Scenario 20.2 Suppose Labor Productivity Differences Are the Only Determinants of Comparative

question 25

Multiple Choice

Scenario 20.2
Suppose labor productivity differences are the only determinants of comparative advantage, and both Egypt and Ghana produce only corn and cocoa. In Egypt, 10 bushels of corn or 15 pounds of cocoa can be produced in a day. In Ghana, one day of labor can be used to produce either 2 bushels of corn or 8 pounds of cocoa.
-What is known as the Dutch disease?

• A)The problem that arises when a government cannot meet its foreign debts
• B)The phenomenon of a boom in one industry causing declines in the rest of the economy
• C)A sudden and unexpected devaluation of a currency as a consequence of policy controls
• D)The problem that arises when high imports force an economy to borrow from external sources
• E)A deficit in the balance of payments of the economy that arises due to a sudden appreciation of the domestic currency

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Definitions:

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, resulting in cost per unit of output decreasing with increasing scale.

3-D Printers

Technology that creates three-dimensional objects from digital models by layering materials.

Explicit Costs

The direct payment costs to others in the course of running a business or undertaking an economic transaction.

Implicit Costs

Costs that represent forgone opportunities, often not directly outlaid but incurred when resources are used for one purpose over another.