Question

In: Economics

Problem Set 2 is due in class on Thursday, February 7. There are two workers in...

Problem Set 2 is due in class on Thursday, February 7.

  1. There are two workers in an economy, Maeve and Dolores. They can make either cowboy hats or lassos. In one day, Maeve can make 40 cowboy hats, or she can make 20 lassos. In the same day, Dolores can make 30 cowboy hats, or she can make 10 lassos.
    1. What is the opportunity cost of a cowboy hat for Maeve?
    2. What is the opportunity cost of a lasso for Maeve?
    3. What is the opportunity cost of a cowboy hat for Dolores?
    4. What is the opportunity cost of a lasso for Dolores?
    5. Who has the absolute advantage in making cowboy hats?
    6. Who has the absolute advantage in making lassos?
    7. Who has the comparative advantage in making cowboy hats?
    8. Who has the comparative advantage in making lassos?
    9. Can Dolores and Maeve benefit by trading with each other? If so, at what range of prices might they be able to trade and still benefit?
  2. There are two workers in an economy, Calvin and Hobbes. They can each make either water balloons or sleds. In one day, Calvin can make 15 water balloons, or he can make 30 sleds. In one day, Hobbes can make 20 water balloons, or he can make 20 sleds.
    1. What is the opportunity cost of a water balloon for Hobbes?
    2. What is the opportunity cost of a sled for Hobbes?
    3. What is the opportunity cost of a water balloon for Calvin?
    4. What is the opportunity cost of a sled for Calvin?
    5. Who has the absolute advantage in making sleds?
    6. Who has the absolute advantage in making water balloons?

1

  1. Who has the comparative advantage in making sleds?
  2. Who has the comparative advantage in making water balloons?
  3. Can Calvin and Hobbes benefit by trading with each other? If so, at what range of prices might they be able to trade and still benefit?

Solutions

Expert Solution

Answer :

A)

Opportunity cost for 1 cowboy hat for maeve =Output of Lassos maeve/ Output of cowboy hat for maeve=20/40=0.5 lassos eq 1

B)

Opportunity cost for 1 lassos for maeve=40/20=2 cowboy hat. Eq 2

C)

Opportunity cost for 1 cowboy hat for Dolores =10/30=0.33 Lassos eq 3

D)

Opportunity cost for 1 lassos for Dolores= 30/10=3 cowboy hat  eq 4

E) Since Maeve produce more cowboy hats than Dolores in a day so maeve has absolute advantage for cowboy hat.

F) Since Maeve produce more Lassos than Dolores in a day so Maeve has absolute advantage for Lassos

G) from equation 1 & 3 we find that opportunity cost for producing 1 cowboy hat is less for Dolores than Maeve so Dolores has competitive advantage for cowboy hat.

H) from equation 2 & 4 we find that opportunity cost for producing 1 lassos is less for Maeve than Dolores so maeve has competitive advantage for producing lassos.

Rahul Sunny answered 2 years ago
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