Question 1

Which state has a comparative advantage in wheat production in Case II?

Accepted Answer

South Dakota has a comparative advantage in wheat production in Case II because it has a lower opportunity cost of producing wheat than North Dakota. In Case II, South Dakota can produce 1 bushel of wheat with 1 hour of labor, while North Dakota can produce 1 bushel of wheat with 2 hours of labor. This means that South Dakota can produce wheat more efficiently than North Dakota, and therefore has a comparative advantage in wheat production.

Question 2

For case II, in what range must the "international" price of wheat fall? i.e. if North and South Dakota trade only with each other, what is the range of prices possible?

Accepted Answer

When North and South Dakota trade only with each other, the relative price of wheat in terms of beer is determined by their production possibility curves, which intersect at a rate of exchange of 1 bushel of wheat for 4/3 bottles of beer. If the international price of wheat is higher than this rate, North Dakota will export wheat to other regions, while if it is lower, it will import wheat from other regions. This implies that the range of possible prices of wheat in the isolated North-South Dakota market is between 1 bushel of wheat = 4/3 bottles of beer (the opportunity cost of producing wheat in South Dakota) and 1 bushel of wheat = 2 bottles of beer (the opportunity cost of producing wheat in North Dakota). Therefore, option A is the correct answer.

Question 3

What is the price of beer without trade in Southern Ireland?

Accepted Answer

The answer of What is the price of beer without...

Question 4

For case II, let the international price be 1 bottle = 1 bushel. Derive North Dakota's "trading possibilities curve."

Accepted Answer

The answer of For case II, let the international price...

Question 5

What is the relative price of a gun in terms of butter in South Carolina?

Accepted Answer

The answer of What is the relative price of a...

Question 6

If the international price of beer is one keg of beer = 1 bottle of whiskey, how much whiskey will Northern Ireland consume? Each country completely specializes and 500 kegs of beer are traded for 500 bottles of whiskey.

Accepted Answer

The answer of If the international price of beer is...

Question 7

Now suppose that Southern workers receive a raise to €2 per day. Will trade be possible at the exchange rate you found in the last question?

Accepted Answer

Trade will still be possible if the exchange rate allows for comparative advantage and benefits both parties, regardless of the wage increase.

Question 8

What is the price of beer without trade in Northern Ireland?

Accepted Answer

Without knowing the actual price of whiskey or beer in Northern Ireland, we cannot determine the price of beer with or without trade using the given ratios. Therefore, we cannot make a best choice based on the options given.

Question 9

For case II, let the international price be 1 bottle = 1 bushel. Derive South Dakota's "trading possibilities curve."

Accepted Answer

To derive the trading possibilities curve, we need to plot the maximum amount of wheat and wine that South Dakota can produce using all its resources.

With the international price of 1 bottle = 1 bushel, South Dakota can either produce 1000 bottles of wine or 1000 bushels of wheat with its resources. Thus, the trading possibilities curve will be a straight line connecting these two points.

Option C shows this straight line connecting the points (0, 1000) and (1000, 0). Any point on this line represents a combination of wine and wheat that South Dakota can produce and still trade internationally at a rate of 1 bottle = 1 bushel.

The best choice for South Dakota depends on its comparative advantage. If South Dakota has a comparative advantage in producing one good over the other, it should specialize in that good and trade for the other. Without information about South Dakota's comparative advantage, we cannot determine the best choice from the given options.

Question 10

Suppose that the citizens of North and South Carolina are currently consuming as much butter as they care to. What is the maximum increase in the number of guns that could occur following trade?

Accepted Answer

The answer of Suppose that the citizens of North and...

Question 11

What is the increased amount of goods available in Northern Ireland after trade?

Accepted Answer

The increased amount of goods available in Northern Ireland after trade is 400 more bottles of whiskey and 200 more kegs of beer.

