Econ 201 Tutorial #11 and Answers

Date: Week of November 26th to December 2nd, 2008

Coverage: Chapters 15 International Trade + General Questions from Students
Note: Since some sections would have their last lectures and/or tutorials on December 1st and 2nd and our common final
exams are on December 5th, 2008, the answers to this tutorial are available to the students in advance. Fall 2008

I. Multiple Choice Questions:

1. The concept of comparative advantage is the comparison among producers of a good according
to
a. their productivity.
a. their relative opportunity cost.
b. their efficiency.
c. the terms of trade advantage.
d. the demand they are facing.

2. If Paul is more productive than David in all areas of production, then

a. Neither Paul nor David can benefit from trade.
b. Paul can benefit from trade but David cannot.
c. David can benefit from trade but Paul cannot.
d. David will not have comparative advantage in any of the goods.
e. Both Paul and David can benefit from trade.

3. Which one of the following statements is true?

a. An individual should specialize according to comparative advantage.
b. An individual should specialize according to absolute advantage.
c. An individual should trade with parties that have the same opportunity costs for the goods and services produced.
d. Comparative advantage exists whenever one person engaging in an activity incurs the same costs as some other individual.
e. An individual must be able to produce more of a good or service than someone else before she can have a comparative
advantage in the production of that good or service.

4. Which of the following statements is (are) false?

a. About 10% of our imports come from Japan.
b. About 80% of our exports go to the US.
c. About 70% of our imports come from the US.
d. We export mainly agricultural and fishing products.
e. A and D.

5. Which of the following statements is (are) false?

a. About 30% of our GDP is related to imports.
b. In the US and Japan, imports account for more than 30% of their GDP values, respectively.
c. Over the past two decades, trade (exports and imports) account for an increasing percentage of Canada’s GDP.
d. Canada exports mainly energy products.
e. All of the above.

For the following 2 questions, assume that in the U.S. the opportunity cost of coal is 1/3 barrel of oil and the opportunity cost of oil
is 3 tons of coal. Assume that in England the opportunity cost of coal is 1/2 barrel of oil and the opportunity cost for oil is 2 tons of
coal.
6. Who has the comparative advantage in producing coal and who has the comparative advantage in producing oil?
a. England has comparative advantage in producing coal and the U.S. has the comparative advantage in producing oil.
b. England has comparative advantage in producing coal and also has the comparative advantage in producing oil.
c. The U.S. has comparative advantage in producing coal and England has the comparative advantage in producing
oil.
d. The U.S. has comparative advantage in producing coal and the U.S. also has the comparative advantage in producing oil.
e. None of the above.

7. Which country should specialize in coal and which should specialize in oil assuming the U.S. and England trade only with
each other?
a. The U.S. should specialize in coal and England should specialize in oil.
b. The England should specialize in coal and the U.S. should specialize in oil.
c. They both should specialize in coal.

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 d. They both should specialize in oil.
e. The U.S. should produce both goods and England should not produce any of the goods.
II. Short Question

1. You have to hire a new worker for your food processing plant. There are two candidates, Andreu and Jerry. Andreu is quite good
at packing brats. In fact, he can pack 100 brats per hour. And he is not that bad at packing pizza; he can pack 50 pizzas per hour.
Jerry, in contrast, can pack 75 brats per hour or 75 pizzas per hour.

(i) First of all, consider the case of Andreu. What is the opportunity cost of packing one brat for Andreu? And what is the
opportunity cost of packing one pizza for Andreu?
Ans: If Andreu packs 100 brats in a given hour, then he would have missed the chance of packing 50 pizzas in that
same hour. Then, for each brat he packed, he missed the chance of packing one half pizza. The opportunity cost of
packing one brat for Andreu is then packing half a pizza. Then, the opportunity cost of packing one pizza for
Andreu is packing two brats.

(ii) Then, take into account the case of Jerry. What is the opportunity cost of packing one brat for Jerry? And what is the
opportunity cost of packing one pizza for Jerry?
Ans: If Jerry packs 75 brats in a given hour, then he would have missed the chance of packing 75 pizzas in that same
hour. Then, for each brat he packed, he missed the chance of packing one pizza. The opportunity cost of packing one
brat for Jerry is then packing one pizza. Then, the opportunity cost of packing one pizza for Jerry is packing one
brat.

(iii) Now, consider that the new worker will work 8 hours a day. Suppose you want 900 pizzas and 600 brats to be packed and
that you can hire only one worker. Who will be able to do both things in less time?
Ans: Well, let’s start with Andreu. It takes him 18 hours to pack 900 pizzas and 6 hours to pack 600 brats. Then,
Andreu would need 24 hours. It would take Jerry, in turn, 12 hours to pack 900 pizzas and 8 hours to pack 600
brats. Then, Jerry would need 20 hours. As a result, Jerry can do these things in less time.

(iv) Finally, the tougher question: You can hire either of them or both of them on an hourly basis. They make the same hourly
salary. Again, you want 900 pizzas and 600 brats to be packed. What would you do in this case?
Ans: Well, Andreu takes less time to pack brats and Jerry takes less time to pack brats. Then, you would hire
Andreu for 6 hours, so he packs 600 brats and Jerry for 12 hours, so he packs 900 pizzas. In total, you have to pay
for 18 hours of work.