Use the following assumptions to answer all questions : • There are three countr
ID: 2495232 • Letter: U
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Use the following assumptions to answer all questions
: • There are three countries – Argentina, Britain and Canada.
• Each country produces and consumes two kinds of goods – crude oil and beef.
• All countries make their goods from a single type of input – labor – and each country has 700 hours of labor available to produce crude oil and beef.
• Each country demands 5 (five) barrels of crude oil. This assumption simply means that a country must have exactly 5 barrels of crude oil – it may produce them domestically, it may import them from abroad, or it makes some domestically and imports the rest.
• Countries produce goods using the technology described in the table below:
Technology
Hours of labor needed to produce one unit of good
Using the above assumptions, answer the following questions:
• Calculate the quantities of crude oil and beef produced in each country in autarky (when they do not trade and each country produces its own crude oil and beef)
* Oder the countries according to their absolute advantage in production of crude oil
* Order the countries according to their absolute advantage in production of beef
* Consider the case where countries are free to specialize and trade. In the table below calculate each country’s opportunity cost of producing one unit of each good.
Calculate the quantities of crude oil and beef produced in each country, consistent with the country’s comparative advantage.
Based on the above calculations, answer questions 10 through 27:
Consider autarky, when countries do not trade and each country produces its own crude oil and beef. 10. In autarky, Argentina produces _____ barrels of oil.
a. 0
b. 5
c. 10
d. 15
11. In autarky, Britain produces _____ barrels of oil.
a. 0
b. 5
c. 10
d. 15
12. In autarky, Canada produces _____ barrels of oil.
a. 0
b. 5
c. 10
d. 15
13. In autarky, Argentina produces _____ pounds of beef.
a. 0
b. 70
c. 150
d. 400
14. In autarky, Britain produces _____ pounds of beef.
a. 0
b. 70
c. 150
d. 400
15. In autarky, Canada produces _____ pounds of beef.
a. 0
b. 70
c. 150
d. 400
16. Country of _____ has absolute advantage in production of crude oil.
a. Argentina
b. Britain
c. Canada
d. No country
17. Country of _____ has absolute advantage in production of beef.
a. Argentina
b. Britain
c. Canada
d. No country
Consider effects of specialization, when countries are allowed to trade.
18. When countries specialize, Argentina produces _____ barrels of oil.
a. 0
b. 5
c. 10
d. 15
19. When countries specialize, Britain produces _____ barrels of oil.
a. 0
b. 5
c. 10
d. 15
20. When countries specialize, Canada produces _____ barrels of oil.
a. 0
b. 5
c. 10
d. 15
21. When countries specialize, Argentina produces _____ pounds of beef.
a. 0
b. 700
c. 150
d. 400
22. When countries specialize, Britain produces _____ pounds of beef.
a. 0
b. 700
c.
150 d.
400
23. When countries specialize, Canada produces _____ pounds of beef.
a. 0 b.
700 c.
150
d. 400
24. Country of _____ has comparative advantage in production of crude oil.
a. Argentina
b. Britain
c. Canada
d. No country
25. Country of _____ has comparative advantage in production of beef.
a. Argentina
b. Britain
c. Canada
d. No country
26. Countries gain from trade because specialization increases _____.
a. Trade deficit
b. Unemployment
c. Efficiency
d. Inflation
27. Countries should trade with trading partners that _____.
a. Are equally technologically advanced
b. Use superior technology in every industry
c. Use less advanced technology in every industry
d. Use different technologies, because trade benefits all
Argentina Britian Canada Barrel of crude oil 60 50 70 pound of beef 1 3 5Explanation / Answer
10. b) 5
11. b) 5
12. b) 5
13. d) 400
14. c. 150
15. b. 70
16. b. Britain
17. a. Argentina
18. a. 0
19. b. 5
20. c. 10
21. b. 700
22. c.150
23. a. 0
24. c. Canada
25. a. Argentina
26. c. Efficiency
27. d. Use different technologies, because trade benefits all
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