Homework answers / question archive / DeVry University, Chicago ECON ECON312 chapter 6 1)“The best indicator of the importance of a nation’s world trade is the ratio of its exports plus imports to the size of its domestic output

DeVry University, Chicago ECON ECON312 chapter 6 1)“The best indicator of the importance of a nation’s world trade is the ratio of its exports plus imports to the size of its domestic output

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3.  Explain the principle of comparative advantage in nontechnical terms.

 

 

 

4. The countries of Macrostan and Micrastan have the production possibilities tables for sheep and hogs shown in the tables below. Without trade Macro would produce at Alternative D and Micra would also produce Alternative D. Note that the costs of producing sheep and hogs are constant in both countries.

 

Macrostan’s Production Possibilities Table Product                                Alternative

   (lbs)      A     B     C              D             E              F

Sheep 25	20   15   10      5	0
Hogs      0	5 10   15   20	25

 

Micrastan’s Production Possibilities Table Product                                Alternative

    (lbs)     A     B     C              D             E              F

Sheep 20	16 12   8	4	0
Hogs      0	3      6 9	12	15

 

• • In Macro, the cost of producing:

5 units of sheep is           hog units. 1 unit of sheep is                             hog units.

• • In Micra, the cost of producing:

4 units of sheep is           hog units. 1 unit of sheep is                             hog units.

• • Which country has the comparative advantage in sheep production and which country has the comparative advantage in hog production?
  • If each nation specializes in the product where it has a comparative advantage and trades with the other, what will be the limits to the terms of trade for each sheep unit?
  • If the nations do not specialize and trade but remain at alternative D in Macrostan and D in Micrastan, the combined production of Macro and Micrastan will be how many sheep and how many hogs?
  • However, if the two nations specialize, the combined production of Macro and Micrastan will be how many sheep and how many hogs?
  • What will be the total gain of sheep and hogs if the countries specialize and trade?

 

 

 

 

5.  What are the economic effects of a depreciation of the dollar on foreign exchange markets?

 

 

6.  Why do governments often intervene in international trade to restrict imports and expand exports?

 

 

7. What is NAFTA? What have critics and defenders said about it?