ECO100Y1 Lecture Notes - Lecture 21: Absolute Advantage, Comparative Advantage, Opportunity Cost

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18 Jan 2018

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In the smith household, john can cook 5 meals or clean 6 rooms in 5 hours. Joan can cook 30 meals or clean 10 rooms in the same amount of time. John has c. a. in cleaning rooms (lower opportunity cost) Joan has c. a. in cooking meals (lower opportunity cost) (joan has absolute advantage is more productive in both activities) Understand price elasticity of demand (and do not confuse with income elasticity of demand) Graph 7: long-run equilibrium: firm is maximizing profits (produces q0 where mr=mc, zero economic profit ( (cid:862)(cid:374)o(cid:396)(cid:373)al (cid:396)ate of p(cid:396)ofit(cid:863)) (cid:271)e(cid:272)ause, at (cid:395)0, p=atc, no inventive for firms to enter or exit the industry** Constant cost industry (minimum) atc of representative firm is unchanged as firms enter or exit industry. Decrease in demand leftward shift in dd will cause: quantity to fall, price to be unchanged. Short run [before entry or exit of firms] P

Related Questions

16) Consider the following household. In 5 hours, Bob can cook 5 meals or clean 6 rooms. In 5 hours, Mary can cook 30 meals or clean 10 rooms. Select the best statement. A) Since Mary is better at producing both goods, she should produce both. B) Bob has a comparative advantage in cooking. C) Mary should specialize in cooking. D) Bob has an absolute advantage in the production of both goods. E) none of the above

3.In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.

3-1)Who has the absolute advantage in the production of rubber or radios? How can you tell?

3-2)Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?

3-3)Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?

3-4)In this example, does each country have an absolute advantage and a comparative advantage in the same good, or not?

3-5)In what product should Japan specialize? In what product should Malaysia specialize?

1. If the government institutes an effective price ceiling on potato chips, then there will be a

	decrease in demand for and an increase in supply of potato chips.
	decrease in supply of potato chips.
	decrease in quantity supplied of potato chips.
	decrease in demand for potato chips.
	decrease in quantity demanded for potato chips.

2. Lindsay can either wash two dogs or clean four windows in two hours. Amy can either wash two dogs or clean ten windows in two hours. Based on this information, which of the following is true?

	The opportunity cost of washing 2 dogs for Lindsay is cleaning 2 windows.
	The opportunity cost of washing 1 dog for Amy is cleaning 5 windows.
	The opportunity cost of washing 1 dog for Amy is cleaning 1/5 of a window.
	Lindsay has the absolute advantage in cleaning windows because she has the lowest opportunity cost.
	Amy has the absolute advantage in cleaning windows because she has the lowest opportunity cost

	Oranges	Bananas
United States	4 acres	5 acres
Costa Rica	3 acres	2 acres

The table above lists the number of acres it takes to produce one cargo container of oranges and one cargo container of bananas in the United States and Costa Rica. Assume each nation has 120 acres available to produce both products. If terms of trade were one cargo container of oranges for one cargo container of bananas and both nations agreed to trade according to comparative advantage, how many cargo containers of bananas would be grown?

	24 cargo containers
	30 cargo containers
	40 cargo containers
	60 cargo containers
	120 cargo containers

4. The balance of payments includes all of the following except

	transfer payments for welfare.
	goods and services sold overseas.
	foreign purchases of domestic assets.
	imported goods and services.
	capital goods purchased by foreigners.

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ECO100Y1 Lecture Notes - Lecture 21: Absolute Advantage, Comparative Advantage, Opportunity Cost

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