Use the following assumptions to answer all questions: • There are three countri
ID: 2495395 • Letter: U
Question
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) • Order 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.
Argentina Britain Canada
Barrel of Crude oil 60 50 70
Pounf of Beef 1 3 5
• 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.
13. In autarky, Argentina produces _____ pounds of beef.
0
70
150
400
14. In autarky, Britain produces _____ pounds of beef.
0
70
150
400
15. In autarky, Canada produces _____ pounds of beef.
0
70
150
400
17. Country of _____ has absolute advantage in production of beef.
Argentina
Britain
Canada
No country
21. When countries specialize, Argentina produces _____ pounds of beef.
0
700
150
400
22. When countries specialize, Britain produces _____ pounds of beef.
0
700
150
400
23. When countries specialize, Canada produces _____ pounds of beef.
0
700
150
400
24. Country of _____ has comparative advantage in production of crude oil.
Argentina
Britain
Canada
No country
25. Country of _____ has comparative advantage in production of beef.
Argentina
Britain
Canada
No country
26. Countries gain from trade because specialization increases _____.
Trade deficit
Unemployment
Efficiency
Inflation
27. Countries should trade with trading partners that _____.
Are equally technologically advanced
Use superior technology in every industry
Use less advanced technology in every industry
Use different technologies, because trade benefits all
Explanation / Answer
13.0
14.0
15.0
17. britain
21.700
22.400
23. 150
24. argentina
25. canada
26.efficiency
27. option 4 is correct
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