1. Explain the difference between absolute advantage and comparative advantage. Which is

more important in determining trade between individuals or countries? Is it absolute advantage

or comparative advantage? Why?

2. Let us assume two students must prepare a presentation for their marketing class. As part of

their class presentation, they must do a series of calculations and prepare 50 PowerPoint

slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the

slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare

the PPT slides.

a. How much time would it take the two students to complete the project if they

divide the two tasks equally?

b. How much time would it take the two students to complete the project if they

use comparative advantage and specialize in calculating or preparing slides?

c. If Larry and Kate have the same opportunity cost of $5 per hour, is there a

better solution than for each to specialize in calculating or preparing slides?

3. Let us assume there are only two countries in the world, and the two countries face the

following production possibilities frontiers. Further assume that the two countries produce

popcorn and peanuts.

a. Assume that country A and country B

decide to use half of the resources in

the production of each good. Indicate

the points of the maximum output of

each good on the graphs for each

country as point A under such resource

use.

b. Assume the two countries choose

autarky and do not trade. What would

be the total world production of popcorn

and peanuts under the autarky?

Subject | Business |

Due By (Pacific Time) | 02/17/2015 |

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