Question

7. Andy. Dwight. Jim, Kelly and Pam are asked by their boss Michael to make apple cider (measured in gallons) and cheese dip (measured in ounces) for the upcoming company party. The table shows output per hour for each employee. If the group assigns the tasks efficiently who would be the last person asked to start making dip? a. Andy b. Dwight c. Kelly d. Jim e. Pam Cider Dip Output per hour Andy 1 gal 5 oz Dwight 60 gals 120 oz Jim 40 gals 10 oz Kelly 10 gals 40 oz Pam 30 gals 20 oz Widgets Unit Labor Requirements Cloth Home 10 Foreign 60 8. Given the information in the table above a neither country has a comparative advantage in cloth. b. Home has a comparative advantage in cloth. c. Foreign has a comparative advantage in cloth. d. Home has a comparative advantage in both cloth and widgets. e. neither country has a comparative advantage in widgets.

Answer 1

7 a. Andy

Andy will be the last person asked to start making dip because his output is the lowest amongst all i.e 5oz/hour.

8 c

Home country has a Comparative Advantage in producing Widgets, since it is 0.67 times better in producing Widgets and only 0.17 times better in producing Cloths

Foreign Country has a Comparative Advantage in producing Cloth, since it is 6.00 times better in producing Cloth and only 1.50 in producing Widgets

The law or principle of comparative advantage holds that under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage. Comparative advantage is the economic reality describing the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress. In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade.

For example, if Country A can produce one unit of Product 1 or 4 units of Product 2, and Country B can produce 0.5 units of Product 1 or 1 unit of Product 2,

Country A has a Comparative Advantage in producing Product 2, since it is 4 times better than Country B, in producing Product 2, and only 2 times better in producing Product 2