1.Which of the following statements is most accurate? A) Both countries would gain if Germany traded beer for Holland's cheese. B) Both countries would gain if Germany traded cheese for Holland's beer. C) Neither country would gain from trade. D) Germany would not gain from trade, because it has an absolute advantage in the production of both goods. The correct answer was A) Germany has an absolute advantage in both beer and cheese because it can produce more of both than Holland. Holland has a comparative advantage in producing cheese because it can produce either 4 cheeses or 6 beers, which is a ratio of 2 to 3, whereas Germany can produce 5 cheeses or 10 beers, which is a ratio of 1 to 2. Because of Holland's comparative advantage in producing cheese, both countries would benefit if Germany used its absolute advantage in producing beer in exchange for Holland's comparative advantage in cheese. 2.Calvin Gooden, an assistant economist with the World Bank, is a member of a Level I CFA study group. Most of the members of his group do not have an economics background and are frustrated with the material on comparative advantage. Gooden devises the following question to help them study. The table below gives the prices of four goods (jeans, wine, cheese, and LCD screens) in France and the United Kingdom (U.K.). Gooden tells the group to assume that the current exchange rate is 1.5 EUR/ 1.0 GBP. Good | France (in EUR) | United Kingdom (in GBP) | Jeans | 42 | 26 | Wine | 18 | 14 | Cheese | 5 | 3 | LCD Screens | 85 | 50 |
Acting to minimize costs, French consumers will purchase: A) French wine and cheese and British jeans and LCD screens. B) British jeans and cheese and French wine and LCD screens. C) French wine and British jeans, cheese, and LCD screens. D) British wine and French jeans, cheese, and LCD screens. The correct answer was C) First, convert to one currency (we will convert to EUR), then assume that consumers will purchase from the cheapest suppliers. The cheapest country appears in bold. Good | France (in EUR) | United Kingdom (in EUR) | Jeans | 42 | 26 * 1.5 = 39 | Wine | 18 | 14 * 1.5 = 21 | Cheese | 5 | 3 * 1.5 = 4.5 | LCD Screens | 85 | 50 * 1.5 = 75 |
Thus, French consumers will minimize cost by purchasing French wine and British jeans, cheese, and LCD screens. 3.The table below outlines the possible tradeoffs of producing units of cloth and corn for both Country A and Country B. Country A
| Country B
| Units of Cloth
| Units of Corn
| Units of Cloth | Units of Corn
| 0 | 4 | 0 | 8 | 6 | 3 | 8 | 6 | 14 | 0 | 16 | 0 |
Which scenario best describes the effects of trade between the countries? A) Both countries would gain if Country A traded corn for Country B’s cloth. B) Neither country would gain from trade, even if transportation costs were zero. C) Both countries would gain if Country A traded cloth for Country B’s corn. D) Country B would not gain from trade, because it has an absolute advantage in the production of both goods. The correct answer was C) If Country B devotes all of its resources to producing corn, it will make 8 units while, under the same circumstances, Country A will make 4 units. Therefore, Country B is twice as productive with respect to corn as Country A. Country B can also produce more cloth (16 units) in relation to Country A (14 units) supposing all resources are used for cloth. However, rather than being twice as productive as was the case for corn, it is only slightly more productive. Therefore, Country B has a comparative advantage in corn, and thus should specialize in its production, while Country A should specialize in the production of cloth. 4.The following chart indicates the production possibilities of food and drink per day in Country A and Country B.
| Units of Output Per Day | Country A | Country B | Food | 4 | 8 | Drink | 6 | 7 |
Which of the following statements about the chart is most accurate? A) Mutual gains could be realized from trade if A specialized in drink production and B specialized in the food production. B) Since B workers can produce more of food and drink than A workers, no gains from trade are possible. C) B is the low-cost producer of both food and drink. D) Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production. The correct answer was A) Mutual gains could be realized from trade if A specialized in drink production and B specialized in food production. The reason centers on comparative advantage. Country A must give up 1.5 units of drink to produce one unit of food. Country B must give up 0.875 units of drink to produce one unit of food. Therefore, the opportunity cost of producing food is greater for A than for B. If B produces 8 units of food and A produces 6 units of drink, total production will be greater than it would be if both countries produced both goods. By trading, both countries benefit. 5.The following chart indicates the production possibilities of food and drink per day in Country A and Country B.
| Units of Output Per Day | Country A | Country B | Food | 9 | 5 | Drink | 7 | 5 |
Which of the following statements is most accurate? A) Since B workers can produce more of food and drink than A workers, no gains from trade are possible. B) B is the low-cost producer of both food and drink. C) Mutual gains could be realized from trade if A specialized in drink production and B specialized in the food production. D) Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production. The correct answer was D) Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production. The reason centers on comparative advantage. Country A must give up 7/9th unit of drink to produce one unit of food. Country B must give up 1 unit of drink to produce one unit of food. Therefore, the opportunity cost of producing food is greater for B than for A. If B produces 5 units of drink and A produces 9 units of food, total production will be greater than it would be if both countries produced both goods. By trading, both countries benefit. | 
发表于 2008-4-16 17:49
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