Assume That by Devoting All of Its Resources to the Production

question 153

Multiple Choice

Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that

• A)the terms of trade will be 3X equals 1Y.
• B)Alpha should specialize in Y and Beta in X.
• C)Alpha should specialize in X and Beta in Y.
• D)there is no basis for mutually beneficial specialization and trade.

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Definitions:

Straight-Line Method

A method of calculating the depreciation of an asset, which evenly spreads the cost of the asset over its useful life.

Residual Value

The estimated salvage value of an asset at the end of its useful life.

Double-Declining-Balance

A method of accelerated depreciation where an asset's book value is decreased at double the rate of its straight-line depreciation.

Residual Value

It's the estimated value that an asset will realize upon its sale at the end of its useful life, after depreciation has been taken into account.