1. 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 Maria's production possibilities frontier for reading economics and sociology.
b. What is Maria's opportunity cost of reading 100 pages of sociology?
2. American and Japanese workers can each produce4 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 lapanese 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 informatkn in a table analogous to Table 1.
d. Which country has an absolute advantage in producing cars? In producing grain?
e. Whkh country has a comparative advantage in producing cars? In producing grain?
f. Without trade, half of each country's workers produce cars and half produce grain. What quantitksof 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.
3. Pat and Kris arc roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beef. 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 roommate's opportunity cost of making a pizza? Who has the absolute advantage in making piz/a? 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 whkh pizza can be traded that would make both roommates better off? What is the lowest prke? Explain.
4. Suppose that there are 10 million workers in Canada and that each of these workers ran produce either 2 cars or 30 bushels of wheat in a year.
a. What is the opportunity cost ol" 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 Canada's production possibilities frontier. If Canada chooses to consume 10 million cars, how much wheat can it consume with-out trade? Libel this point on the production possibilities frontier.
c. Now suppose that the United States offe rs 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 whe.it does this deal allow Canada to consume? Label this point on your diagram. Should Canada accept the deal?
5. 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.
6- The following table describes the production possibilities of two cities in the country of Baseball ¡a:
Pairs 0<f Rod Socks Pars of V/Kto Socks por Worker par Hour por Worker par Hour
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 a comparative advantage in the production of each color sock?
c. If the cities trade with each other, which color sock will each export?
d. What is the range of prices at which trade can occur?
7. 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. Identity 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?
8. 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 coffcc? Explain, d. Assume that the two countries trade and that the country importing coffee trades 2 ounces of soybean» for I ounce of coffee. Explain why both countries will benefit from this trade.
9. Are the following statements true or false? Explain in each case.
a. "Two country's 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 ran't 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 cuntry."
10. 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?
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Since World War II, there has been a tremendous change in the makeup and direction of kid baseball, as it is called. Adults, showing an unprecedented interest in the activity, have initiated and developed programs in thousands of towns across the United States programs that providebr wholesome recreation for millions of youngsters and are often a source of pride and joy to the community in which they exist.