Chapter 1 Globalization and the Multinational Firm Answers 4

83) The table below shows the bushels of wheat and the bottles of beer that North and South Dakota can produce per day of labor under two different hypothetical situations (Cases I and II). Wheat (bushels) Beer (bottles) Case I Case II South Dakota North Dakota South Dakota North Dakota 4 1 3 1 1 2 4 2 For case II, in what range must the "international" price of wheat fall? (i.e., if North and South Dakota trade only with each other, what is the possible range of prices?) A) Between 1 bushel of wheat = 4/3 bottles of beer and 1 bushel of wheat = 2 bottles of beer B) Between 1 bushel of wheat = 3/4 bottles of beer and 1 bushel of wheat = 2 bottles of beer C) Between 1 bushel of wheat = 3/4 bottles of beer and 1 bushel of wheat = ½ bottles of beer D) none of the options Answer: A Topic: Appendix: The Theory of Comparative Advantage 84) For case II, let the international price be 1 bottle = 1 bushel. Derive South Dakota's "trading possibilities curve." Wheat (bushels) Beer (bottles) A) Option A B) Option B C) Option C D) Option D A 3 4 South Dakota B C 3 4 3 4 Answer: C Topic: Appendix: The Theory of Comparative Advantage D 1 2 85) For case II, let the international price be 1 bottle = 1 bushel. Derive North Dakota's "trading possibilities curve." South Dakota B C 3 1 3 2 A 2 4 Wheat (bushels) Beer (bottles) A) Option A B) Option B C) Option C D) Option D D 2 2 Answer: D Topic: Appendix: The Theory of Comparative Advantage 86) The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade. Maximum beer production Northern Ireland Southern Ireland Maximum whiskey production Beer consumption without trade Beer consumption without trade 500 kegs 1500 kegs 300 kegs 600 bottles 1200 kegs 800 kegs 600 kegs 400 bottles What is the price of beer without trade in Southern Ireland? A) 2 bottles of whiskey = 3 kegs of beer B) 5 bottles of whiskey = 12 kegs of beer C) 1 bottle of whiskey = 1 kegs of beer D) none of the options Answer: A Explanation: It costs Southern Ireland 0.67 (1200/600) bottles of whiskey to produce one additional keg of beer. Set up a proportion and solve. 0.67/1 = x/3; x = 2. Topic: Appendix: The Theory of Comparative Advantage 87) The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade. Maximum beer production Northern Ireland Southern Ireland Maximum whiskey production Beer consumption without trade Beer consumption without trade 500 kegs 1500 kegs 300 kegs 600 bottles 1200 kegs 800 kegs 600 kegs 400 bottles What is the price of beer without trade in Northern Ireland? A) 2 bottles of whiskey = 3 kegs of beer B) 5 bottles of whiskey = 12 kegs of beer C) 2 bottles of whiskey = 1 keg of beer D) none of the options Answer: C Explanation: It costs Northern Ireland 2 (600/300) bottles of whiskey to produce one additional keg of beer. Topic: Appendix: The Theory of Comparative Advantage 88) The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade. Maximum beer production Northern Ireland Southern Ireland Maximum whiskey production Beer consumption without trade Beer consumption without trade 500 kegs 1500 kegs 300 kegs 600 bottles 1200 kegs 800 kegs 600 kegs 400 bottles In which product does Northern Ireland have a comparative advantage in producing? A) Beer B) Whiskey C) Neither D) Both Answer: B Explanation: It costs Northern Ireland 0.33 (500/1500) kegs of beer to produce one additional unit of whiskey. It costs Southern Ireland 1.5 (1200/800) kegs of beer to produce one bottle of whiskey. Because 0.33 < 1.5, Northern Ireland has the advantage in producing whiskey. Topic: Appendix: The Theory of Comparative Advantage 89) The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade. Maximum beer production Northern Ireland Southern Ireland Maximum whiskey production Beer consumption without trade Beer consumption without trade 500 kegs 1500 kegs 300 kegs 600 bottles 1200 kegs 800 kegs 600 kegs 400 bottles Suppose that trade occurs. Each country completely specializes and 500 kegs of beer are traded for 500 bottles of whiskey. What is the international price of beer? A) 1 bottle of whiskey = 1 keg of beer B) 3 bottles of whiskey = 1 keg of beer C) 2/3 bottle of whiskey = 1 keg of beer D) 1 bottle of whiskey = 3 kegs of beer Answer: A Topic: Appendix: The Theory of Comparative Advantage 90) The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade. Maximum beer production Northern Ireland Southern Ireland Maximum whiskey production Beer consumption without trade Beer consumption without trade 500 kegs 1500 kegs 300 kegs 600 bottles 1200 kegs 800 kegs 600 kegs 400 bottles What is the cost of Northern Ireland producing one additional bottle of whiskey? A) 0.33 kegs of beer B) 0.66 kegs of beer C) 1 kegs of beer D) 3 kegs of beer Answer: A Explanation: It costs Northern Ireland 0.33 (500/1500) kegs of beer to produce one additional unit of whiskey. Topic: Appendix: The Theory of Comparative Advantage 91) The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade. Maximum beer production Northern Ireland Southern Ireland Maximum whiskey production Beer consumption without trade Beer consumption without trade 500 kegs 1500 kegs 300 kegs 600 bottles 1200 kegs 800 kegs 600 kegs 400 bottles Is Northern Ireland better off when it trades with Southern Ireland? Answer: FALSE Topic: Appendix: The Theory of Comparative Advantage 92) The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade. Maximum beer production Northern Ireland Southern Ireland Maximum whiskey production Beer consumption without trade Beer consumption without trade 500 kegs 1500 kegs 300 kegs 600 bottles 1200 kegs 800 kegs 600 kegs 400 bottles What is the increased number of goods available in Northern Ireland