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
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?
|Due By (Pacific Time)