The principle of comparative advantage essentially states that
A) there are some goods for which the opportunity costs of production are the same regardless of who produces them.
B) some goods have high opportunity costs and low absolute costs.
C) specialization can reduce output rather than increase it.
D) total output of an economic system is greatest when each good is produced by those who have the lowest opportunity cost of producing the good.
D
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Suppose two countries make a credible commitment to fix their bilateral exchange rate. In such a situation, we know that
A) the uncovered interest parity condition no longer holds. B) the real exchange rate must be constant as well. C) each country can freely allow its interest rate to diverge from that of the other country. D) the interest rate in the two countries must be equal. E) neither country will run a trade deficit.
Refer to the information provided in Figure 28.4 below to answer the question(s) that follow.
Figure 28.4Refer to Figure 28.4. The demand for labor falls from D to D'. If firms enter into social, or implicit, contracts with workers not to cut wages, then the wage rate will remain at $10 and
A. employment will remain at 300 million. B. employment will fall to 150 million. C. employment will fall to 200 million. D. labor supply will decrease to restore the market to equilibrium.