Economics 252 - Extra Credit Homework (10 points) - Chapter 20 - International Trade

Consider the information in Table 1 in answering Questions (1) to (5). Table 1 illustrates the full employment production of the only two goods produced (airplanes and computers) in two countries, the United States and Russia.

Table 1

Country Airplanes Computers

Russia 100 300

United States 150 600

(1) Based on the information in Table 1, the opportunity cost of producing 1 airplane in the United States is:

(a) 1/4 of a computer.

(b) 3/4 of a computer.

(c) 2 computers.

(d) 4 computers.

(2) Based on the information in Table 1, the opportunity cost of producing 1 airplane in Russia is:

(a) 1/3 of a computer.

(b) 2/3 of a computer.

(c) 2 computers.

(d) 3 computers.

(3) Based on the information in Table 1, the opportunity cost of producing 1 computer in Russia is:

(a) 1/3 of an airplane.

(b) 3/2 of an airplane.

(c) 2 airplanes.

(d) 4 airplanes.

(4) From the information in Table 1, it is clear that:

(a) the United States should specialize in the production of computers.

(b) Russia should specialize in the production of airplanes.

(c) the United States has an absolute advantage in both goods.

(d) All of the above.

(5) Based on the information in Table 1, for trade to be mutually beneficial for both countries, the terms of trade will be such that 1 airplane will exchange for:

(a) more than 3 computers, but less than 4.

(b) more than 5 computers, but less than 6.

(c) less than 3 computers.

(d) more than 1/3 of a computer, but less than 3.