Review Handout | Absolute Advantage and Comparative Advantage | Cases 1-3 (3 pages)

*Holding other things constant and considering the usual assumptions for the 2C-2G-1F model and production per unit of labor for both Case 1 and Case 2 below, determine which country has the absolute advantage and comparative advantage in which good.

Example Case 1

To determine who has a comparative advantage in which good, we will need to calculate opportunity costs of good X and good Y in each country first.

In the case of Country A above, the opp. cost of X (in terms of Y) is the number of units of Good Y Country A should give up in order to produce one more unit of Good X.   To find out this, we can simply divide the number of Good X and Good Y per unit of labor in each cell by 60, respectively, so that we can see how many units of Good Y Country A should give up to produce one more unit of Good X in Country A.   As shown above, it will be 1.33.  

By the same token, in the case of Country A, the opp. cost of Y (in terms of X) is the number of units of Good X Country A should give up in order to produce one more unit of Good Y.   To find out this, we can simply divide the number of Good Y and Good X per unit of labor in each cell by 80, respectively, so that we can see how many units of Good X Country A should give up to produce one more unit of Good Y in Country A.   As shown above, it will be 0.75.  

1. Which country has an absolute advantage in producing X and Y, respectively?

Hint) Per unit of labor, which country is producing Good X (Good Y) more in absolute terms?

2. Country A has a comparative advantage in producing:

3. Country B has a comparative advantage in producing:

Case 2

1. Which country has an absolute advantage in producing wine and wool, respectively?

2. Portugal has a comparative advantage in producing:

3. The U.K. has a comparative advantage in producing:

Case 3. Now assume that country “American” can produce either 20 songs or 40 boxes of roses per week. Assume that country “Eagle” can produce 10 songs or 50 boxes of roses per week. Consider the usual assumptions holding other things constant.

1. Which has a comparative advantage in the production of songs?

2. Which has a comparative advantage in the production of roses?

3. If each produces songs for one week and then roses for one week, show the total    production of both goods.

4. Now, assume each country specializes for two weeks. Indicate the total production of both goods. Show that trade between the two countries after this two-week period can allow both countries to consume both more roses and songs.

Has the Federal Reserve done more harm than good? This is not a simple yes or no question. I need you to fully explain your answer with at least one source cited.

Response must be at least 250 words

2. Which of the following costs are always increasing as output increases? (a) Variable Cost only (b) Fixed Cost only (c) Marginal Cost only (d) Total Cost only (e) Total Cost and Variable Cost

3.A firm has a Cobb-Douglas production function ? = 50√ ??. This function exhibits a constant return to scale. The total cost function for this production process is ? ? = ? · √ ?·? 50 , where ? is output level, ? and ? are prices of labor and capital. The marginal cost of production for this function is: (a) Constant. (b) Increasing. (c) Decreasing. (d) None of the above.

4. If some production function ?(?, ?) exhibits an increasing return to scale, then the marginal cost of production decreases as output level increases. (a) True. (b) False. (c) Not enough information given. (d) None of the above.

5. It will never cost more to produce a certain amount of output in the long run than in the short run. (a) True. (b) False. (c) Not enough information given. (d) None of the above.

why might it be better for governments to borrow money from foreign countries or entities than borrowing domestically

Why is it important to study the internal resources, capabilities, and activities of firms? What insights can be gained?

The inverse market demand for clothing is P=48–2Q and the cost function is C=Q².

1 Calculate the optimal profit of a monopolist.

Assume now that the monopolist can choose whether to continue operating in the market as a monopolist or set up two branches that operate in the market as Cournot duopolists (duopolist branching). Each branch will face the same quadratic cost function as the original monopolist.

2 Calculate the optimal profit under the duopoly branching. Will the firm prefer to produce with one or two branches? Explain whether this is counter intuitive.

3 Every unit of output Q generates a social cost of 10. The government chooses to pass on that cost to the firm as a lump sum to pay. In this situation, does the firm prefer to produce with one or with two branches operating as Cournot duopolists?

