Module #2 Assignment_

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Campbell University *

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202

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Economics

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Feb 20, 2024

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In order to submit this assignment, you will use this webform to upload a document file (.doc) or (.docx) with your answers. You may use a drawing program or sketch by hand. Be sure that your responses model clear economic reasoning and addresses each of the following: 1.) Suppose it always takes Florida 10 labor hours to make each car and 1 labor hour to make each crate of oranges, while it always requires Michigan 2 labor hours to make each car and 8 labor hours to make each crate of oranges. Further suppose each nation has 80 labor hours available. Draw the production possibilities frontier for each state. 2.) What is the opportunity cost of one car for Florida and for Michigan? What about for one crate of oranges? 3.) Suppose each nation specializes according to comparative advantage and then trades with the other nation. On your graphs, label the bundle each nation produces when specializing as well as one possible previously infeasible bundle each is able to consume assuming the two nations trade with each other. 4.) Write a paragraph or two in order to summarize your results. 1. PPF for each state: From the information provided, we can say the following: Cars:  the maximum cars that Florida can make in the 80 labor hours available is 80/10 = 8  the maximum cars that Michigan can make in the 80 labor hours available is 80/2 = 40 Crate of Oranges:  the maximum crate of oranges that Florida can make in the 80 labor hours available is 80/10 = 80  the maximum crate of oranges that Michigan can make in the 80 labor hours available is 80/8= 10 Figure 1: Florida PPF Figure 2: Michigan PPF 2. Opportunity Cost Florida 1 Labor Hours Needed to produce 1 Car Crate of oranges Florida 10 1 Michigan 2 8

a. The opportunity cost of one car is 80/8= 10 b. The opportunity cost of one crate of oranges is 8/80= 0.1 Michigan a. The opportunity cost of one car is 10/40= 0.25 b. The opportunity cost of one crate of oranges is 40/10= 4 3. Comparative Advantage Florida makes one unit of orange in 1 labor hour and Michigan takes 8 labor hours to make the same the amount. Due to the low opportunity cost, Florida will have a comparative advantage in producing oranges while Michigan has a comparative advantage in producing cars. Total labor hours / per unit of labor Florida Production of Oranges: 80/1 = 80 crate of oranges Michigan Production of cars: 80/2 = 40 cars Figure 3: Comparative Advantage 4. Summary As illustrated in the graph above, Point A shows that there is an equal distribution after trade. Michigan imported 40 crates of oranges in exchange of 20 cars. Florida imported 20 cars in exchange of 40 crates of oranges. Since Florida specializes in producing oranges and Michigan specializes in producing cards, they both benefit from trade from the consumption of a bundle that was previously infeasible. This also illustrates that the two nations (aka States) are better off specializing in one product each, provides the basis for a comparative advantage. 2

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