Question

16 Which of the following would shift the U.S. PPF outward, ceteris paribus?

An increase in capital.

An income tax cut for consumers.

A decrease in education (human capital).

All of the above would cause outward shifts of the U.S. PPF.

The development and use of a new production technology in Canada.

19 According to the Law of Comparative Advantage, if two countries specialize in the production of the good in which they have a comparative advantage, then

all goods will be produced at a higher opportunity.

neither country will benefit from free, unrestricted trade because both countries will lose jobs.

total production will increase and both countries can mutually benefit from free trade.

a country will benefit from free trade only if it has an absolute advantage in every good.

one country can benefit from trade, but only at the expense of the other country.

20 Given 100 hours of labor, suppose that Fred can produce 100 sweaters or 200 kringles (a kringle is a Danish pastry for which Racine, WI, is well known) and Wilma can produce 120 sweaters or 480 kringles, then

Wilma has a CA in sweaters and should specialize in the production of sweaters.

Wilma has a comparative advantage (CA) in both sweaters and kringles.

Fred has a CA in kringle and should specialize in the production of kringle.

Fred has an absolute advantage in both sweaters and kringles.

Fred has a CA in sweaters and should specialize in the production of sweaters.

21 Given 100 hours of labor, suppose that Fred can produce 100 sweaters or 200 kringles and Wilma can produce 120 sweaters or 480 kringles. Mutual gain is possible for both Fred and Wilma if _____ would produce and trade away _____ in exchange for _____.

Wilma, 1 kringle, 3 sweaters.

Wilma, 1 sweater, 3 kringles.

Fred, 3 kringles, 1 sweater.

Fred, 1 sweater, 5 kringles.

Fred, 1 sweater, 3 kringles.

Answer 1

In question 21 I forgot to add in the picture that Fred is willing to sell his sweaters as a price higher than his opportunity cost , which is 2 and Wilma is willing to buy sweaters at a price which is lower than her opportunity cost which is 4 . So we agreed on a price 3 . 3 kringles for 1 sweater.

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