Making a Pound of Wool Takes 5 Hours in Scotland

question 259

Multiple Choice

Making a pound of wool takes 5 hours in Scotland and 2 hours in Iceland. Making a cord of firewood takes 5 hours in Scotland and 8 hours in Iceland. Suppose that labor is only productive resource needed in these industries, and is fully employed in both nations. Under these conditions, if Iceland produces 4 extra pounds of wool, but Scotland produces 2 fewer pounds of wool, there is a net

• A)gain of 2 cords of firewood in the world.
• B)gain of 1 cord of firewood in the world.
• C)loss of 2 cords of firewood in the world.
• D)loss of 1 cord of firewood in the world.

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Definitions:

Additional Income

Extra earnings obtained beyond the regular sources of income or revenue.

Proportional Tax

A tax whose burden is the same proportion of income for all households.

Regressive Tax

A tax whose burden, expressed as a percentage of income, falls as income increases.

Proportional Tax

A tax system where the rate remains constant regardless of the amount on which the tax is imposed.