Bill and Hillary produce food and clothing. In an hour, Bill can produce 1 unit of food

Under what conditions is the production possibilities frontier linear rather than bowed out?

Explain how absolute advantage and comparative advantage differ.

Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage.

Is absolute advantage or comparative advantage more important for trade? Explain your reasoning using the example in your answer to Question 3.

If two parties trade based on comparative advantage and both gain, in what range must the price of the trade lie?

Will a nation tend to export or import goods for which it has a comparative advantage? Explain

Why do economists oppose policies that restrict trade among nations?

Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying. a. Draw Marias production possibilities frontier for reading economics and sociology. b. What is Marias opportunity cost of reading 100 pages of sociology?

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. a. For this situation, construct a table analogous to the table in Figure 1. b. Graph the production possibilities frontier of the American and Japanese economies. c. 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. d. Which country has an absolute advantage in producing cars? In producing grain? e. Which country has a comparative advantage in producing cars? In producing grain? f. Without trade, half of each countrys workers produce cars and half produce grain. What quantities of cars and grain does each country produce? g. Starting from a position without trade, give an example in which trade makes each country better off.

Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a gallon of root beer and 2 hours to make a pizza. Kris takes 6 hours to brew a gallon of root beer and 4 hours to make a pizza. a. What is each roommates opportunity cost of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza? b. If Pat and Kris trade foods with each other, who will trade away pizza in exchange for root beer? c. The price of pizza can be expressed in terms of gallons of root beer. What is the highest price at which pizza can be traded that would make both roommates better off? What is the lowest price? Explain.

Suppose that there are 10 million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year. a. What is the opportunity cost of producing a car in Canada? What is the opportunity cost of producing a bushel of wheat in Canada? Explain the relationship between the opportunity costs of the two goods. b. Draw Canadas production possibilities frontier. If Canada chooses to consume 10 million cars, how much wheat can it consume without trade? Label this point on the production possibilities frontier. c. Now suppose that the United States offers to buy 10 million cars from Canada in exchange for 20 bushels of wheat per car. If Canada continues to consume 10 million cars, how much wheat does this deal allow Canada to consume? Label this point on your diagram. Should Canada accept the deal?

England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour. a. Which country has the absolute advantage in the production of each good? Which country has the comparative advantage? b. If England and Scotland decide to trade, which commodity will Scotland trade to England? Explain. c. If a Scottish worker could produce only 1 sweater per hour, would Scotland still gain from trade? Would England still gain from trade? Explain.

The following table describes the production possibilities of two cities in the country of Baseballia: Pairs of Red Socks Pairs of White Socks per Worker per Hour per Worker per Hour Boston 3 3 Chicago 2 1 a. Without trade, what is the price of white socks (in terms of red socks) in Boston? What is the price in Chicago? b. Which city has an absolute advantage in the production of each color sock? Which city has

Suppose that in a year an American worker can produce 100 shirts or 20 computers, while a Chinese worker can produce 100 shirts or 10 computers. a. Graph the production possibilities curve for the two countries. Suppose that without trade the workers in each country spend half their time producing each good. Identify this point in your graph. b. If these countries were open to trade, which country would export shirts? Give a specific numerical example and show it on your graph. Which country would benefit from trade? Explain. c. Explain at what price of computers (in terms of shirts) the two countries might trade. d. Suppose that China catches up with American productivity so that a Chinese worker can produce 100 shirts or 20 computers. What pattern of trade would you predict now? How does this advance in Chinese productivity affect the economic well-being of the citizens of the two countries?

An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans in 50 minutes and an ounce of coffee in 75 minutes. a. Who has the absolute advantage in coffee? Explain. b. Who has the comparative advantage in coffee? Explain. c. If the two countries specialize and trade with each other, who will import coffee? Explain. d. Assume that the two countries trade and that the country importing coffee trades 2 ounces of soybeans for 1 ounce of coffee. Explain why both countries will benefit from this trade

Are the following statements true or false? Explain in each case. a. Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods. b. Certain very talented people have a comparative advantage in everything they do. c. If a certain trade is good for one person, it cant be good for the other one. d. If a certain trade is good for one person, it is always good for the other one. e. If trade is good for a country, it must be good for everyone in the country.

The United States exports corn and aircraft to the rest of the world, and it imports oil and clothing from the rest of the world. Do you think this pattern of trade is consistent with the principle of comparative advantage? Why or why not?

Bill and Hillary produce food and clothing. In an hour, Bill can produce 1 unit of food or 1 unit of clothing, while Hillary can produce 2 units of food or 3 units of clothing. They each work 10 hours a day. a. Who has an absolute advantage in producing food? Who has an absolute advantage in producing clothing? Explain. b. Who has a comparative advantage in producing food? Who has a comparative advantage in producing clothing? Explain. c. Draw the production possibilities frontier for the household (that is, Bill and Hillary together) assuming that each spends the same number of hours each day as the other producing food and clothing. d. Hillary suggests, instead, that she specialize in making clothing. That is, she will do all the clothing production for the family; however, if all her time is devoted to clothing and they still want more, then Bill can help with clothing production. What does the household production possibilities frontier look like now? e. Bill suggests that Hillary specialize in producing food. That is, Hillary will do all the food production for the family; however, if all her time is devoted to food and they still want more, then Bill can help with food production. What does the household production possibilities frontier look like under Bills proposal? f. Comparing your answers to parts c, d, and e, which allocation of time makes the most sense? Relate your answer to the theory of comparative advantage.