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Absolute and Comparative Advantage

1. Answer the following series of questions given the data for Israel and Canada below. Daily output:
Israel can produce 100 computers or 50 tanks
Canada can produce 40 computers or 15 tanks

Which country has the absolute advantage in the production of tanks? Why is it this country? Which country has the comparative advantage in the production of computers? How did you determine your answer?

2. In a day of production, firms in Angola can produce 200 liters of oil or 100 kilograms of tungsten. Firms in Namibia can produce 160 liters of oil or 60 kilograms of tungsten. Which country has an absolute advantage in the production of oil?
a. Both countries are equally advantageous in production.
b. Neither country has an advantage in production.
c. Angola has the absolute advantage.
d. Namibia has the absolute advantage.

3. In the Ricardian model, trade is based on advantageous production that arises from differences in technological advancements. These differences cause:
a. absolute advantages which provide the basis for trade.
b. comparative advantages which provide the basis for trade.
c. absolute and comparative advantages which are both needed to determine specialization patterns.
d. neither advantages nor disadvantages in terms of specialization and gains from trade.

4. How are relative wages determined in the many-goods Ricardian model?
a. The intersection of the derived relative demand curve for labor with the relative supply curve.
b. The intersection of the multi-good supply and demand curves.
c. When equilibrium is met after transportation costs for all goods have been accounted for.
d. At the highest marginal propensity to consume for all production labor.

5. In a day production, firms in Israel can produce 77 microprocessors or 24 ballistic missiles. Firms in the United States can produce 88 microprocessors or 14 ballistic missiles. What is the minimum price the country with the comparative advantages in ballistic missiles is willing to accept for a ballistic missile in terms of microprocessors?
a. 6.2857
b. 0.1591
c. 3.2083
d. 0.3117

Solution Preview

1. Answer the following series of questions given the data for Israel and Canada below. Daily output:
Israel can produce 100 computers or 50 tanks
Canada can produce 40 computers or 15 tanks

Which country has the absolute advantage in the production of tanks? Why is it this country?
Israel can produce tanks while Canada can produce 15 tanks if they dedicate all of their resources in producing tank. So, we can say that Israel has absolute advantage in producing tanks.

Which country has the comparative advantage in the production of computers? How did you determine ...

Solution Summary

There are five basic problems. Answers are provided for each problem with the help of concepts in "Absolute and Comparative Advantage".

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