Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the U.S will no longer benefit from trade with the EU. (a) Whether the claim of a reporter is justified or not? (b) What type of feature do the goods have when EU and United States trade with each other. 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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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 5P

To determine

Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the U.S will no longer benefit from trade with the EU.

(a)
Whether the claim of a reporter is justified or not?
(b)
What type of feature do the goods have when EU and United States trade with each other.
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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CEO Salary and Firm SalesWe can estimate a constant elasticity model relating CEO salary to firm sales. The data set is the same one used in Example 2.3, except we now relate salary to sales. Let sales be annual firm sales, measured in millions of dollars. A constant elasticity model is[2.45]ßßlog (salary) = ß0 + ß0log (sales) + u,where ß1 is the elasticity of salary with respect to sales. This model falls under the simple regression model by defining the dependent variable to be y = log(salary) and the independent variable to be x = log1sales2. Estimating this equation by OLS gives[2.46]log (salary)^=4.822 + 0.257 (sales) n = 209, R2 = 0.211.The coefficient of log(sales) is the estimated elasticity of salary with respect to sales. It implies that a 1% increase in firm sales increases CEO salary by about 0.257%—the usual interpretation of an elasticity.

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Answer 2

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 5P

To determine

Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the U.S will no longer benefit from trade with the EU.

(a)
Whether the claim of a reporter is justified or not?
(b)
What type of feature do the goods have when EU and United States trade with each other.
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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Answer 3

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 5P

To determine

Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the U.S will no longer benefit from trade with the EU.

(a)
Whether the claim of a reporter is justified or not?
(b)
What type of feature do the goods have when EU and United States trade with each other.
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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Answer 4

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 5P

To determine