Macro Econ Ch.9 HW solutions PDF

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Questions and answers to Chapter 9 homework...

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Quizlet 1 Note: Lazytown is always cars for an answer, and Lazyiwannabe is always meals. I got a perfect score guessing those so that’s a safe bet. Refer to the “Quizlet 1” link above if you have any questions. Good luck. Comparative Advantage: The ability to be better suited to the production of one good than to the production of another good.

Why does competition among traders affect how much of the gains from trade is given to the countries involved in the trade? ● Traders will compete with one another, giving countries greater and greater amounts of the gains from trade to gain their business.

b. Which country has the comparative advantage in producing cars? In producing gourmet meals?

Producing cars:

Busytown

Producing gourmet meals:

Lazyiwannabe

C. Busytown will produce 60,000 cars, while Lazyasiwannabe will produce 50,000. Busytown can then trade (24,000 cars for 22,000 meals? That’s my guess).

Will a country do better importing or exporting a good for which it has a comparative advantage? ● A country will do better exporting a good for which it has a comparative advantage.

How does the outsourcing of manufacturing production benefit production in the United States? ● Outsourcing hurts some U.S. workers, but since it improves global income, it can lead to additional demand for goods produced in the United States.

Select three sources of comparative advantage that the United States has and will likely maintain over the coming decade. ● Skill of the U.S. Labor force ● U.S. Governmental institutions ● U.S. Physical and technological infrastructure

Domestic production is ● Indicated at point A and net imports are ● The difference between point B and point A.

a. Would the United States want to raise or lower the world supply of the good? Why? ● The United States would want to raise the world supply to the point where the world supply would equal the domestic demand and supply at the domestic equilibrium price; imports would be exactly offset by exports. B. How might that happen? ● An increase in the domestic economy’s exchange rates relative to a decrease in wages or improvements in comparative advantage can eliminate the trade deficit and raise the world supply.

a. Country A can produce, at most, 40 olives or 20 pickles, or some combination of olives and pickles such as the 20 olives and 10 pickles it is currently producing. Country B can produce, at most, 120 olives or 60 pickles, or some combination of olives and pickles such as the 100 olives and 50 pickles it is currently producing. ● No, there is no basis for trade since neither has a comparative advantage. B. How would your answer change if you knew that the per-unit cost of producing pickles and olives falls as more of each is produced? Which country would you have produce which good? ● It definitely pays for both countries to specialize since doing so would lower total costs. Which one should specialize is an open question since neither has a comparative advantage.

How has globalization made the rich richer and poor poorer in the United States? ● Globalization led to outsourcing of low income manufacturing jobs while increasing demand for high income financial jobs.

How do inherent comparative advantages differ from transferable comparative advantages? ● Inherent comparative advantages are those that are based on factors that are relatively unchangeable, while transferable comparative advantages are those based on factors that can

change relatively easily....