Question

6 and 7 both please.

6. Refer to the following table, give the range of the price of errands such that both Lo and Manuel will be willing to trade. Assume the opportunity cost is constant. (Don't forget the units) Errands Dishes Run Washed 12 50 Manuel 4 40 Lo 7. Suggest one government policy such that the PPF of a country can shift out a lot in the future.

Answer 1

6. Answer: 1 unit of ER is priced between 25 DW and 10 DW. Opportunity cost (OC) of each should be calculated first. Table Countries ER DW Output OC Output oc L 2 50/2 = 25 50 2/50 = 0.04 M 4 40/4 = 1040 4/40 = 0.10 The lower opportunity cost should be considered as comparative advantage, and should be traded accordingly. In case of ER: country M has lower opportunity cost of ER, since 10 is smaller than 25. Therefore, M has comparative advantage in ER and should export to L. Range of price of ER: the OC column of ER should be looked here. 1 unit of ER is priced between 25 DW and 10 DW.

7.

Policy: improved healthcare facility

Suppose this is the current government policy of improving the health of workers. Regular free checkups, consultation, compulsory implementation of medical facilities within an organization, etc. are examples of such policy.

The policy can improve productivity of workers in future, since good health can produce better output. This will shift out PPF in future.