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# suppose the united states has a comparative advantage over mexico in producing pork. the principle of comparative advantage asserts that

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## Suppose the United States has a comparative advantage over Mexico in producing cars. The principle of comparative advantage asserts that: a. the United States should refrain altogether from producing cars and import all of what it requires from Mexico. b.

Answer to: Suppose the United States has a comparative advantage over Mexico in producing cars. The principle of comparative advantage asserts...

## Suppose the United States has a comparative advantage over Mexico in producing cars. The...

Suppose the United States has a comparative advantage over Mexico in producing cars. The... Question:

Suppose the United States has a comparative advantage over Mexico in producing cars.

The principle of comparative advantage asserts that:

a. the United States should refrain altogether from producing cars and import all of what it requires from Mexico.

b. the United States should produce a moderate quantity of cars and import the remainder of what it requires from Mexico.

c. the United States should produce more cards than what it requires and export some of it to Mexico.

d. Mexico has nothing to gain from importing cars from the United States.

The theory of comparative advantage states that a nation will gain from international trade if it specializes in the production and exchange of goods and services in which it has lower opportunity cost.

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The correct option is:

c. the United States should produce more cars than what it requires and export some of it to Mexico.

Since the United stated...

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Chapter 57 / Lesson 3

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A comparative advantages is the ability to produce goods at a lower cost than an opponent. Learn how this relates to absolute advantages and leads to specialization of production and exchange of the surplus products.

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## Chapter 3 Flashcards

Start studying Chapter 3. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

## Chapter 3

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Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

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the United States should produce more pork than what it requires and export some of it to Mexico.

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Assume for the United States that the opportunity cost of each airplane is 100 cars. Then which of these pairs of points could be on the United States' production possibilities frontier?

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(300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)

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1/6 Created by malette

### Terms in this set (6)

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

the United States should produce more pork than what it requires and export some of it to Mexico.

Assume for the United States that the opportunity cost of each airplane is 100 cars. Then which of these pairs of points could be on the United States' production possibilities frontier?

(300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)

Shannon bakes cookies and Justin grows vegetables. In which of the following cases is it impossible for both Shannon and Justin to benefit from trade?

Shannon does not like vegetables and Justin does not like cookies.

A production possibilities frontier is a straight line when

the rate of tradeoff between the two goods being produced is constant

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 30 workers in each country. No trade occurs between the two countries. Boatland produces and consumes 75 units of wheat and 375 units of fish per year while Farmland produces and consumes 375 units of wheat and 75 units of fish per year. If trade were to occur, Boatland would trade 90 units of fish to Farmland in exchange for 80 units of wheat. If Boatland now completely specializes in fish production, how many units of fish could it now consume along with the 80 units of imported wheat?

660 units

If Korea is capable of producing either shoes or soccer balls or some combination of the two, then

Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls.

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ACCOUNTING

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:

\begin{array}{l} \text{Accounts} & \text{Debit} & \text{Credit}\\ \hline \text{Cash} & \text{\$25,100} & \text{ }\\ \text{Accounts Receivable} & \text{$46,200$} & \text{ }\\ \text{Allowance for Uncollectible Accounts} & \text{ } & \text{$\$4,200$}\\ \text{Inventory} & \text{$20,000$} & \text{ }\\ \text{Land} & \text{$46,000$} & \text{ }\\ \text{Equipment} & \text{$15,000$} & \text{ }\\ \text{Accumulated Depreciation} & \text{ } & \text{$1,500$}\\ \text{Accounts Payable} & \text{ } & \text{$28,500$}\\ \text{Notes Payable $(6 \\\%, \text { due April } 1,2019)$} & \text{ } & \text{$50,000$}\\ \text{Common Stock} & \text{ } & \text{$35,000$}\\ \text{Retained Earnings} & \text{\_\_\_\_\_\_} & \underline{33,100}\\ \text{Totals} & \underline{\underline{\$152,300}} & \underline{\underline{\$ 152,300}}\\ \end{array}

