards of textiles to produce one additional pound of food.
Thus, Country B is relatively more efficient than Country A in producing food as evidenced by the fact that 1.6 < 1.67. To find
the opportunity cost of producing one additional yard of textiles for either country, divide the food output by textile output
for each country for one unit of production. For Country A, it costs 6/10 = 0.6 pounds of food to produce one additional yard
of textiles, and for Country B, is costs 5/8 = 0.625 pounds of food to produce one additional yard of textiles. Thus, Country
A is relatively more efficient than Country B in producing textiles, as evidenced by the fact that 0.6 < 0.625.
References
Multiple Choice Difficulty: 2 Medium
70.
Award: 1.00 point
71.
Award: 1.00 point
Consider the no-trade input/output situation presented in the following table and graph for countries A and B. Assuming
that free trade is legal; develop a scenario that will benefit the citizens of both countries.
Input/Output without Trade
Country
A B Total
I. Total Potential Output
(lbs. or yard; 000,000s)
Food 600 500 1,100
Textiles 1,200 500 1,700
II. Consumption
(lbs. or yard; 000,000s)
Food 300 400 700
Textiles 200 400 600
Country B should make all the textiles and trade with Country A for food.
Country A should make nothing but textiles and trade with Country B for food.
Country B should make all the textiles and Country A should make all the food.
Country B should make nothing but textiles and trade with Country A for food.
To produce one additional pound of food, it costs Country A 2 yards of textiles (1200/600). Given it only costs Country B 1
yard of textiles (500/500), then Country B has a relative advantage in producing food because 1<2. However, to produce
one additional yard of textiles, it costs Country A 0.5 pounds of food (600/1200) and it costs Country B 1 pound of food
(500/500). Thus, Country A has a relative advantage in producing textiles because 0.5<1.
References
Multiple Choice Difficulty: 2 Medium
Countries A and B currently consume 400 units of food and 400 units of textiles each and currently do not trade with one
another. The citizens of country A have to give up one unit of food to gain two units of textiles, while the citizens of country
B have to give up one unit of textiles to gain two units of food. Their production possibilities curves are shown.
Under the theory of comparative advantage
The citizens of country A should make food and trade with the citizens of country B for textiles.
The citizens of country A should make textiles and trade with the citizens of country B for food.
There are no gains from trade in this example.
A is twice as good as B at making food and B is twice as good as A at making textiles.
References
Multiple Choice Difficulty: 2 Medium
72.
Award: 1.00 point
73.
Award: 1.00 point
Counties A and B currently consume 400 units of food and 400 units of textiles each and currently do not trade with one
another. The citizens of country A have to give up one unit of food to gain two units of textiles, while the citizens of country
B have to give up one unit of textiles to gain two units of food. Their production possibilities curves are shown.
Under the theory of comparative advantage, if free trade is allowed, the market clearing price (or exchange rate, if you will)
between food and textiles will be