Microeconomics - homework ch 3
Tyler in washing, neither in mowing
In an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?
they both obtain consumption outside their production possibilities frontier
When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage,
those goods in which other nations have a comparative advantage
Which goods will a nation typically import?
If they trade socks, Boston will produce white socks for export, because it has the comparative advantage in white socks, while Chicago produces red socks for export, which is Chicago's comparative advantage.
The following table describes the production possibilities of two cities in the country of Baseballia: If the cities trade with each other, which color sock will each export?
Trade can occur at any price between 1 and 2 pairs of red socks per pair of white socks. At a price lower than 1 pair of red socks per pair of white socks, Boston will choose to produce its own red socks (at a cost of 1 pair of red socks per pair of white socks) instead of buying them from Chicago. At a price higher than 2 pairs of red socks per pair of white socks, Chicago will choose to produce its own white socks (at a cost of 2 pairs of red socks per pair of white socks) instead of buying them from Boston.
The following table describes the production possibilities of two cities in the country of Baseballia: What is the range of prices at which trade can occur?
Boston has an absolute advantage in the production of both types of socks, because a worker in Boston produces more (3 pairs of socks per hour) than a worker in Chicago (2 pairs of red socks per hour or 1 pair of white socks per hour). Chicago has a comparative advantage in producing red socks, because the opportunity cost of producing a pair of red socks in Chicago is 1/2 pair of white socks, while the opportunity cost of producing a pair of red socks in Boston is 1 pair of white socks. Boston has a comparative advantage in producing white socks, because the opportunity cost of producing a pair of white socks in Boston is 1 pair of red socks, while the opportunity cost of producing a pair of white socks in Chicago is 2 pairs of red socks.
The following table describes the production possibilities of two cities in the country of Baseballia: Which city has an absolute advantage in the production of each color sock? Which city has a comparative advantage in the production of each color sock?
With no trade, 1 pair of white socks trades for 1 pair of red socks in Boston, because productivity is the same for the two types of socks. The price in Chicago is 2 pairs of red socks per 1 pair of white socks
The following table describes the production possibilities of two cities in the country of Baseballia: Without trade, what is the price of white socks (in terms of red socks) in Boston? What is the price in Chicago?
Because a U.S. worker produces either 4 cars or 10 tons of grain, the opportunity cost of one car is 2 1/2 tons of grain, which is 10/4. Similarly, the U.S. opportunity cost of a ton of grain is 2/5 car (4 divided by 10). Because a Japanese worker produces either 4 cars or 5 tons of grain, the opportunity cost of one car is 1 1/4 tons of grain, which is 5/4 and the Japanese opportunity cost of a ton of grain is 4/5 car. This results in the following table: US: One Car (in terms of tons of grain given up) = 2 1/2, One Ton of Grain (in terms of cars given up) = 2/5 Japan: One Car (in terms of tons of grain given up) = 1 1/4, One Ton of Grain (in terms of cars given up) = 4/5
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.: For the United States, what is the opportunity cost of a car? Of grain? For Japan, what is the opportunity cost of a car? Of grain? Put this information in a table analogous to Table 1.
See Figure 3. With 100 million workers and 4 cars per worker, if either economy were devoted completely to cars, it could make 400 million cars. Because a U.S. worker can produce 10 tons of grain, if the United States produced only grain it would produce 1,000 million tons. Because a Japanese worker can produce 5 tons of grain, if Japan produced only grain it would produce 500 million tons. These are the intercepts of the production possibilities frontiers shown in the figure. Note that because the trade-off between cars and grain is constant for both countries, the production possibilities frontiers are straight lines.
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.: Graph the production possibilities frontiers for the American and Japanese economies
From any situation with no trade, in which each country is producing some cars and some grain, suppose the United States changed one worker from producing cars to producing grain. That worker would produce 4 fewer cars and 10 additional tons of grain. Then suppose the United States offers to trade 7 tons of grain to Japan for 4 cars. The United States will do this because the cost of producing 4 cars in the United States is 10 tons of grain. By trading, the United States can gain 4 cars for a cost of only 7 tons of grain, so it is better off by 3 tons of grain. Suppose Japan changes one worker from producing grain to producing cars. That worker would produce 4 more cars and 5 fewer tons of grain. Japan will take the trade because it values 4 cars at 5 tons of grain, so it will be better off by 2 tons of grain. With the trade and the change of one worker in both the United States and Japan, each country gets the same amount of cars as before and both get additional tons of grain (3 for the United States and 2 for Japan). Thus, by trading and changing their production, both countries are better off.
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.: Starting from a position without trade, give an example in which trade makes each country better off
Japan has a comparative advantage in producing cars, because it has a lower opportunity cost in terms of grain given up. The United States has a comparative advantage in producing grain, because it has a lower opportunity cost in terms of cars given up
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.: Which country has a comparative advantage in producing cars? In producing grain?
Neither country has an absolute advantage in producing cars, because they are equally productive (the same output per worker); the United States has an absolute advantage in producing grain, because it is more productive (greater output per worker)
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.: Which country has an absolute advantage in producing cars? In producing grain?
With half the workers in each country producing each of the goods, the United States would produce 200 million cars (50 million workers times 4 cars each) and 500 million tons of grain (50 million workers times 10 tons each). Japan would produce 200 million cars (50 million workers times 4 cars each) and 250 million tons of grain (50 million workers times 5 tons each).
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.: Without trade, half of each country's workers produce cars and half produce grain. What quantities of cars and grain does each country produce?
US: One car = 1/4, One ton of grain = 1/10 Japan: One car = 1/4, One ton of grain = 1/5
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.: For this situation, construct a table analogous to the table in Figure 1.
There are no gains from trade in this situation
Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes half as long to do each task. How should the roommates allocate the work?
Tyler in washing, Mateo in mowing.
Once again, in an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing?
China will export shirts, and the United States will export aircraft
Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these nations trade?