Question

1. Discuss what you think economics is concerned with addressing.

2. Imagine that two countries, A and B, can produce just two goods, widgets and somethings. Assume that for a given amount of land and capital, the output of these two products requires the following constant amounts of labour:

Production	Country A Labour	Country B Labour
1 of Widget	4	5
60 of Something	5	10

Assume that each country has 30 million workers.

(i) If there is no trade, and in each country 20 million workers produce widgets and 10 million workers produce something, how many widgets and how many something will each country produce? What will be the total production of each product?

(ii) What is the opportunity cost of a widget in: (i) Country A; (ii) Country B?

(iii) What is the opportunity cost of 60 something in: (i) Country A; (ii) Country B

(iv) Which country has a comparative advantage in which product?

(v) Explain the principle of increasing opportunity cost and does this   example illustrate the principle of increasing opportunity cost.

(vi) What change might shift both countries production possibilities frontier outwards.

Answer 1