To produce 100 bushels of wheat Farmer A requires more input

To produce 100 bushels of wheat. Farmer A requires more inputs than does Fanner B. We can conclude that Farmer A has an absolute advantage over Fanner B in producing wheat. It is possible foe the U.S. to gain from trade with Germany even if it takes U.S. worker fewer hours to produce every good than it takes German workers. Trade does not allow a country to consume outside its production possibilities frontier. Henry can make a bird house in 3 hours and he can make a bird feeder in 1 hour. The opportunity cost to Henry of making a bird house is 3 bird feeders. Suppose that in one hour Dewey can produce cither 10 bushel* of com or 20 yards of cloth. Dewey\'s opportunity cost of producing one bushel of com is 1 /2 yard of cloth. If one producer has the absolute advantage in the production of all goods, then that same producer w ill have the comparative advantage in the production of all goods as well. Unless two people who are producing two goods have exactly the same opportunity costs, then one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good. When there are two people and each is capable of producing two goods, it is impossible for one person to have a comparative advantage over the other in both goods. The principle of comparative advantage states that, regardless of the pr.ee at which trade takes place, everyone will benefit from trade if they specialize in the production of the good for which they have a comparative advantage. Differences in opportunity cost allow for gains from trade. Trade allows a person to obtain goods al prices that are less than that person\'s opportunity cost because each person specializes in the activity for which he or she has the lower opportunity cost. For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs. International trade may make some individuals in a nation belter off. while other individuals are made worse off. International trade can make some individuals within a country worse off even as it makes the country as a whole better off. Trade allow s all countries to achieve greater prosperity.

Solution

(1) False.

B has absolute advantage, requiring less inputs.

(2) True

This is possible if Germany makes at least 1 good at a lower opportunity cost than US can. (Law of comparative advantage)

(3) False

Trade makes CPF lie outside PPF.

(4) False

Opportunity cost = 1/3 = 0.33 bird feeders

(5) False

Opportunity cost = 20/10 = 2

(6) False

A country cannot have comparative advantage in all goods.

(7) True

(8) True

If one person has comparative advantage at one good, the other person will have comparative advantage at the other good.

(9) False

Trade price must lie in between the two opportunity costs for trade to be beneficial.

(10) True

This difference determines which country has comparative advantage in which good.

(11) True

(12) True

(13) True

(14) True

(15) False

Trade barriers prevent this from taking place.