EBK ESSENTIALS OF ECONOMICS
EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Chapter 3, Problem 4PA

Subpart (a):

To determine

Calculate the opportunity cost.

Subpart (b):

To determine

Draw production possibility frontier.

Subpart (c):

To determine

Specialization and increase in consumption.

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Country A Country B 200 corn 600 150 375 100 50 50 75100 150 200 cars 25 50 75 100 cars a) What is the opportunity cost of making cars in each country? Make clear how you find this and what it means. b) If the countries were to specialize and trade, which country should specialize in making cars? Why? c) If the countries specialize completely according to comparative advantage (i.e.each produces only what they have the comparative advantage in) what would be the total production of cars and corn? How does this compare to the total production at their original pre-trade production points? d) Suppose the country that specializes in making only cars trades with the country that makes no cars. The car-maker sends the other country as many cars as they were consuming before trade. How much corn could the corn-making country trade for these cars and have both countries be better off than they were before trade?
England and Scotland both produce scones and sweaters.  Suppose that an English works can produce 50 scones per hour or 1 sweater per hour.  Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour. a.  Which country has the absolute advantage in the production of each good?  Which country has the comparative advantage? b. If England and Scotland decide to trade, which commodity will Scotland trade to England?  Explain. c.  If a Scottish worker could produce only 1 sweater per hour, would Scotland still gain from trade? Would England still gain from trade? Explain.
Points on Production Possibilities Frontier Canada   China   Wheat   Computers   Wheat   Computers  A 150 0   90 0 B 100 25   60 60 C 50 50   30 120 D 0 75    0 180   Draw the production possibilities graph for Canada and China and label all of the points on the graph.  For which good does Canada have a comparative advantage? For which good does China have a comparative advantage? If Canada and China decide to specialize and trade, how many more computers and bushels of wheat would be available for consumption by both countries? Show the increase on your graphs.  Canada and China decide to impose trade restrictions in the form of a tariff on the computers and wheat. What are the costs or benefits to the consumer, producer and government for each country?
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