Suppose that a worker in Radioland can produce either 4 radios or 1 television per year and a worker in Teeveeland can produce either 2 radios or 5 televisions per year. Each nation has 100 workers, and each country specializes according to the principle of comparative advantage. If Radioland trades 100 televisions to Teeveeland in exchange for 100 radios each year, then each country's maximum
consumption of new radios and televisions per year will be
a. higher than it would be in the absence of trade because of the gains from trade.
b. the same as it would be in the absence of trade.
c. less than it would be in the absence of trade because neither country is specializing in the product in which it has a comparative advantage.
d. less than it would be in the absence of trade because Teeveeland has an absolute advantage in both goods and so it cannot benefit by trading with Radioland.
c
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The rationing function of prices refers to
A) the situation when government must intervene in a market when there is a large shortage or surplus. B) the synchronization of decisions by buyers and sellers that leads to an equilibrium. C) the synchronization of decisions by buyers and sellers through the direction of government agencies. D) the situation when only the rich get the goods they want.
For this question, assume expectations of P and A are correct. Now suppose that there is a 3% reduction in A. Given this information, which of the following will occur?
A) The PS relation will shift up by 2%. B) The WS relation will shift down by less than 2%. C) The WS relation will shift down by 2%. D) There will be no change in the real wage.