Answers to Review Questions 1 An individual has a comparative advantage in the production of a particular good if she can produce it at a lower opportunity cost than other individuals. An individual has an absolute advantage in the production of a good if she can produce more of that good than another individual, using comparable amounts of time. raw materials and effort
Answers to Review Questions 1 ◼ An individual has a comparative advantage in the production of a particular good if she can produce it at a lower opportunity cost than other individuals. An individual has an absolute advantage in the production of a good if she can produce more of that good than another individual, using comparable amounts of time, raw materials and effort
Answers to Review Questions 2. A reduction in the number of hours worked each day will shift all points on the production possibilities curve inward toward the origin a 3. Technological innovations that boost labor productivity will shift all points on the production possibilities curve outward, away from the origin
Answers to Review Questions ◼ 2. A reduction in the number of hours worked each day will shift all points on the production possibilities curve inward, toward the origin. ◼ 3. Technological innovations that boost labor productivity will shift all points on the production possibilities curve outward, away from the origin
Answers to Review Questions 4. Failure to specialize means failure to exploit the wealth-creating possibilities of the principle of comparative advantage. Wealthy people buy most of their goods and services from others not because they can afford to do so. but because the high opportunity cost of their time makes performing their own services too expensive
Answers to Review Questions ◼ 4. Failure to specialize means failure to exploit the wealth-creating possibilities of the principle of comparative advantage. Wealthy people buy most of their goods and services from others not because they can afford to do so, but because the high opportunity cost of their time makes performing their own services too expensive
Answers to Review Questions 5. The fact that English has become the de facto international language has done much to stimulate international demand for American-made books movies and popular music. The large size of the American market has given the United States an additional advantage over other English-speaking countries, like England, Canada, and Australia
Answers to Review Questions ◼ 5. The fact that English has become the de facto international language has done much to stimulate international demand for American-made books, movies and popular music. The large size of the American market has given the United States an additional advantage over other English-speaking countries, like England, Canada, and Australia
Answers to Problems a 2. In time it takes ted to wash a car he can wax three cars So his oppo bortunity cost of washing one car is three wax jobs. In the time it takes Tom to wash a car. he can wax two cars. So his opportunity cost of washing one car is two wax jobs. Because Tom's opportunity cost of washing a car is lower than Ted s. Tom has a comparative advantage in washing cars
Answers to Problems ◼ 2. In time it takes Ted to wash a car he can wax three cars. So his opportunity cost of washing one car is three wax jobs. In the time it takes Tom to wash a car, he can wax two cars. So his opportunity cost of washing one car is two wax jobs. Because Tom’s opportunity cost of washing a car is lower than Ted’s, Tom has a comparative advantage in washing cars
Answers to Problems 3. True: since Kyle and Toby face the same opportunity cost of producing a gallon of cider, they cannot gain from specialization and trade
Answers to Problems ◼ 3. True: since Kyle and Toby face the same opportunity cost of producing a gallon of cider, they cannot gain from specialization and trade. ◼
Answers to Problems 4 a 4. In time it takes nancy to replace a set of brakes she can complete one-half of a clutch replacement. So her opportunity cost of replacing a set of brakes is one-half of a clutch replacement. In the time it takes Bill to replace a set of brakes, he can he can complete one-third of a clutch replacement. So his opportunity cost of replacing a set of brakes is one-third of a clutch replacement
Answers to Problems 4 ◼ 4. In time it takes Nancy to replace a set of brakes she can complete one-half of a clutch replacement. So her opportunity cost of replacing a set of brakes is one-half of a clutch replacement. In the time it takes Bill to replace a set of brakes, he can he can complete one-third of a clutch replacement. So his opportunity cost of replacing a set of brakes is one-third of a clutch replacement
Answers to Problems 4 a Because Bills opportunity cost of replacing a set of brakes is lower than Nancys, Bill has a comparative advantage in replacing brakes. That means that Nancy has a comparative advantage in replacing clutches. Nancy also has an absolute advantage over Bill in replacing clutches, since it takes her two hours less than it takes Bill to perform that job. Since each takes the same amount of time to replace a set of brakes, neither person has an absolute advantage in that task
Answers to Problems 4 ◼ Because Bill’s opportunity cost of replacing a set of brakes is lower than Nancy’s, Bill has a comparative advantage in replacing brakes. That means that Nancy has a comparative advantage in replacing clutches. Nancy also has an absolute advantage over Bill in replacing clutches, since it takes her two hours less than it takes Bill to perform that job. Since each takes the same amount of time to replace a set of brakes, neither person has an absolute advantage in that task
Answers to Problems 9 Their maximum possible coffee output is 36 pounds per day(12 from Tom, 24 from Susan) b. Their maximum possible output of nuts is also 36 pounds per day(12 from Susan, 24 from Tom)
Answers to Problems 9 ◼ a. Their maximum possible coffee output is 36 pounds per day (12 from Tom, 24 from Susan). ◼ b. Their maximum possible output of nuts is also 36 pounds per day (12 from Susan, 24 from Tom)
Answers to Problems g C. Tom should be sent to pick nuts, since his opportunity cost(half a pound of coffee per pound of nuts) is lower than Susan's(2 pounds of coffee per pound of nuts ) Since it would take Tom only one hour to pick four pounds of nuts, he can still pick 10 pounds of coffee in his 5 working hours that remain. Added to Susan's 24 pounds they will have a total of 34 pounds of coffee per day
Answers to Problems 9 ◼ c. Tom should be sent to pick nuts, since his opportunity cost (half a pound of coffee per pound of nuts) is lower than Susan’s (2 pounds of coffee per pound of nuts). Since it would take Tom only one hour to pick four pounds of nuts, he can still pick 10 pounds of coffee in his 5 working hours that remain. Added to Susan’s 24 pounds, they will have a total of 34 pounds of coffee per day
