PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 2, Problem 2.4CC
To determine
The effect of differences in
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Question: How much more coffee does Todd gain from specialization and trade? To answer this question, use must use the information below:
Production and Consumption
Both Todd and John will have 12 hours to produce. Todd will use 8 hours to produce 80 pounds of chocolate and 4 hours to produce 80 pounds of coffee.
John will use 4 hours to produce 80 pounds of chocolate, and 8 hours to produce 80 pounds of coffee.
Specialization and Trade
Todd's production without Trade
Using 4 hours as a the time element - Todd can produce 40 pounds of chocolate and 80 pounds of coffee.
opportunity cost for chocolate is 80/40 = 2
opportunity cost for coffee is 40/80 = 1/2
John's production without Trade
Using 4 hours as the time element - John can produce 80 pounds of chocolate and 40 pounds of coffee.
opportunity cost for chocolate 40/80 = 1/2
opportunity cost for coffee is 80/20 = 2
Without Trade Totals - John and Todd produce 120 pounds of chocolate, and 120 pounds of coffee.
Who Should Produce and…
Question: How much more coffee does Todd gain from specialization and trade? To answer this question, use must use the information below:
Production and Consumption
Both Todd and John will have 12 hours to produce. Todd will use 8 hours to produce 80 pounds of chocolate and 4 hours to produce 80 pounds of coffee.
John will use 4 hours to produce 80 pounds of chocolate, and 8 hours to produce 80 pounds of coffee.
Specialization and Trade
Todd's production without Trade
Using 4 hours as a the time element - Todd can produce 40 pounds of chocolate and 80 pounds of coffee.
opportunity cost for chocolate is 80/40 = 2
opportunity cost for coffee is 40/80 = 1/2
John's production without Trade
Using 4 hours as the time element - John can produce 80 pounds of chocolate and 40 pounds of coffee.
opportunity cost for chocolate 40/80 = 1/2
opportunity cost for coffee is 80/20 = 2
Without Trade Totals - John and Todd produce 120 pounds of chocolate, and 120 pounds of coffee.
Who Should Produce and…
Suppose you have a team of two workers: one is a baker and one is a chef. Your baker is talented but is inexperienced. Your chef is not only an elite chef but is also faster at baking.
If your kitchen specialized according to absolute advantage, who would do the cooking? Who would do the baking?
If your kitchen specialized according to comparative advantage, who would do the cooking? Who would do the baking?
Which approach above is more efficient? Explain your answer.
Chapter 2 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- Explain the following two statements: “Education increases human capital and expands production possibilities”, and “The opportunity cost of a university degree is forgone consumption”.arrow_forwardWhich situation would most likely cause a nation's production possibilities curve to shift inward? The construction of more capital goods An increase in discrimination based on race An increase in the number of skilled immigrant workers The destruction from bombing and warfare in a losing military conflictarrow_forwardA nation's residents can allocate their scarce resources either to producing consumption goods or to producing human capital-that is, providing themselves with training and education. The table below displays the production possibilities for this nation. a) Suppose that the nation's residents currently produce combination A. What is the opportunity cost of increasing production of consumption goods by 10 units? By 60 units?b) Does the law of increasing additional cost hold true for this nation? Why or why not?arrow_forward
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- The principle of comparative advantage does not provide answers to certain questions. One of those questions is Do specialization and trade benefit more than one party to a trade? Is it absolute advantage or comparative advantage that really matters? How are the gains from trade shared among the parties to a trade? Is it possible for specialization and trade to increase total output of traded goods?arrow_forwardA Korean BBQ restaurant has four workers for washing jobs: Dane, June, Park, and Pola. Each works eight hours a day and can produce two washing services: washing rice bowls and washing grill racks. . In an hour, Dane can either wash 100 rice bowls or wash 20 grill racks; June can either wash 130 rice bowls or wash 50 grill racks; Park can either wash 150 rice bowls or wash 15 grill racks; and Pola can either wash 100 rice bowls or wash 25 grill racks. Graph the production possibilities frontier over one day for this restaurant. In the graph, you must identify the points where transfer of a worker from one job to another starts to take place, by showing the coordinates of the points. In answering this question, you must take into account the fact that every worker works eight hours a day.arrow_forwardA Korean BBQ restaurant has four workers for washing jobs: Dane, June, Park, and Pola. Each works eight hours a day and can produce two washing services: washing rice bowls and washing grill racks. . In an hour, Dane can either wash 100 rice bowls or wash 20 grill racks; June can either wash 130 rice bowls or wash 50 grill racks; Park can either wash 150 rice bowls or wash 15 grill racks; and Pola can either wash 100 rice bowls or wash 25 grill racks. Graph the production possibilities frontier over one day for this restaurant. In the graph, you must identify the points where transfer of a worker from one job to another starts to take place, by showing the coordinates of the points. You must take into account the fact that every worker works eight hours a day. Please show me how to graph in excelarrow_forward
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