Would a country with an absolute advantage in the production of all goods and services trade with other countries? Explain
What will be an ideal response?
Yes. Trade is based on comparative advantage, not absolute advantage. While it is possible for a country to have an absolute advantage in all goods, it can only have a comparative advantage in one (based on a two good model). When nations specialize in what they have a comparative advantage and then trade with other nations, their production possibilities curves move outward, which yields greater production and consumption possibilities.
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Refer to the figure above. What is the equilibrium quantity of labor hired by the firm when the wage rate is $4 per hour?
A) 10 hours B) 20 hours C) 50 hours D) 70 hours
Although the pegged exchange rate between the yuan and the dollar has ________ the yuan, China had been reluctant to abandon the peg for fear that abandoning the peg would ________
A) overvalued; reduce exports B) undervalued; reduce imports C) overvalued; increase imports D) undervalued; reduce exports