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Exam 19: Interdependence and the Gains From Trade

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Question 1

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Points on the production possibilities frontier are

A) inefficient.
B) normative.
C) unattainable.
D) efficient.
E) equitable.

F) A) and C)
G) C) and D)

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Question 2

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Exhibit 1 -Refer to Exhibit 1. If the economy is operating at point C, the opportunity cost of producing an additional 15 units of biscuits is

A) 40 units of buns.
B) 10 units of buns.
C) 20 units of buns.
D) 30 units of buns.
E) 50 units of buns.

F) C) and E)
G) B) and E)

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Question 3

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Using the graph, assume that the government imposes a R1 tariff on ice cream. a. What is the domestic price and quantity demanded of ice cream after the tariff is imposed? b. What is the quantity of ice cream imported before the tariff? c. What is the quantity of ice cream imported after the tariff? d. What would be the amount of consumer surplus before the tariff? e. What would be the amount of consumer surplus after the tariff? f. What would be the amount of producer surplus before the tariff? g. What would be the amount of producer surplus after the tariff? h. What would be the amount of government revenue because of the tariff? i. What would be the total amount of deadweight loss due to the tariff?

Exhibit 2 -Refer to Exhibit 2. If trade is not allowed, producer surplus is the

Which of the following will not shift a country's production possibilities frontier outward?

Exhibit 3 -Refer to Exhibit 3. Government revenue from the tariff is the

The production possibilities frontier demonstrates the basic economic principle that

If South Africa has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item.

The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers. a. Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A. How much of each good would the countries produce? b. If these countries choose not to trade, what would be the total world production of popcorn and peanuts? c. Now suppose that each country decides to specialise in the good in which each has a comparative advantage. By specialising, what is the total world production of each product now? d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country would receive from trade. Label these points B.

Exhibit 3 -Refer to Exhibit 3. The deadweight loss from the tariff is the

According to the principle of comparative advantage, countries

If free trade is allowed, a country will export a good if the world price is

Exhibit 2 -Refer to Exhibit 2. If free trade is allowed, producer surplus is the

Table 1 shows the units of output a worker can produce per month in South Africa and Namibia. $\begin{array} { | l | c | c | } \hline & \text { Fond } & \text { Electranics } \\\hline \text { South Africa } & 20 & 5 \\\hline \text { Narmibia } & 8 & 2 \\\hline\end{array}$ -Refer to Table 1. The opportunity cost of 1 unit of electronics in South Africa is

Yusuf and Lebogang must prepare a presentation for their marketing class. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Yusuf 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Lebogang 12 hours to do the calculations and 20 hours to prepare the slides. a. How much time would it take the two to complete the project if they divide the calculations equally and the slides equally? b. How much time would it take the two to complete the project if they use comparative advantage and specialise in calculating or preparing slides? c. If Lebogang and Yusuf have the same opportunity cost of R50 per hour, is there a better solution than for each to specialise in calculating or preparing slides?

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,

When a country allows trade and imports a good,

A tariff raises the price of a good, reduces the domestic quantity demanded, increases the domestic quantity supplied, and increases the quantity imported.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade, the domestic price of 1 ring is

Using the graph below, answer the following questions about dark chocolate slabs. $\text { R22 }$ a. What is the equilibrium price of slabs before trade? b. What is the equilibrium quantity of slabs before trade? c. What is the price of slabs after trade is allowed? d. What is the quantity of slabs imported after trade is allowed? e. What is the amount of consumer surplus before trade? f. What is the amount of consumer surplus after trade? g. What is the amount of producer surplus before trade? h. What is the amount of producer surplus after trade? i. What is the amount of total surplus before trade? j. What is the amount of total surplus after trade? k. What is the change in total surplus because of trade?