Question 12

Consider a dentist and a 14-year old boy. The dentist can make $100 per hour drilling teeth and the 14-year old boy can make $2 per hour picking up used aluminum cans. The dentist is a manly man and can mow his half-acre lot in one hour. The 14-year old boy can mow the lawn in two hours. If the dentist hires the boy to mow his lawn at any price less than $100, but more than $4

Accepted Answer

The dentist can make more money drilling teeth than mowing his lawn, so it makes sense for him to hire the boy to mow the lawn at a price less than $100 but more than $4. This way, he gets his lawn mowed for a cheaper price than his own hourly rate, and the boy gets paid more than his usual rate for picking up cans. Both parties benefit from the transaction, so it is a mutually beneficial exchange rather than exploitation.

Question 13

What is the relative price of wheat in North Dakota prior to trade in Case II?

Accepted Answer

The relative price of wheat in North Dakota prior to trade is given as 1 bushel of wheat for 2 bottles of beer.

Question 14

Which state is better at making guns?

Accepted Answer

The answer of Which state is better at making guns?
...

Question 15

In which product does Northern Ireland have a comparative advantage?

Accepted Answer

Northern Ireland has a long history of whiskey production and is known for producing high-quality whiskeys. This gives them a comparative advantage in the production and export of whiskey. On the other hand, while beer is also produced in Northern Ireland, it is not as well-known or highly regarded as their whiskey production. Therefore, B) Whiskey is the best choice.

Question 16

What is the relative price of a gun in terms of butter in North Carolina?

Accepted Answer

1 gun costs 3 butters

Question 17

Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day. Southern workers are paid €1 per day and Northern workers are paid £1 per day. What is the exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?

Accepted Answer

Let's assume that producing one keg of beer in Southern Ireland requires 1 hour of labor and producing one bottle of whiskey in Northern Ireland requires 2 hours of labor.
Thus, in Southern Ireland, the cost of producing one keg of beer is €1 and in Northern Ireland, the cost of producing one bottle of whiskey is £2. Therefore, the international price per keg of beer in terms of bottles of whiskey would be:

1 keg of beer = (cost of 1 keg of beer in Southern Ireland) / (cost of 1 bottle of whiskey in Northern Ireland)
1 keg of beer = €1 / (£2 × exchange rate)

On the other hand, we know that the international price per keg of beer in terms of bottles of whiskey is 1 keg of beer = 1 bottle of whiskey. Therefore, equating the two expressions for 1 keg of beer, we get:

€1 / (£2 × exchange rate) = 1
exchange rate = £2 / €1 = €1.25 = £1

Question 18

Is Northern Ireland better off when it trades with Southern Ireland?

Accepted Answer

Northern Ireland benefits from trade with Southern Ireland due to their close geographical proximity and the lack of trade barriers under the EU. This trade relationship helps Northern Ireland access larger markets and diversify its economy, leading to economic growth and job creation. In contrast, a lack of trade with Southern Ireland could lead to a contraction in Northern Ireland's economy and a decrease in its competitiveness.

Question 19

Now suppose that Southern workers are paid €1 per day but the Northern workers receive a raise to £2 per day. Will trade be possible at the exchange rate you found in the question before the last question?

Accepted Answer

With the new wage rates, the exchange rate should shift to accommodate the changes in relative prices. However, it does not change here, as a €1 is equivalent to £1. Thus, there is no incentive for Southern workers to trade as they earn the same amount as they would if they did not trade. Hence, trade would not be possible at the current exchange rate.

Question 20

Suppose that trade occurs. Each country completely specializes and 500 kegs of beer are traded for 500 bottles of whiskey. What is the international price of beer?

Accepted Answer

Since each country completely specializes, the domestic opportunity cost of producing beer and whiskey is infinite. Thus, the exchange ratio should be determined by the international relative supply of beer and whiskey. Since both countries produce equal amounts of beer and whiskey, the international relative supply of beer and whiskey is also equal. Therefore, the exchange ratio should be one-to-one, or 1 bottle of whiskey for 1 keg of beer.

Quiz 1: Globalization and the Multinational Firm