Question

5) "The poorest man may in this cottage bid defiance all the forces of the Crown. It may be frail, its roof may shake; the wind may blow through it; the storms may enter, the rain may enter - but the King of England cannot enter; all his forces dare not cross the threshold of the ruined tenement." William Pitt, 1st Earl of Chatham, speech in the British Parliment (1763).

a) What does this tell us about the meaning of private property?

b) Does it apply to people's homes in your economy?

6) Your professor hires a teaching assistant to grade student assignments even though he may do the task faster and perhaps more accurately. How can you explain this behavior using the theory of comparative advantage?

7) In a two-country world of Japan and South Korea, suppose Japan can produce 600 radios or 300 TV sets in one day with all its available resources, while South Korea can produce 100 radios or 200 TV sets in one day with all its available resources. According to the theory of comparative advantage, what would be the possible gain in this world if the two countries specialize and trade with each other? (Assume that the countries begin by spending half of their time on each good).

8) According to Adam Smith, what were the three ways in which the division of labor caused increased productivity? Explain each briefly.

9) Explain the three major benefits of trade briefly.

a) Trade is beneficial in preference differences.

b) Trade increases productivity through specialization.

c) Trade increases productivity through comparative advantage.

Answer 1

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