ECON 1B03 Lecture Notes - Lecture 5: Comparative Advantage, Absolute Advantage, Opportunity Cost

65 views1 pages

blackherring683

14 Jan 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Shanghaibalcony1234 and 37744 others unlocked

ECON 1B03 Full Course Notes

Verified Note

46 documents

Document Summary

Production possibilities and trade suppose there are 2 people trapped on an island - tony the tailor and denny the diner owner only two goods are produced: food and clothes, and each person can produce both goods. Tony can produce 28 clothes and 14 food items. Denny can produce 30 clothes and 120 food items what they produce is what they consume - so the ppf is also the consumption possibilities frontier (cpf) 1 food = 2 clothes so opportunity cost of a food = 2, and 1/2 for clothes (because inverse) 1 food = 1/4 clothes so opportunity cost of food =1/4 and clothes = 4. Tony has a lower opportunity cost of producing clothes (1/2 compared to 4 food for denny) thus, tony has a comparative advantage in clothes. Tony should then specialize in the production of clothes and trade clothes for food.

Related Questions

Problem 1

Below is a production possibilities table for consumer goods (food) and capital goods (machinery). Graph the data using Excel and then answer the following questions.

	A	B	C	D	E	F
FOOD	0	10	20	30	40	50
MACHINES	150	140	120	90	50	0

(a) What are the specific assumptions that underlie the production possibilities curve?

(b) What would be the cost of more food if the economy is at point C? What would be the cost of producing more machinery? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs?

(c) What if this hypothetical economy were producing only 9 food and 130 machines and it was depicted by this production possibilities table and curve? What conclusions could be drawn about this economy's resource utilization?

(d)Can this economy produce outside its current production possibilities? How can technological changes affect the production possibilities curve? How can international trade permit consumption above its production possibilities curve?

byzantiumcrocodile871

Problem
#1 ( Budget Lines) :
Suppose that Russ has budgeted $20 a month to buy candy bars, music downloads, or
some combination of each. If Russ buys only candy bars he can obtain 40 bars a month; if
he buys only downloads, he can buy 20 a month.
1. What is the price of a candy bar?
2. What is the price of a music download?
3. What is the opportunity cost of a music download?
4. What is the opportunity cost of a candy bar?
5. Would the opportunity cost of each good change if Russ decided to increase his
monthly budget to $30 for the two items?
Problem #2 ( Production Possibilities ):
Suppose that a nation's production possibilities can be represented by the table below:
Production Alternatives

	Product Alternatives
Products	A	B	C	D	E
Food	0	4	8	12	16
Clothing	20	18	14	8	0

Products A B C D E
Food 0 4 8 12 16
Clothing 20 18 14 8 0
1. What is the maximum amount of food this economy can produce? How much clothing
can it produce at this point?
2. If the economy is producing at alternative C, what is the cost of one more unit of
food?
3. If the economy is producing at alternative C, what is the cost of one more unit of
clothing?
4. Is this economy subject to the law of increasing opportunity costs? How can you tell?
5. Suppose the economy is currently producing 4 units of food and 16 units of clothing.
Is this economy producing efficiently?

ceriseguinea-pig206

1. The law of comparative advantage says that:

A. whoever has an absolute advantage in producing a good also has a comparative advantage in producing that good.

B. whoever has a comparative advantage in producing a good also has an absolute advantage in producing that good

C. the individual with the lowest opportunity cost of producing a particular good should produce it

D. comparative advantage exists only when one person has an absolute advantage in the production of two goods

2. A country has an absolute advantage in the production of a good if that country:

A. can produce good using fewer resources than another country would require

B. has the lowest opportunity cost of producing the good, regardless of whether it is produced with the fewest resources

C. has the greatest opportunity cost of producing the good, regardless of whether it is produced with the fewest resources

D. has the lowest opportunity cost of producing the good and can produce it with the fewest resources

3. A production possibilities frontier can shift outward for all of the following reasons except:

A. a larger workforce

B. a decrease in the size of the labor force

C. an increase in the skills of the labor force

D. an improvement in technology

byzantiumshark504

ECON 1B03 Lecture Notes - Lecture 5: Comparative Advantage, Absolute Advantage, Opportunity Cost

ECON 1B03 Full Course Notes

Document Summary

Get access

Related Documents

ECON 1B03 Lecture Notes - Lecture 2: Autarky, Opportunity Cost, Comparative Advantage

ECON 1B03 Lecture Notes - Lecture 2: Opportunity Cost, Productive Efficiency, Absolute Advantage

ECON 1B03 Chapter Notes - Chapter 2: Absolute Advantage, Comparative Advantage, Opportunity Cost

Related Questions