The diagram below shows the production possibilities frontier (PPF) for a country that produces guns (G) and butter (B). Most people in the country prefer guns, so in the absence of international trade, point A represents the combination of G and B that maximizes welfare. The slope of the PPF at point A is equal to -2. 
Over the long run, do you think this country would be better off by shifting its production towards guns or butter? Please identify the most efficient production point in the PPF with trade. What would be the ratio of the prices at that point?
What will be an ideal response?
Yes. The most efficient point is where the slopes of the World Price ratio and the PPF are equal. Because the World Price for butter is three times the price of guns, the country should shift production to butter until the cost of butter is three times the cost of guns rather than just 2 times. That would mean moving up the production possibilities frontier until its slope is equal to the world price line at 1/3.
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Use the following production possibilities tables to answer the next question. Numbers for autos and chemicals are in millions.Germany's Production Possibilities ABCDEFAutos048121620Chemicals4032241680United States' Production Possibilities ABCDEFAutos03691215Chemicals60483624120If Germany and the United States engage in trade, the mutually beneficial terms of trade will be between
A. 2 and 4 units of autos for 1 unit of chemicals. B. 3 and 4 units of autos for 1 unit of chemicals. C. 2 and 4 units of chemicals for 1 unit of autos. D. 0.33 and 0.5 units of autos for 1 unit of chemicals.
If you are willing to pay no more than $4 for a slice of pizza and the price of a slice of pizza is $4, then
A) if you buy it, you would be cheated because you would realize no total benefit from the purchase. B) you buy it but you get no marginal benefit from the purchase. C) you will not buy it. D) you buy it but you get no consumer surplus from the purchase. E) you might buy it depending on how the slice's marginal benefit compares to its price.
Prices, on average, increased in the food market; the demand for food had simply grown faster than supply from the end of the Civil War in 1865 to the beginning of World War I in 1913
Indicate whether the statement is true or false
If pretzels are a normal good, the income effect of a price change means that
a. as income increases, the quantity demanded increases along the demand curve for pretzels b. as income increases, the demand curve for pretzels shifts rightward c. as income increases, the demand curve for pretzels shifts leftward d. as the price of pretzels increases, the real income of individuals who demand pretzels decreases, so the quantity demanded of pretzels decreases e. as the price of pretzels increases, income increases