Question

1. Define each of the following terms i) Economic (Pareto) efficiency, i) Comparative advantage, iii) Offer curve. 2. Suppose a particular labour market was in equilibrium. What events could cause the equilibrium wage to fall? If all money wages rose with inflation each year, how would this market adjust?

Answer 1

1. i. Economic efficiency can be defined as that situation where resources cannot be reallocated to make someone better off without making someone or at least an individual worse off. Thus, this implies that parrot efficiency is the most efficient allocation of resources.

ii. Comparative advantage is that scenario when one country is having a lower opportunity cost of manufacturing or producing an output. For example refer the table below

Output

	Shirts	Cars
USA	80	20
China	60	20

Now calculate the opportunity cost

Opportunity Cost

	1 unit of Shirt	1 unit of Cars
America	0.25 units of Cars	4 units of shirts
China	0.33 units of Cars	3 units of shirts

America's opportunity cost of producing Shirt is low while China has low opportunity cost of producing cars.

America has comparative advantage in producing Shirts while China has low opportunity cost of producing cars.

iii. Offer curve shows the quantity of one commodity exported and quantity of another type of good imported.

2. Refer the attached picture below

Please contact if having any query thank sir