Tom and Jerry Have Two Tasks to Do All Day

question 1

Multiple Choice

Tom and Jerry have two tasks to do all day: make dishes and build fences.If Tom spends all day making dishes,he will have make 16 dishes.If he instead devotes his day to building fences,Tom will build 4 fences.If Jerry spends his day making dishes,he will make 14 dishes; if he spends the day building fences,he will build 7 fences.Based on their production possibilities frontiers,Tom and Jerry:

• A) can both benefit from trade because absolute advantage exists.
• B) could both benefit from trade because comparative advantage exists.
• C) cannot benefit from trade because Tom has the absolute advantage in both goods.
• D) will not decide to trade because no comparative advantage exists.

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Definitions:

Post Hoc, Ergo Propter Hoc

A logical fallacy where it is assumed that if one event follows another, the first event caused the second.

Stability

A condition in which national output is growing steadily, with low inflation and full employment of resources.

Post Hoc, Ergo Propter Hoc

A logical fallacy that suggests a causal relationship because one event followed another in time, even though no causal connection exists.

Ceteris Paribus

A Latin phrase meaning "all other things being equal," used in economics to analyze the effect of one variable on another, holding all other factors constant.