Refer to Figure 4-16. Suppose the market is initially in ...

[Collmarie]

Refer to Figure 4-16. Suppose the market is initially in equilibrium at price P1 and now the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax? For demand curve D1
 
  A) the producer's share of the tax burden is the same whether the supply curve is S1 or S2.
  B) the producer bears a greater share of the tax burden if the supply curve is S2.
  C) the producer bears a greater share of the tax burden if the supply curve is S1.
  D) the producer bears the entire burden of the tax if the supply curve is S1 and the consumer bears the entire burden of the tax if the supply curve is S2.

Question 2

Refer to Table 2-31. This table shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland.
 
  a. Which country has an absolute advantage in the production of cell phones?
  b. Which country has an absolute advantage in the production of lumber?
  c. What is Estonia's opportunity cost of producing one cell phone?
  d. What is Finland's opportunity cost of producing one cell phone?
  e. What is Estonia's opportunity cost of producing one board foot of lumber?
  f. What is Finland's opportunity cost of producing one board foot of lumber?
  g. If each country specializes in the production of the product in which it has a comparative advantage, who should produce cell phones?
  h. If each country specializes in the production of the product in which it has a comparative advantage, who should produce lumber?

[efwsefaw]

Answer to Question 1

B

Answer to Question 2

a. Finland has an absolute advantage in the production of cell phones.
b. Finland has an absolute advantage in lumber production.
c. Estonia's opportunity cost of producing one cell phone is 4 board feet of lumber.
d. Finland's opportunity cost of producing one cell phone is 4.5 board feet of lumber
e. Estonia's opportunity cost of one board foot of lumber is 0.25 units of a cell phone.
f. Finland's opportunity cost of one board foot of lumber is 0.22 units of a cell phone.
g. Estonia should specialize in producing cell phones.
h. Finland should specialize in producing lumber.