Assume That Chile Can Produce One Pound of Coffee or 40

question 45

Multiple Choice

Assume that Chile can produce one pound of coffee or 40 pillows in an hour,and that the United States can produce one pound of coffee or 20 pillows in an hour,

• A)the terms of trade should be between 20 and 40 pillows per pound of coffee,and the United States should produce both coffee and pillows
• B)the terms of trade should be between 20 and 40 pillows per pound of coffee,and Chile should produce pillows
• C)the terms of trade should be between 20 and 40 pillows per pound of coffee,and Chile should produce coffee
• D)the terms of trade should exceed 40 pillows per pound of coffee,and Chile should produce coffee
• E)no trade will occur,since the United States does not have an absolute advantage in producing either good

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Definitions:

FICA Tax

The Federal Insurance Contributions Act (FICA) tax is a payroll tax in the United States that is required from both employers and employees to support Social Security and Medicare programs.

Federal Income Tax

A tax levied by the federal government on an individual's or corporation's annual income.

Withholding Allowance

A provision allowing employees to reduce the amount of income tax withheld from their paycheck, based on their personal allowances and deductions.

Gross Earnings

Total income earned by an individual or entity before any deductions or taxes.