Table 3-31 ​

question 354

Multiple Choice

Table 3-31
​
-Refer to Table 3-31. Relative to the rancher, the farmer has

• A)a comparative advantage in the production of meat, because the farmer's opportunity cost of a pound of meat is lower than the rancher's opportunity cost of a pound of meat.
• B)a comparative advantage in the production of potatoes, because the rancher requires less time than the farmer to produce a pound of potatoes.
• C)a comparative advantage in the production of potatoes; relative to the farmer, the rancher has a comparative advantage in the production of meat.
• D)an absolute advantage in the production of both meat and potatoes.

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Definitions:

Spot Rate

The current market price at which a particular asset, such as a currency, commodity, or security, can be bought or sold for immediate delivery.

Relative Purchasing Power Parity

Relative Purchasing Power Parity (RPPP) is an economic theory which postulates that the rate at which the exchange rate between two currencies will change over time is equivalent to the rate at which their purchasing power converges, essentially due to inflation rates differences.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power over time.

Long-Run Exchange Rate Risk

The potential for financial loss over time due to fluctuations in foreign exchange rates affecting international investments and transactions.