Fourth: International Trade Use the following information to answer questions 21

Question

Fourth: International Trade Use the following information to answer questions 21 - 23 The accompanying hypothetical production possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. New Zealand Production Possibilities Table (Millions of Bushels) Production Alternatives Product 20 10 15 Spain's Production Possibilities Table (Millions of Bushels) Alternativers Product 20 6o 20 21. What is each country's cost ratio of producing plums and apples? A. New Zealand: cost of producing I apple is 0.25 plums; Spain: cost of producing I apple is I plum B. New Zealand: cost of producing 1 apple is 0.50 plums: Spain: cost of producing 1 apple is 0.75 C. New Zealand: cost of producing 1 apple is 0.75 plums; Spain: cost of producing 1 apple is 0.25 plun D. New Zealand: cost 22. Which nation should specialize in which product? A. New Zealand should produce apples and Spain should produce plums. B. New Zealand should produce plums and Spain should produce apples. C. New Zealand should produce both apples and plums. D. Spain should produce both apples and plums. 23. Suppose the optimum product mixes before specialization and trade were altermative B in New Zealand and alternative S in Spain. What would be the gains FOR EACH GOOD (NOT FOR EACH COUNTRY) from specialization and trade? A. Total Gain Apples-20. Total Gain Plums: 20 B. Total Gain Apples = 10: Total Gain Plums 10 C. Total Gain Apples = 10: Total Gain Plums = 20 D. Total Gain Apples 20: Total Gain Plums = 10

Explanation / Answer

Question N0.21

New Zealand Produce Possibilities

Apple =0+20+40+60

=120

Plums = 15+10+5+0

=30

1 apple =30/120 Plums

1 apple = 0.25 Plums

Spain Produce Possibilities

Apple = 0+20+40+60

=120

Plums =60+40+20+0

=120

1 apple = 1 plums

So, Option A is Correct : New Zealand produce 1 apple is 0.25 plums:Spain Cost of Producing 1 apple is 1 plums

Question No.22

Option D is Correct : Spain Should Produce both apple and Plums(i.e 1:1 on Spain but Newzealand 1:0.25)

Question No.23

New Zealand Produce 0.25 plums = 1 apple

Product B Plums 10 Produced = 40 apple (10/0.25)

Spain Should Produce 1 apple = 1 plums

Produce S apple 20 = 20 plums

Total Gain apple = 40-20

=20

Total Gain Plums =20-10

=10

Option D is Correct

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