Use the data in Table 1 to answer Questions 15 -17 Table 1 . Output Possibilitie
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Question
Use the data in Table 1 to answer Questions 15 -17
Table 1. Output Possibilities for United States and United Kingdom
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Output per Labor Hour
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Country Wine Cloth
United States (U.S.) 40 bottles 40 yards
United Kingdom (U.K.) 20 bottles 10 yards
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15. According to the principle of absolute advantage, U.S. should:
a.Export Wine
b.Export Cloth
c.Export Wine and Cloth
d.None of the above; there is no basis for trade
16. According to the principle of comparative advantage:
a.United States should export Cloth
b.United Kingdom should export Cloth
c.United States should import Cloth
d.United Kingdom should import Wine
17. With international trade, what is the maximum number of yards of cloth that U.S. would be willing to export to U.K. in exchange for each bottle of wine?
a.1 yard
b.2 yards
c.3 yards
d.4 yards
Explanation / Answer
15 ) Answer: Option C
Export wine and cloth.
From the principle of absolute advantage US has advanatge both on wine and cloth when compared to UK as it having an output more than UK. Thus in both export of WIne and cloth US have advantage.
16) Option D
UK should import Wine
According to the principle of comparitive advantage to produce 20 bottles of wine UK should loose 10 yards of cloth. If they produce 10 yards of cloth they should loose 20 bottles of wine. So acording to this theory of comparitive advantage it is better to loose 20 bottles of wine. Thus as it loosing wine it should import wine from other countries.
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