3. Answer the following two questions on the basis of the following table, assum
ID: 1206392 • Letter: 3
Question
3. Answer the following two questions on the basis of the following table, assuming just two countries, two goods, and only one input, labor.
Output Produced by One Unit of Labor
(Output/Labor)
Flags Fish
U.S. 20 120
Sweden 10 40
3i. Which of the following is true? Circle or identify all that apply.
a. The U.S. has an absolute advantage in producing fish.
b. The U.S. has an absolute advantage in producing flags.
c. The U.S. has a comparative advantage in producing fish.
d. both a) and c) are true
e. None of the above is true.
3ii. Which of the following is correct about trade? Circle or identify all that apply.
a. The U.S. should produce fish and Sweden produce flags.
b. If the international exchange rate (terms of trade) between the US and Sweden is 1 flag for 6 fish then both countries can benefit from international trade.
c. If the output/labor ratio for fish in the U.S. were 80 instead of 120, then
international trade would still be beneficial to either the U.S. or Sweden.
d. All of the above are true.
e. None of the above is true.
Explanation / Answer
1. a. U.S. has an absolute advantage in producing fish. (as it prduces more fish then sweden)
b. The U.S. has an absolute advantage in producing flags.(as it prduces more flags then sweden)
c.
2.
a. The U.S. should produce fish and Sweden produce flags..
c. If the output/labor ratio for fish in the U.S. were 80 instead of 120, then
international trade would still be beneficial to either the U.S. or Sweden.
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