University of Illinois Department of Economics
Econ 103 – Fall 2014
Exercise 10
TA: Zheng Zhang
Suppose that Austria and Belgium have the labor hours requirements for producing
a unit of steel and a unit of broom shown in the table below.
Country\Hours
Austria
Steel
3 hours
Brooms
2 hours
Belgium
8 hours
1 hour
Therefore,
A. Belgium has a comparative advantage in brooms.
B. Austria has a comparative advantage in steel.
C. Austria has an absolute advantage in steel.
D. Belgium has an absolute advantage in brooms.
E. All of the above.
2 According to the theory of comparative advantage, ____________ should produce
steel and _____________ should produce brooms.
A Austria ; Austria
B Austria; Belgium
C Belgium ; Austria
D Belgium ; Belgium
3 According to the theory of comparative advantage, which of the following
international rate of exchange can NOT exist at the international market.
A 1 steel : 1 broom
B 1 steel : 3 broom
C 1 steel : 5 broom
D 1 steel : 7 broom
4 Now suppose both Austria and Belgium have 120 total labor hours and the
international rate of exchange is 1 steel to 4 brooms. Moreover, we know that both
countries specialize in producing one good and Austrians consume half of the good
it produces and trade the other half. Based on the above information, how many
brooms do Austrians consume?
University of Illinois Department of Economics
A
B
C
D
20 brooms
40 brooms
60 brooms
80 brooms
5 Now suppose all the assumptions in question 4 still hold except the international
rate of exchange now becomes 1 steel to 2 brooms. How many brooms do
Austrians consume now? Do Austrians get better off or worse off?
A
B
C
D
20 brooms; worse off
40 brooms; worse off
60 brooms; better off
80 brooms; better off
6. Suppose that Australia and Brazil have the OUTPUTS PER WORKER (not labor
hours per unit of goods) in producing sleds and clarinets shown in the table below
Country\Output per
Sleds
Clarinets
worker
Austria
300
2
Brazil
200
1
Then Brazil has a
A. Comparative advantage in sleds.
B. Comparative advantage in clarinets.
C. Absolute advantage in sleds.
D. Absolute advantage in clarinets.
E. None of the above.
7 According to the theory of comparative advantage, which of the following
international rate of exchange can NOT exist at the international market.
A 1 Clarinet: 120 Sleds
B 1 Clarinet : 150 Sleds
C 1 Clarinet: 180 Sleds
D 1 Clarinet : 200 Sleds
University of Illinois Department of Economics
8 The small island nation of Baconia is populated by two farmers, Alf and Barney.
Each farmer has 100 acres. The landcan be used either for growing wheat or as
pasture for beef cattle. Alf's land is better than Barney's land. Each acrethat Alf
plants to wheat will yield 50 bushels of wheat per year. Each acre that Alf devotes to
pasture will yield 70 pounds of beef per year. Each acre that Barney plants to wheat
will yield 25 bushels of wheat per year and each acre thatBarney devotes to pasture
will yield 30 pounds of beef per year.
A) Alf's farm has absolute advantage in the production of beef
and comparative advantage in the production of wheat.
B) Barney's farm has comparative advantage in the production
of beef.
C) Barney's farm has comparative advantage in the production
of wheat.
D) Alf's farm has comparative advantage in both beef and
wheat.
9 In a model with 2 countries that produce two goods, which of the following
statement about absolute advantage and comparative advantage is not true?
A) One country may have absolute advantage in producing both goods;
B) One country may have comparative advantage in producing both goods;
C) One country may have absolute advantage in producing one good;
D) One country may have comparative advantage in producing one good;
10 According to the theory of comparative advantage, countries gain from trade
because
A. Trade makes firms behave more competitively, reducing their market power.
B. All firms can take advantage of cheap labor.
C. Output per worker in each firm increases.
D. World output can rise when each country specializes in what its does relatively
best.
University of Illinois Department of Economics
Answer Key
1: E 2 B 3 A 4 D 5 B 6 A 7 A 8 C 9 B 10 D