Comparative and absolute advantage problems.docx

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Absolute and Comparative Advantage Problems For each of the next four problems, answer the three letters below (make sure you show your work to receive full credit): A. Whether the problem is an input or out. B. Which entity has the absolute advantage in each item (for example, Dr. Rhine has the absolute advantage in cleaning dishes while his wife has the absolute advantage in laundry). C. Which entity has the comparative advantage for the products? Within this answer, you should also tell me which entity is specializing in that item. 1. Hours it takes to produce one item Pen Pencil Jean 8 6 Mike 6 3 A: Input B: Mike has the absolute advantage in both C: Mike has a comparative advantage in pens; Jean has a comparative advantage in pencils 2. Number Produced at the end of the day Books Computers Eve 6 2 Jake 10 5 A: Output B: Jake has the absolute advantage in both C: Jake has a comparative advantage in computers; Eve has a comparative advantage in books 3. Land required to harvest this quantity Rice Soy France 40 10 Germany 15 10 A: Input B: Germany has the absolute advantage in both C: Germany has a comparative advantage in rice; France has a comparative advantage in soy 4. Amount gained from one ton of product

Peanut Butter Strawberry Jelly ABC Corp 30 10 DEF Corp 50 25 A: Output B: DEF has the absolute advantage in both C: DEF has a comparative advantage in strawberry jelly; ABC has a comparative advantage in peanut butter

For the next part, complete the four steps below for the one problem with data points. 1. Draw each PPC 2. Who has absolute advantages in each of the products? Canada has advantage in cows; Wales has advantage in sheep 3. Who has comparative advantages in each of the products? Canada - cows; Wales - sheep 4. What is an acceptable terms of trade for both countries to benefit. Wales should trade 1 cow for 3 sheep Wales Canada Cows 0 5 10 15 Cows 0 10 20 30 Sheep 45 30 15 0 Sheep 60 40 20 0 For the last part, you need to make up the data for an OUTPUT type problem. Your problem must meet the following qualifications: ● 2 entities ● 2 products ● A PPC graph demonstrating their maximum level of production. ● Tell me who was the absolute advantage of each item ● Show me who has the comparative advantage of each item

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● Tell me which entity is specializing in which item ● Show me one acceptable terms of trade that would make both entities gain from the process. Lambert West Forsyth D1 Athletes 0 15 30 45 D1 Athletes 0 5 10 15 AP Scholars 120 80 40 0 AP Scholars 60 40 20 0 1. Draw each PPC 2. Who has absolute advantages in each of the products? Lambert has absolute advantage in both 3. Who has comparative advantages in each of the products? Lambert- D1 Athletes; West- AP Scholars 4. What is an acceptable terms of trade for both countries to benefit. Lambert should trade 2 D1 Athletes for 1 AP Scholar

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