Quebec is capable of producing 10 pallets of wood shingles or 8 barrels of maple syrup with a unit of labor. Vermont is capable of producing 12 pallets of wood shingles or 12 barrels of maple syrup with a unit of labor. Assume that this is typical of
the labor force as a whole. Which location has the absolute advantage and which has the comparative advantage, in the production of each good? Can these locations reap gains from trade?
From the numbers given, Vermont has the absolute advantage in both wood shingles and maple syrup. With regard to comparative advantage, the opportunity cost of 1 pallet of shingles in Quebec is 0.8 barrels of syrup, and in Vermont it is 1.0 barrel of syrup. Thus, Quebec has a comparative advantage in the production of shingles. The opportunity cost of a barrel of syrup in Quebec is 1.25 pallets of shingles, and in Vermont it is 1.0 pallet. Thus, Vermont has a comparative advantage in the production of syrup.
Both Quebec and Vermont can gain (i.e., increase consumption of shingles and syrup) if they specialize where they have a comparative advantage, and trade for the other good.
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The nominal interest rate ________
A) makes no allowance for inflation B) is a percentage of the amount borrowed C) is the rate that most banks advertise D) all of the above E) none of the above
Which of the following is the largest asset on a consolidated balance sheet for a commercial bank?
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