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Business Economics EBK PRINCIPLES OF MICROECONOMICS (SECON

Calculate the opportunity cost .

Calculate the opportunity cost .

Solution Summary: The author compares the opportunity cost of making bread and the comparative advantage of producing bread.

EBK PRINCIPLES OF MICROECONOMICS (SECON

EBK PRINCIPLES OF MICROECONOMICS (SECON

2nd Edition

ISBN: 9780393616149

Author: Mateer

Publisher: W.W.NORTON+CO. (CC)

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

Chapter 2, Problem 8SP

(a)

To determine

Calculate the opportunity cost.

(b)

To determine

Absolute advantage in making bread.

(c)

To determine

Calculate the comparative advantage for producing bread.

(d)

To determine

Impact of specialization in production by both parties.

(e)

To determine

Ratios of bread and pie when both persons engage in trade.

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Chapter 2, Problem 7SP

Chapter 2, Problem 9SP

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Similar questions

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios. Who has the absolute advantage in the production of rubber or radios? How can you tell? Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine,) Which country has a comparative advantage in the production of radios? Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? In this example, does each country have an absolute advantage and a comparative advantage in the same good? In what product should Japan specialize? In what product should Malaysia specialize?

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