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?
What will be an ideal response?
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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A. less output requires less inputs to be hired. B. prices tend to adjust more quickly downward than upward. C. wages are sticky downward. D. input prices increase with output prices.
Why is a monopoly inefficient?
What will be an ideal response?
In the long run in a monopolistically competitive market, a firm will, in theory,
A) earn economic profits. B) suffer losses. C) break even. D) earn zero accounting profits.
For the economy to be in equilibrium, the following condition must be satisfied: G + I = S + T.
Answer the following statement true (T) or false (F)