ECON 105 Lecture Notes - Lecture 9: Opportunity Cost, Shortage, Productive Efficiency

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harlequinjackal102

21 May 2013

School

Simon Fraser University

Department

Economics

Course

ECON 105

Professor

Eldar Sehic

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ECON 105 Full Course Notes

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Constant oc: oc stays the same with extra production. Comparative advantage (ca): who can produce at lower oc. Price for trade: found between opportunity costs for some good. Example: imagine 2 countries (x and y) that can produce food (f) and clothing. X can make 12 f or 4 c. Y can make 10 f or 2 c. X has aa in f (12 > 10) X has aa in c (4 > 2) Y has ca in f (1/5 < 1/3) X has ca in c (3 < 5) Y specializes in f (making 10 food and 0 clothing) X specializes in c (making 0 food and 4 clothing) Suppose, instead of trade, we care about total production: Suppose we want total food to be 13. X makes remaining 3 f at total oc = 3oc(f) = 3(1/3) of c = 1 c. If pw > pd, then the country exports wheat to satisfy the excess supply.

Related Questions

You are given the following production possibilities table for country A and country B in bread and butter production.

	Bread	Butter
A	20	2
B	6	12

1) Which country has an absolute advantage in bread production?

2) Which country has an absolute advantage in butter production?

3) Make an opportunity cost table for the two countries.

4) Which country has a comparative advantage in bread production?

5) Which country has a comparative advantage in butter production?

6) Construct a table of production for the two countries with specialization. What is the total quantity of bread produced and what is the total quantity of butter produced?

7) Write the equation for the production possibility line for country A.

8) If country A chooses to produce 1 unit of butter, what quantity of bread can it produce?

9) Write the equation for the production possibility line for country B.

10) If country B chooses to produce 8 units of butter, what quantity of bread can it produce?

sapphiremarten574

- Gains from Trade

You find yourself in a lonely oasis in the desert. The only two things you can produce are either dates or water. In a day you can either gather 100 dates or collect 50 litres of water. And you choose to spend 4 days a week gathering dates and 3 days a week collecting water.

a.) What are your opportunity costs of water and dates?

Now imagine in the neighbor oasis is Mohammed and he can produce in a day either 150 dates or 60 liters of water. And he chooses to spend 4 days a week gathering dates and 3 days a week collecting water.

b.) What are Mohammed's opportunity costs of water and dates?

c.) Who has an absolute advantage in dates and water production and who has a

comparative advantage in dates and water production?

d.) How many dates and liters of water are you and Mohammed producing per week

before trade?

e.) How many dates and liters of water are you and Mohammed producing after you

decided to trade with each other? (Hint: Each one Specializes)

f.) Think of an exchange that would make both parties better off than before they

decided to trade with each other.

orangehamster799

Use the following information for the next seventeen questions:

Assume that it takes the US 150 units of labor to produce a table and 30 units of labor to produce a chair.

Assume it takes the Netherlands 100 units of labor to produce a table and 10 units of labor to produce a chair.

Assume that each country has 4800 units of labor and before trade, each country splits their labor evenly between chair and table production.

Assume that when the countries decide to trade, the country specializing in table production specializes in table production only.

Assume that when the countries decide to trade, the country that specializes in chair production uses 1000 units of labor for table production and the rest (3800 units) for chair production.

Assume that when the countries trade, there are a total of 15 tables traded at a rate of 7 chairs per table.

1. What is the opportunity cost for the US for the production of one chair in terms of number of tables?

Hint: enter a number only, do not write tables after the number and if the number is a fraction, enter it as a decimal

Example: if the answer is 8 tables, enter 8 or if the answer is 1/4 tables, enter 0.25.

2. What is the opportunity cost for the Netherlands for the production of one table in terms of number of chairs?

Hint: enter a number only, do not write chairs after the number and if the number is a fraction, enter it as a decimal

Example: if the answer is 8 chairs, enter 8 or if the answer is 1/4 chairs, enter 0.25.

3. Who has the comparative advantage in table production?

4. Who has the comparative advantage in chair production?

ECON 105 Lecture Notes - Lecture 9: Opportunity Cost, Shortage, Productive Efficiency

ECON 105 Full Course Notes

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