Paper 1: Solve the problem.

Suppose Fruitopia and Robotland can produce either Apples or Toasters. Assume each country can produce the following maximum amounts each day and that each country has a linear PPC.

	Apples (with 0 Toasters)	Toasters (with 0 Apples)
Fruitopia	12	9
Robotland	8	12

1. If Fruitopia wishes to produce only for itself (autarky) suppose it will make 4 apples. Producing at a point on its PPC, how many toasters could they produce? Graph Fruitopia's PPC and show this autarky point.

2. If Robotland wishes to produce only for itself (autarky) suppose it will make 6 apples. Producing at a point on its PPC, how many toasters could they produce? Graph Robotland's PPC and show this autarky point.

3. Now assume each economy has decided to instead trade with each other, and each specializes in their comparative advantage. Calculating all the necessary opportunity costs (show your work), find each economy's comparative advantage.

4. Given each country specializes only in the good in which they have comparative advantage, state an apple for toaster trade which would cause both economies to reach a combination of goods that would be preferred to their original autarky points. How much of each good would these economies have after this trade?

5. Now suppose that Fruitopia discovers a ground-breaking technology which drastically improves its ability to produce toasters. Fruitopia's PPC now includes 12 apples (with 0 toasters) and 24 toasters (with 0 apples). Will each economy's comparative advantage change? Show your work.

Paper 2 . Multiple choices questions.

1

John takes 10 minutes to iron a shirt and 20 minutes to type a paper. Harry takes 12 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct?

a) Harry has comparative advantage in ironing

b) John cannot gain from specialization and trade

c) Harry has comparative advantage in typing

d) John has a comparative advantage in ironing

2

The law of comparative advantage applies to exchange between

a) individuals

b) nations

c) regions

d) all of these answers

3

Suppose a Farmer and a Rancher have the following combinations on their PPC. Assume the PPC is linear.

	Meat (with 0 Potatoes)	Potatoes (with 0 Meat)
Farmer	5	10
Rancher	8	20

Given this information, which of the following is true of the farmer?

a) Each potato costs 2 meat and the farmer's comparative advantage is potatoes

b) Each potato costs 1/2 meat and the farmer's comparative advantage is potatoes

c) Each potato costs 2 meat and the farmer's comparative advantage is meat

d) Each potato costs 1/2 meat and the farmer's comparative advantage is meat

4

The law of comparative advantage suggests that

a) decreasing U.S. trade with other countries would make U.S. consumers better off

b) S. companies should be protected from foreign competition

c) countries will tend to import goods that they can produce at a relatively low opportunity cost

d) countries will tend to import goods that they can produce at a relatively high opportunity cost

1. Assume Trina and Hitoshi have linear PPCs with the following points.

	All Apples (no Tomatoes)	All Tomatoes (no Apples)
Trina	8	4
Hitoshi	6	6

Without trade, Trina will grow 6 apples and Hitoshi will grow 2 apples. If they each produce at a point on their PPC, how many tomatoes will each grow?

a) Trina grows 3 tomatoes, Hitoshi grows 4 tomatoes

b) Trina grows 3 tomatoes, Hitoshi grows 2 tomatoes

c) Trina grows 1 tomato, Hitoshi grows 4 tomatoes

d) Trina grows 1 tomato, Hitoshi grows 2 tomatoes

6

Assume Trina and Hitoshi have linear PPCs with the following points.

	All Apples (no Tomatoes)	All Tomatoes (no Apples)
Trina	8	4
Hitoshi	6	6

Suppose without trade Trina would choose to produce 4 apples and 2 tomatoes while Hitoshi would choose to make 3 apples and 3 tomatoes. If each then specialized in the production of their comparative advantage good, which of the following trades would cause BOTH individuals to end up with more of BOTH goods than they would get without trade?

a) 5 apples for 2.5 tomatoes

b) 4 apples for 2 tomatoes

c) 3 apples for 3 tomatoes

d) 5 apples for 3.5 tomatoes

7

The following individuals can make either pancakes or bowls of cereal. Given linear PPCs for each and the following maximums possible, which person below has the comparative advantage in pancakes?

	Pancakes (with 0 cereal)	Cereal (with 0 pancakes)
Ichigo	3	4
Aizen	4	6
Diego	5	10
Dora	10	15

a) Ichigo

b) Aizen

c) Diego

d) Dora

8

Suppose the country of Futureland can either spend its resources producing clones or robots. How can they use their resources efficiently?

a) The resources that can make the most total robots should make robots

b) The resources that make more robots than clones should make robots

c) The resources that make the most robots per clone given up should make robots

d) The resources that can make the least clones should make robots

9

Given equal rules/regulations across countries, which of the following could NOT be a potential disadvantage of international trade?

a) Increased reliance on trading partners for their goods

b) Difficulty for young industries to develop and eventually compete internationally

c) An abuse of market power through dumping goods below cost to discourage competition

d) Permanent job loss in the country's low opportunity cost industries

10

In a day Peter can produce at most 20 TPS reports or fix at most 10 laser printers. In a day Samir can produce at most 25 TPS reports or fix at most 15 laser printers. Assuming each has a linear PPC, which of the following is true?

a) Peter has the comparative advantage in fixing laser printers

b) Peter has the absolute advantage in producing TPS reports

c) The opportunity cost of producing a TPS report for Samir is fixing 0.6 of a laser printer.

d) The opportunity cost of producing a TPS report for Peter is fixing 2 laser printers.

e) Peter has the absolute advantage in fixing laser printers