Question

QUESTION 16

1. ​ Assume that one day's labor in England can produce either 20 units of cloth or 2 units of wine, while in Portugal, one day's labor can produce either 24 units of cloth or 12 units of wine. If England transfers 2 units of labor from wine to cloth and Portugal transfers 1 unit of labor from cloth to wine, the increase in combined output by those two workers will be

   	a.	​ 8 wine, 16 cloth
   	b.	​ 16 wine, 8 cloth
   	c.	​ 12 wine, 12 cloth
   	d.	​ 16 wine, 16 cloth

QUESTION 19

1. ​ Comparative advantage occurs when a person or a country can produce a good or service at a lower ____ than others.

   	a.	​ total cost
   	b.	​ variable cost
   	c.	​ opportunity cost
   	d.	​ fixed cost

QUESTION 20

1. ​ Import quotas contribute to higher prices of products imported into the U.S., but tariffs do not.

   True

   False

QUESTION 21

1. Tariffs contribute to higher prices of textile products imported into the United States, but import quotas on textiles brought into the United States do not.

   True

   False

QUESTION 22

1. ​ Trade occurs when a country has an absolute advantage and not just a comparative advantage over another country.

   True

   False

Answer 1

16. When two units of labour are shifted in England from wine to cloth, then 40 units of cloth would be produced more and 4 units of wine would be produced less because per unit of labour produces 20 units of cloth and 2 units of wine. Similarly, in Portugal, one unit shift of labour reduces production of cloth by 24 units and increases the production of wine by 12 units.

The resultant is: +40 units of cloth & -4 units of wine.

-24 units of cloth & + 12 units of wine

= 16 units of cloth & 8 units of wine.

Option A is correct.

19. Option C is correct.

Opportunity cost is the cost of the next best alternative. Comparative advantage occurs when the O.C of producing a good or a service is lower than the alternatives.

20. False.

Tariffs too contribute to higher prices of imports. Tariffs are the taxes that are levied on the imported goods and services. This increases the price.

21. False.

Both result into higher prices of textile as both increases the price of goods and services.

22. False.

Trade occurs when a country has an comparative advantage and not just absolute advantage. Comparative advantage means producing goods and services at lower opportunity cost.