In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti, or any combination in between. The Frivoli by themselves, each month can produce 40 pounds of spaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti, or any combination in between. Assume that all production possibility frontiers are straight lines. Draw one diagram showing the monthly production possibility frontier for the Tivoli and another showing the monthly production possibility frontier for the Frivoli. Show how you calculate them. Which tribe has a comparative advantage in spaghetti production? In meatball production? In A.D 100 the Frivoli discover a new technique for making meatballs that double the quantity of meatballs they can produce each month. Draw the new monthly production possibility frontier for the Frivoli. After the innovation, which tribe now has an absolute advantage in producing meatballs? In producing spaghetti? Which has the comparative advantage in meatball production? In spaghetti production? Concept Introduction: Opportunity Cost : It is the cost of next best alternative activity. For example, A farmer can produce wheat, rice, and corn in his field and earns a profit of $100, $200 and $300 per month respectively. Then farmer will choose to grow corn in his field because he will get maximum profit by growing corn. So, the opportunity cost of growing corn will be $200 because the best alternative activity is growing rice because it will give him $200 per month. Comparative Advantage: When one country produces the good at lower opportunity cost than the other country, then the country that has produced the good at lower opportunity cost is said to have a comparative advantage in the production of that good. Absolute Advantage: It refers to the ability of a country to produce the same good with same resources at lower cost.

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Chapter 2, Problem 3P

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In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti, or any combination in between. The Frivoli by themselves, each month can produce 40 pounds of spaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti, or any combination in between.

Assume that all production possibility frontiers are straight lines. Draw one diagram showing the monthly production possibility frontier for the Tivoli and another showing the monthly production possibility frontier for the Frivoli. Show how you calculate them.

Which tribe has a comparative advantage in spaghetti production? In meatball production? In A.D 100 the Frivoli discover a new technique for making meatballs that double the quantity of meatballs they can produce each month.

Draw the new monthly production possibility frontier for the Frivoli.

After the innovation, which tribe now has an absolute advantage in producing meatballs? In producing spaghetti? Which has the comparative advantage in meatball production? In spaghetti production?

Concept Introduction:

Opportunity Cost:

It is the cost of next best alternative activity. For example, A farmer can produce wheat, rice, and corn in his field and earns a profit of $100, $200 and $300 per month respectively. Then farmer will choose to grow corn in his field because he will get maximum profit by growing corn. So, the opportunity cost of growing corn will be $200 because the best alternative activity is growing rice because it will give him $200 per month.

Comparative Advantage:

When one country produces the good at lower opportunity cost than the other country, then the country that has produced the good at lower opportunity cost is said to have a comparative advantage in the production of that good.

Absolute Advantage:

It refers to the ability of a country to produce the same good with same resources at lower cost.

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