Homework Answers
Ans) Trade is done on basis of comparative advantage. Comparative advantage is when one party can produce goods with lower opportunity cost.
Opportunity cost = sacrife ÷ gain
For Issac÷
Opportunity cost of Apple = Peaches sacrificed ÷ apples gained = 30÷20 = 1.5 peaches
Opportunity cost of peaches = apples sacrificed ÷ peaches gained = 20÷30 = 0.67 apples.
For Jocelyn÷
Opportunity cost of Apple = peaches sacrificed ÷ apples gained = 15÷15 = 1 peaches
Opportunity cost of peaches = apple sacrificed ÷ peaches gained = 15÷15 = 1 apple.
Now, since Jocelyn has less opportunity cost of Apples, he has comparative advantage in Apple.
Since, Issac has less opportunity cost of peaches, he has comparative advantage in peaches.
Therefore, both can benefit from trade if they produce, what they are best at. So, Issac should produce peaches and Jocelyn should produce apples.
Option b.
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1.5 Inac Jocelyn Apples Peaches Apples Peaches 0 300 15 200 150 Can Isaac and Jocelyn...
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Suppose Home has 300 units of labor. It can produce two goods,
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a. Graph Home's PPF, with apples in the horizontal axis
. b. What is the opportunity cost of apples?
c. In the absence of trade – when Home is isolated ‐ what would
the relative price be?
d. Now suppose there is another country, Foreign, with a labor
force of 200. In Foreign a...
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apples and bananas. In Home a worker can produce 3 apples or 5
bananas.
a. Graph Home's PPF, with apples in the horizontal axis
. b. What is the opportunity cost of apples?
c. In the absence of trade – when Home is isolated ‐ what would
the relative price be?
d. Now suppose there is another country, Foreign, with a labor
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