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## 2.2 THE PRODUCTION POSSIBILITIES FRONTIER AND SOCIAL CHOICES

### Learning Objectives

By the end of this section, you will be able to:

Interpret production possibilities frontier graphs

Contrast a budget constraint and a production possibilities frontier

Explain the relationship between a production possibilities frontier and the law of diminishing returns

Contrast productive efficiency and allocative efficiency

Just as individuals cannot have everything they want and must instead make choices, society as a whole cannot have everything it might want, either. This section of the chapter will explain the constraints faced by society, using a model called the production possibilities frontier (PPF). There are more similarities than differences between individual choice and social choice. As you read this section, focus on the similarities.

Because society has limited resources (e.g., labor, land, capital, raw materials) at any point in time, there is a limit to the quantities of goods and services it can produce. Suppose a society desires two products, healthcare and education. This situation is illustrated by the production possibilities frontier in Figure 1.

Figure 1. A Healthcare vs. Education Production Possibilities Frontier. This production possibilities frontier shows a tradeoff between devoting social resources to healthcare and devoting them to education. At A all resources go to healthcare and at B, most go to healthcare. At D most resources go to education, and at F, all go to education.

In Figure 1, healthcare is shown on the vertical axis and education is shown on the horizontal axis. If the society were to allocate all of its resources to healthcare, it could produce at point A. But it would not have any resources to produce education. If it were to allocate all of its resources to education, it could produce at point F. Alternatively, the society could choose to produce any combination of healthcare and education shown on the production possibilities frontier. In effect, the production possibilities frontier plays the same role for society as the budget constraint plays for Alphonso. Society can choose any combination of the two goods on or inside the PPF. But it does not have enough resources to produce outside the PPF.

Most important, the production possibilities frontier clearly shows the tradeoff between healthcare and education. Suppose society has chosen to operate at point B, and it is considering producing more education. Because the PPF is downward sloping from left to right, the only way society can obtain more education is by giving up some healthcare. That is the tradeoff society faces. Suppose it considers moving from point B to point C. What would the opportunity cost be for the additional education? The opportunity cost would be the healthcare society has to give up. Just as with Alphonso’s budget constraint, the opportunity cost is shown by the slope of the production possibilities frontier. By now you might be saying, “Hey, this PPF is sounding like the budget constraint.” If so, read the following Clear It Up feature.

### What’s the difference between a budget constraint and a PPF?

There are two major differences between a budget constraint and a production possibilities frontier. The first is the fact that the budget constraint is a straight line. This is because its slope is given by the relative prices of the two goods. In contrast, the PPF has a curved shape because of the law of the diminishing returns. The second is the absence of specific numbers on the axes of the PPF. There are no specific numbers because we do not know the exact amount of resources this imaginary economy has, nor do we know how many resources it takes to produce healthcare and how many resources it takes to produce education. If this were a real world example, that data would be available. An additional reason for the lack of numbers is that there is no single way to measure levels of education and healthcare. However, when you think of improvements in education, you can think of accomplishments like more years of school completed, fewer high-school dropouts, and higher scores on standardized tests. When you think of improvements in healthcare, you can think of longer life expectancies, lower levels of infant mortality, and fewer outbreaks of disease.

Whether or not we have specific numbers, conceptually we can measure the opportunity cost of additional education as society moves from point B to point C on the PPF. The additional education is measured by the horizontal distance between B and C. The foregone healthcare is given by the vertical distance between B and C. The slope of the PPF between B and C is (approximately) the vertical distance (the “rise”) over the horizontal distance (the “run”). This is the opportunity cost of the additional education.

## THE SHAPE OF THE PPF AND THE LAW OF DIMINISHING RETURNS

The budget constraints presented earlier in this chapter, showing individual choices about what quantities of goods to consume, were all straight lines. The reason for these straight lines was that the slope of the budget constraint was determined by relative prices of the two goods in the consumption budget constraint. However, the production possibilities frontier for healthcare and education was drawn as a curved line. Why does the PPF have a different shape?

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James 11 month ago

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