Answers to Midterm 1

Fall 2000

True/False Questions

1.  F
2.  F
3.  F
4.  F
5.  F

Multiple Choice Questions

6.  C
7.  E
8.  E
9.  C
10.  D
11.  D
12.  C
13.  A
14.  E
15.  E
16.  B
17.  A

Answer to Problem

A.  OC of 1 pair of shoes is 4 pair of shoelaces in United States
OC of 1 pair of shoelaces is 1/4 pair of shoes in United States
OC of 1 pair of shoes is 1/4 pair of shoelaces in Japan
OC of 1 pair of shoelaces is 4 pairs of shoes in Japan

B.  Japan has absolute advantage in producing shoes
United States has absolute advantage in producing shoelaces
United States has comparative advantage in producing shoelaces
Japan has comparative advantage in producing shoes

C.  United States will produce 20 pairs of shoelaces and 20 pairs of shoes
Japan will produce 20 pairs of shoelaces and 20 pairs of shoes

D.  If they specialize and trade, the United States could increase production of shoelaces and Japan could increase production of shoes and total production would increase.
 
 
Initial Production Shoes Shoelaces
United States 20 20
Japan 20 20
Total  40 40
With Specialization and Trade
United States 19 24
Japan 21 19.75
Total 40 43.75