Two countries, Blue Violet and Orange Rose, produce only two goods: teapots and coffeepots. The table above gives their production possibilities. ________ has a comparative advantage in teapots and ________ has a comparative advantage in coffeepots
A) Orange Rose; Blue Violet
B) Blue Violet; Orange Rose
C) Blue Violet; Blue Violet
D) Orange Rose; Orange Rose
B
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Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because
A) some individuals in both countries may be made worse off because of trade. B) trade restrictions are likely to be imposed as trade grows over time. C) they do not account for the reduction in wages that occurs in both countries as a result of trade. D) in the real world, rich countries can take advantage of poor countries.
What does it mean to say there is a separation of ownership from control in large corporations?
What will be an ideal response?
Figure 13-4
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The above matrix (Figure 13-4) displays the possible profit results of two firms, A and B, from following two different possible strategies: charging a high price and charging a low price. In each cell, the first number is the profit of firm A, and the second number is the profit of firm B.
a. Assume that collusion is not possible. Determine the optimal strategy for each firm. Explain why it is the best strategy to follow.
b. Based on your answer to a., explain why firms collude. What are the pitfalls of collusion?
What will be an ideal response?
Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that raise their saving rates to the same higher level. We would expect that
a. both countries would have permanent increases in their growth rates, but the increase would initially be larger in Fretonia. b. both countries would have permanent increases in their growth rates, but the increase would initially be smaller in Fretonia. c. both countries would have temporary increases in their growth rates, but the increase would be larger in Fretonia. d. both countries would have temporary increases in their growth rates, but the increase would be smaller in Fretonia.