When someone specializes and trades his ⦠Suppose Gilligan and Marianne are shipwrecked on... Walter has reached a crossroads in his life. b. stays the same. ANSWER: T TYPE: T SECTION: 2 10. Terms Then, each person agreed to specialize in the production of the good in which they have a comparative advantage and trade 3 pounds of meat for 6 pounds of potatoes. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of Political Economy and Taxation (1817). Answer. Let's assume that person A is far superior in every line of production and B is less superior. Since Tom's opportunity cost of coffee beans is 0.4 pounds of nuts and Susan's opportunity cost of coffee beans is 3 pounds of nuts, Tom has a comparative advantage in coffee production. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy a. falls and producers and consumer both lose. A modern economy displays a division of labor, in which people earn income by specializing in what they produce and then use that income to purchase the products they need or want. d. may fall, rise, or stay the same. falls. Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality. c. rises. c. rises and both consumers and producers gain. 20 tacos and 24 burritos and Dina gained 40 tacos and 6 burritos. b. stays the same. Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality. star outlined. 3. The Price of Trade For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs. Wheat - 4 bushels/hour. d. may fall, rise, or stay the same. (Hint: Calculate the opportunity cost of producing X and Y for each individual.) When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises This increase in the size of the economic pie can be used to make everyone better of Each person benefits from trade by obtaining a good at a price that is lower than his or her opportunity cost of that good Trade can benefit everyone in society because it allows people to specialize ⦠Given the following Ricardo-type table shows the... Use Barney's VRIO framework to analyze the... Absolute Advantage in Trade: Definition and Examples, What is Free Trade? (Hint: Calculate the opportunity cost of producing X and Y for each production of good Y, and individual.) Table 3.3 -Jimbo has a comparative advantage over Ned in producing a good if A) Jimbo can produce more of the good than Ned can in a given time period. Earn Transferable Credit & Get your Degree, Get access to this video and our entire Q&A library. A person who can produce a good at a lower cost than another person has a comparative advantage in the production of that good, and is the person who should produce it. (Hint: Calculate the opportunity cost of producing X and Y for each production of good Y, and individual.) Services, Comparative Advantage: Definition and Examples, Working Scholars® Bringing Tuition-Free College to the Community. Whatever the reason, if people specialize in the production of what they do best, they will be more productive than if they produce a combination of things, some of which they are good at and some of which they are not. ANSWER: F TYPE: T SECTION: 2 11. c. rises. d. may fall, rise, or stay the same. Specialization is a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy. When each person specializes in producing a good at. When each person specializes in producing the good for which he/she has comparative advantage, total production in the economy rises. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy a. falls. All other trademarks and copyrights are the property of their respective owners. Economics seeks to solve the problem of scarcity, which is when human wants for goods and services exceed the available supply. Consider the following table which shows how many hours it takes a country to produce one unit of each good: Our experts can answer your tough homework and study questions. Will a nation tend to export or import goods for which it has a comparative advantage. 3. The actual price of exchange cannot be determined by our theory since it would depend on each person's negotiating abilities. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises, and this increase in the size of the economic pie can be used to make everyone better off. c. Total output in an economy increases when each person specializes because Absolute advantage is found by comparing different producersâ a. opportunity costs. | Then, each person agreed to specialize in the production to the good in which they have a comparative advantage and trade 260 tacos for 156 burritos. Figure 1 ractorS rubas QN=2 (17723) When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy a. falls. All rights reserved. Comparative advantage is important for trade. 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