ECN 104 Lecture Notes - Comparative Advantage, Absolute Advantage, Opportunity Cost

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fuchsiamuskrat773

20 Oct 2012

School

Ryerson University

Department

Economics

Course

ECN 104

Professor

Tsogbadral Galaabaatar

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Document Summary

Interdependence everyday you rely on many people from around the world, most of whom you"ve never met, to provide you with the goods and services you enjoy. One of the ten principles from chapter 1: We now learn why people and nations choose to be interdependent, and how they can gain from trade. We will look at how much of both goods each country produces and consumes. If the country chooses to be self sufficient. Canada has 50,000 hours of labour available for production, per month. Producing one computer requires 100 hours of labour. Producing one ton of wheat requires 10 hours of labour. Goods produced domestically and sold abroad to export means to sell domestically produced goods abroad. Goods produced abroad and sold domestically to import means to purchase goods produced in other countries. The ability to produce a good using fewer inputs than another producer.

Related Questions

42. In Canada, the production of 1 unit of food (F) requires 1/8 of a unit of labour and the production of 1 unit of shelter (S) requires 1/6 of a unit of labour. In Morocco, the production of 1 unit of food (F) requires 1/4 of a unit of labour and the production of 1 unit of shelter (S) requires 1/2 of a unit of labour. Canada has 30 units of labour and Morocco has 60 units of labour. In the absence of trade, Canada produces and consumes 120 units of food and 90 units of shelter, and Morocco produces and consumes 120 units of food and 60 units of shelter. These two products and these two countries are the only ones in the world. When trade is opened up, the two countries trade food for shelter at a 3-to-2 ratio, and 120 units of food and 80 units of shelter are exchanged. On the diagrams provided, draw and clearly label the production possibilities curve for each country. Indicate where each country starts out before trade occurs (with a Co for Canada and a Mo for Morocco). Indicate the point at which each country produces (using a Cp for Canada and a Mp for Morocco) and consumes (using a C* for Canada and a M* for Morocco), and show the trading line (the consumption possibilities curve) for each country. Label your diagram as completely as possible. Below the diagram, describe in 10 words or less how we know that both countries are made better off by trade. (10 marks)

42. In Canada, the production of 1 unit of food (F) requires 1/6 of a unit of labour and the production of 1 unit of shelter (S) requires 1/8 of a unit of labour. In Morocco, the production of 1 unit of food (F) requires 1/4 of a unit of labour and the production of 1 unit of shelter (S) requires 1/2 of a unit of labour. Canada has 60 units of labour and Morocco has 60 units of labour. In the absence of trade, Canada produces and consumes 135 units of food and 300 units of shelter, and Morocco produces and consumes 80 units of food and 80 units of shelter. These two products and these two countries are the only ones in the world. When trade is opened up, the two countries trade food for shelter at a 1-to-1 ratio, and 160 units of food and 160 units of shelter are exchanged. On the diagrams provided, draw and clearly label the production possibilities curve for each country. Indicate where each country starts out before trade occurs (with a Co for Canada and a Mo for Morocco). Indicate the point at which each country produces (using a Cp for Canada and a Mp for Morocco) and the point at which each country consumes (using a C* for Canada and a M* for Morocco), and show the trading line (the consumption possibilities curve or consumption possibilities function) for each country. Label your diagram as completely as possible. Below the diagram, explain in a small number of words what is meant by "the terms of trade". How can we tell the terms of trade by looking at the graph? (10 marks)

The following are production possibilities tables for Germany and Canada. Note that we are assuming that opportunity costs remain constant along the production possibilities frontier and that each country produces only these two products. Use the information in the tables to answer subsequent questions.

Germany's Production Possibilities Table

	Production Alternatives
Product	A	B	C	D
Autos	0	40	80	120
Computers	60	40	20	0

Canada's Production Possibilities Table

	Production Alternatives
Product	A'	B'	C'	D'
Autos	0	60	120	180
Computers	120	80	40	0

a.) Since Canada can produce more of either product than Germany can, is there any reason for Canada and Germany to engage in trade? Explain.

b.) If they trade, which country should specialize in which product and why?

c.) If the Germans are consuming and producing 40 autos and 40 computers before the trade and the Canadians are producing and consuming 60 autos and 80 computers before the trade, what are the potential gains from trade (if any) in terms of additional production of autos and computers for both countries combined?

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ECN 104 Lecture Notes - Comparative Advantage, Absolute Advantage, Opportunity Cost

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