after trade? A) 400 more bottles of whiskey and 200 more kegs of beer B) 1,000 more bottles of whiskey and 500 more kegs of beer C) 200 more bottles of whiskey and 400 more kegs of beer D) 300 more bottles of whiskey and 300 more kegs of beer Answer: A Explanation: Northern Ireland (prior to the trade) produces 1,500 bottles of whiskey. They then trade with Southern Ireland and give away 500 bottles of whiskey for 500 kegs of beer. This leaves them with 1,000 (1,500 – 500) bottles of whiskey and 500 kegs of beer. If they had not traded, they would have been unable to specialize, in which case they would have had 300 kegs of beer and 600 bottles of whiskey. They now have 400 (1,000 – 600) more bottles of whiskey and 200 (500 – 300) more kegs of beer. Topic: Appendix: The Theory of Comparative Advantage 93) Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day. Southern workers are paid €1 per day and Northern workers are paid £1 per day. What is the approximate exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey? A) €1.14 = £1 B) €0.80 = £1 C) €1 = £1 D) none of the options Answer: A Topic: Appendix: The Theory of Comparative Advantage 94) Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day. Southern workers are paid €1 per day and Northern workers are paid £1 per day. What is the approximate exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey? Now suppose that Southern workers receive a raise to €2 per day. Will trade be possible at the exchange rate you found? Answer: FALSE Topic: Appendix: The Theory of Comparative Advantage 95) Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day. Southern workers are paid €1 per day and Northern workers are paid £1 per day. What is the approximate exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey? Now suppose that Southern workers are paid €1 per day but the Northern workers receive a raise to £2 per day. Will trade be possible at the exchange rate you found? Answer: FALSE Topic: Appendix: The Theory of Comparative Advantage 96) Consider a dentist and a 14-year old boy. The dentist can make $100 per hour drilling teeth and the 14-year old boy can make $2 per hour picking up used aluminum cans. The dentist is a manly man and can mow his half-acre lot in one hour. The 14-year old boy can mow the lawn in two hours. If the dentist hires the boy to mow his lawn at any price less than $100, but more than $4 A) both he and the boy are better off. B) the dentist would be exploiting the boy. C) the boy would be exploiting the dentist. D) all of the options Answer: A Topic: Appendix: The Theory of Comparative Advantage Accessibility: Keyboard Navigation 97) Consider the no-trade input/output situation presented in the following table and graph for South and North Carolina. Assume that free trade is legal. Input/Output without Trade Country South Carolina North Carolina I. Total Potential Output (lbs. or yards; 000,000s) Guns Butter II. Consumption (lbs. or yards; 000,000s) Guns Butter 500 1,000 250 500 Total 250 750 750 1,750 200 150 450 650 Which state is better at making guns? A) South Carolina B) North Carolina C) The states are equally good at making guns. Answer: A Explanation: It costs South Carolina 2 (1,000/500) pounds of butter to produce one additional gun. It costs North Carolina 3 (750/250) pounds of butter to produce one additional gun, and therefore, because 3 > 2, South Carolina has the comparative advantage in making guns. Topic: Appendix: The Theory of Comparative Advantage 98) Consider the no-trade input/output situation presented in the following table and graph for South and North Carolina. Assume that free trade is legal. Input/Output without Trade Country South Carolina North Carolina I. Total Potential Output (lbs. or yards; 000,000s) Guns Butter II. Consumption (lbs. or yards; 000,000s) Guns Butter 500 1,000 250 500 Total 250 750 750 1,750 200 150 How much does it cost for North Carolina to produce one gun? A) 3 pounds of butter B) .33 pounds of butter C) 1.33 pounds of butter D) none of the options Answer: A Explanation: It costs NC 3 (750/250) pounds of butter to produce one gun. Topic: Appendix: The Theory of Comparative Advantage 450 650 99) Consider the no-trade input/output situation presented in the following table and graph for South and North Carolina. Assume that free trade is legal. Input/Output without Trade Country South Carolina North Carolina I. Total Potential Output (lbs. or yards; 000,000s) Guns Butter II. Consumption (lbs. or yards; 000,000s) Guns Butter 500 1,000 250 500 Total 250 750 750 1,750 200 150 450 650 What is the relative price of a gun in terms of butter in South Carolina? A) 1 gun costs 3 pounds of butter. B) 3 guns cost 1 pounds of butter. C) 1 gun costs 2 pounds of butter. D) 2 guns cost 1 pounds of butter. Answer: C Explanation: It costs 2 (1,000/500) pounds of butter to produce one gun in South Carolina. Topic: Appendix: The Theory of Comparative Advantage 100) Consider the no-trade input/output situation presented in the following table and graph for South and North Carolina. Assume that free trade is legal. Input/Output without Trade Country South Carolina North Carolina I. Total Potential Output (lbs. or yards; 000,000s) Guns Butter II. Consumption (lbs. or yards; 000,000s) Guns Butter 500 1,000 250 500 Total 250 750 750 1,750 200 150 450 650 What is the relative price of a pound of butter in terms of guns in North Carolina? A) 1 pound of butter costs 0.33 guns. B) 1 gun costs 0.33 pounds of butter. C) 1 pound of butter costs 0.66 guns. D) 2 guns costs 0.66 pounds of butter. Answer: A Explanation: In North Carolina, it costs 0.33 (250/750) guns to produce one pound of butter. Topic: Appendix: The Theory of Comparative Advantage