2.Mary's Production Possibilities Frontier10 cookies87-65.4Sw21 2 3 4 5 6 mutinsKate's Production Possibilities Frontier10 cookies9+846+st43+2.1 Find the Absolute Advantage for both products.2.2 Find the Comparative Advantage for both products.muffins

2. Mary's Production Possibilities Frontier 10 cookies 8 7- 6 5. 4 s w O 1 2 3 4 5 6 muffins Kate's Production Possibilities Frontier 10 cookies 9+ 84 6+ st 4 2.1 Find the Absolute Advantage for both products. 2.2 Find the Comparative Advantage for both products. muffins

2. Mary's Production Possibilities Frontier 10 cookies 8 7- 6 5. 4 s w O 1 2 3 4 5 6 muffins Kate's Production Possibilities Frontier 10 cookies 9+ 84 6+ st 4 2.1 Find the Absolute Advantage for both products. 2.2 Find the Comparative Advantage for both products. muffins

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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

2.
Mary's Production Possibilities Frontier
10 cookies
8
7-
6
5.
4
S
w
2
1 2 3 4 5 6 mutins
Kate's Production Possibilities Frontier
10 cookies
9+
84
6+
st
4
3+
2.1 Find the Absolute Advantage for both products.
2.2 Find the Comparative Advantage for both products.
muffins

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Use the following production possibilities tables to answer the next question. Possibilities C 8 24 A Autos (millions) 0 Chemicals (millions) 40 Germany's Production B 4 32 United States' Production B 3 48 A Autos (millions) 0 Chemicals (millions) 60 Multiple Choice O O 8 million units of autos. D 12 16 Possibilities D 9 24 6 million units of autos. C 6 36 Assume that prior to specialization and trade Germany and the United States both produced combination C. Now if each nation specializes according to its comparative advantage, the resulting gains from specialization and trade will be 6 million units of autos and 8 million units of chemicals. E 16 8 8 million units of autos and 6 million units of chemicals. E 12 12 F 20 20 F 15 0
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Figure 2.2. Canadian Trade Possibilities Televisions 16 12 8 4 0 Canada's Transformation Schedule Televisions 8 12 International Terms of Trade Refrigerators Televisions and refrigerators Neither televisions nor refrigerators с 16 20 B 24 Figure 2.2 shows a straight-line production possibilities curve with televisions on the vertical axis and refrigerators on the horizontal axis for Canada. The intercept on the vertical axis equals 16 and on the horizontal axis equals 24. Point A shows a point where an indifference curve is tangent to the production possibilities curve where televisions on the vertical axis equal 8 and refrigerators on the horizontal axis equal 12. A downward sloping straight line representing the international terms of trade starts at a point where refrigerators equal 24; an indifference curve is tangent to this line at a point where televisions equal 12 and refrigerators equal 16. Referring to Figure 2.2, Canada has a comparative advantage in: Refrigerators