Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?
A. Cathy has a comparative and absolute advantage in pies.
B. Cathy has a comparative advantage in pies, and Lewis has an absolute advantage in pies.
C. Lewis has a comparative and absolute advantage in pies.
D. Lewis has a comparative advantage in pies, and Cathy has an absolute advantage in pies.
Answer: D
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Suppose only 7 percent of Turkey's products go to the United States. Hence, an increase in U.S. imports from Turkey:
a. would have no significant effect on Turkey's domestic income. b. would significantly increase Turkey's domestic income. c. would significantly decrease Turkey's domestic income. d. would significantly increase U.S. domestic income. e. would significantly decrease U.S. domestic income.
A tit-for-tat strategy is one in which oligopolies
A) cooperate as long as other members cooperate, but if anyone cheats, they cut the price until the cheater reverts to cooperation. B) cooperate almost all of the time, but occasionally do not cooperate in order to fool the antitrust authorities. C) keep cutting prices to punish rivals until the competitive price is reached. D) try to avoid the problems of the prisoners' dilemma, but actually make themselves worse off.