Income: The 5 boroughs: Manhattan, Bronx, Queens, Brooklyn, Staten Island. (Census)

a)    Make a graph comparing the poverty rate for all people in the 5 boroughs.

b)    Make a graph comparing the median 2016 household incomes in the 5 boroughs.

c)    Provide data analysis in 2-4 sentences

_____ 1. Which of the following statements about a monopoly is false?

1. With price discrimination deadweight loss is smaller but consumer surplus is also smaller
2. For a monopolized market to stay monopolized there have to be barriers to entry
3. With a monopoly, price will equal marginal cost
4. The more inelastic the demand, the higher the mark up of price over marginal cost

_____ 2. Which of the following statements about externalities is true?

1. A positive consumption externality will result in over consumption. The government should subsidize consumers to fix it.
2. If there's a negative production externality like pollution, the government should set a tax high enough so that the externality is completely eliminated
3. With a positive externality in consumption social benefit is above private benefit
4. Negative externalities create inefficiency but positive externalities improve it

2. True or False

1. In the long run, demand is more price elastic than in the short run

TRUE                                                              FALSE

2. An increase in the number of firms will result in higher price and lower consumer surplus

TRUE                                                              FALSE

3. If one country has absolute advantage in all goods then it cannot benefit from trade with another country

TRUE                                                              FALSE

4. If the number of firms in the market increases then consumer surplus will go down

TRUE                                                              FALSE

In general,according to common law,first-degree murderers and second-degree murderers could be executed.

true
false

. Complete the following:

a. If the tax multiplier is -1, then the marginal propensity to save is _________ the marginal propensity to consume.

b. If the government spending multiplier is 8, then the marginal propensity to save equals______.

c. If the marginal propensity to consume is two times the marginal propensity to save, then the government spending multiplier equals _______.

d. If the marginal propensity to save is 0.5, then the tax multiplier equals _______.

e. If the marginal propensity to save increases by 10 percent, then the government spending multiplier ________.

f. If the marginal propensity to consume goes from 0.8 to 0.85, then the tax multiplier _________.

g. If the tax multiplier increases (in absolute value) from -1 to -2, this means that the marginal propensity to consume has ______ relative to the marginal propensity to save.

h. If the government spending multiplier decreases from 5 to 4, this means that the marginal propensity to save has _______.

Discuss the objective of firm in production, also discuss the optimum level of inputs application in production for profit maximization to the firm and explain the three stages of return to scale in the production process.        

Explain the pshychology behind the suport and resistance levels that can be observed in price charts.

Suppose that in a year, an American worker can produce 100 shirts or 20 computers, while a Chinese worker can produce 100 shirts or 10 computers. we can describe the production possibilities of the Americans and the Chinese in a table:

Q1. (1pt) Which country has an absolute advantage in the production of each good?

Q2. (2 pts)Calculate the opportunity cost of producing each good for both countries. For example, to fill out the blank at the top-left corner. Answer this question: ‘In America, how many computers should they give up to produce a shirt?’ Don’t forget the proper unit. Show your work.

Q3. (1pt) According to your answers in Q2, which country has a comparative advantage in shirts? Computers?

Q4. (2 pts) Now allow American and China to trade with each other. Suppose the terms of trade are 0.25 computers per shirt. What does this mean?

Q5. (3 pts) Suppose the U.S. and China produce the goods that they have comparative advantages and consider the trade with each other. With the ‘TOT is 0.25 computers per shirt’. Can trade occur? Are they willing to buy the good that they do not produce from the other country? Is this deal better off for both countries?

Q6. (5 pts) Now allow American and China to trade with each other. Find a mutually agreeable trade that makes each country better off than it was before it specialized. What is the range of TOT at which trade can occur?

Q7. (1 pt) List the determinants of the terms of trade. What do factors affect the level of the terms of trade?