microeconomics
Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by
15 blankets and 35 meals.
Assume that Brad and Theresa can switch between producing wheat and producing beef at a constant rate.
5/6 pound of beef
Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be
300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland.
Suppose that a worker in Agland can produce either 10 units of organic grain or 2 units of incense per year, and a worker in Zenland can produce either 5 units of organic grain or 15 units of incense per year. There are 20 workers in Agland and 10 workers in Zenland. Currently the two countries do not trade. Agland produces and consumes 100 units of grain and 20 units of incense per year. Zenland produces and consumes 50 units of grain and no incense per year. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by
50 units of grain and 130 units of incense.
Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 table is
6 chairs for Ken and 3 chairs for Traci.
Assume that Brad and Theresa can switch between producing wheat and producing beef at a constant rate
6/5 bushels of wheat
Both Dave and Caroline produce sweaters and socks. If Dave's opportunity cost of 1 sweater is 3 socks and Caroline's opportunity cost of 1 sweater is 5 socks, then
Dave has a comparative advantage in the production of sweaters.
Total output in an economy increases when each person specializes because
each person spends more time producing that product in which he or she has a comparative advantage.
In the circular-flow diagram,
labor flows from households to firms
Assume that Brad and Theresa can switch between producing wheat and producing beef at a constant rate.
neither good and Theresa has an absolute advantage in the production of both goods.
Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if
the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.
If labor in Mexico is less productive than labor in the United States in all areas of production,
then both Mexico and the United States still can benefit from trade.
