Macroeconomics chapter 3
The opportunity cost of 1 bushel of wheat for cliffs is
2/3 bushel of corn
the opportunity cost of 2 bushel of corn for cliff is
3 bushels of wheat
the opportunity cost of 1 pound of meat for the farmer is
4 pounds of potatoes
the opportunity cost of 1 pound of potatoes for the rancher is
5/4 pounds of meat
assume both paul and cliff divide their time equally between the production of corn and wheat and they do not trade. if they are the only producers of and corn, then total production of wheat and corn is
7 bushels of wheat and 7 bushels of corn
Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes vases, but regan is better at producing both. In this case, trade could
Benefit both Jayson and Regan
A country's consumption possibilities can be outside its production possibilities frontier if
The country engages in trade
trade between countries
allows each country to consume at a point outside its production possibilities frontier
for two individuals who engage in the same two productive activities, it is impossible for one of the two individual to
have a comparative advantage in both activities
the principle of comparative advantage does not provide answers to certain questions. One of those questions is as follows.
how are the gains from trade benefit more than one party to a trade.
assume cliff and paul were both producing wheat and corn and each person was dividing his time equally between two. Then each decides to specialize in the product in which he has a comparative advantage. As a result of this change, total production.
increase by 1 bushel
The rancher has an absolute advantage in
meat, and the farmer has a comparative advantage in potatoes
the rancher has a comparative advantage in
meat, and the farmer has a comparative advantage in potatoes
the farmer and the rancher both could benefit if the farmer were to specialize in
potatoes and the rancher were to specialize in meat.
