Question

Ross and Rachel produce clay pots and garden gnomes. The first table shows Ross’s production possibilities and the second table shows Rachel’s production possibilities. Each week, Ross produces 4 clay pots and 32 garden gnomes and Rachel produces 8 clay pots and 4 garden gnomes.

Ross’s Production Possibilities

Clay Pots (per week)	Garden Gnomes (per week)
20	0
16	8
12	16
8	24
4	32
0	40

Rachel’s Production Possibilities

Clay Pots (per week)	Garden Gnomes (per week)
16	0
8	4
0	8

INTRODUCTION TO MICROECONOMICS ECON 101 ONLINE

6. Using FACT #1, what is Ross’s opportunity cost of producing 1 clay pot? What is Ross’sopportunity cost of producing 1 garden gnome?

A) 8 garden gnomes; 18 clay pots. B) 18 garden gnomes; 8 clay pots. C) 2 garden gnomes; 12 clay pots. D) 12 garden gnomes; 2 clay pots.

7. Using FACT #1, what is Rachel’s opportunity cost of producing 1 clay pot? What is Rachel’sopportunity cost of producing 1 garden gnome?

A) 8 garden gnomes; 18 clay pots. B) 18 garden gnomes; 8 clay pots. C) 2 garden gnomes; 12 clay pots. D) 12 garden gnomes; 2 clay pots.

8. Using FACT #1, who has the comparative advantage in producing garden gnomes? Who has the comparative advantage in producing clay pots?

A) Ross; Rachel. B) Ross; Ross.
C) Rachel; Ross. D) Rachel; Rachel.

9. Using FACT #1, what are the overall net gains from specialization and trade?

A) 16 clay pots and 40 garden gnomes. B) 4 clay pots and 4 garden gnomes. C) 8 clay pots and 4 garden gnomes. D) 8 clay pots and 20 garden gnomes.

Answer 1

	Clay Pots (per week)	Garden Gnomes (Per week)
Ross	20	40
Rachel	16	8

Ross can make either a maximum of 20 clay pots or 40 garden gnomes per week

Rachel can make either a maximum of 16 clay pots or 8 garden gnomes per week.

---------------------------------------------------------------

(6)

Ross opportunity cost of producing 1 clay pot = (maximum production of garden gnomes / maximum production of clay pots)

Ross opportunity cost of producing 1 clay pot = (40 / 20)

=> Ross opportunity cost of producing 1 clay pot = 2

Therefore, Ross opportunity cost of producing 1 clay pot is 2 garden gnomes.

-------

Ross opportunity cost of producing 1 garden gnomes = (maximum production of clay pots / maximum production of garden gnomes )

Ross opportunity cost of producing 1 garden gnomes = (20 / 40)

=> Ross opportunity cost of producing 1 garden gnomes = 1/2

Therefore, Ross opportunity cost of producing 1 garden gnomes is 1/2 clay pots.

Answer: Option (C)

--------------------------------------------------------------------------------------------------

(7)

Rachel opportunity cost of producing 1 clay pot = (maximum production of garden gnomes / maximum production of clay pots)

Rachel opportunity cost of producing 1 clay pot = (8 / 16)

=> Rachel opportunity cost of producing 1 clay pot = 1/2

Therefore, Rachel opportunity cost of producing 1 clay pot is 1/2 garden gnomes.

-------

Rachel opportunity cost of producing 1 garden gnomes = (maximum production of clay pots / maximum production of garden gnomes )

Rachel opportunity cost of producing 1 garden gnomes = (16 / 8)

=> Rachel opportunity cost of producing 1 garden gnomes = 2

Therefore, Rachel opportunity cost of producing 1 garden gnomes is 2 clay pots.

Answer: Option (D)

--------------------------------------------------------------------------------

(9) Rachel opportunity cost of producing 1 clay pot is lower than Ross opportunity cost of producing 1 clay pot. It means Rachel has a comparative advantage in clay production.

Ross opportunity cost of producing 1 garden gnomes is lower than Rachel opportunity cost of producing 1 garden gnomes. It means Ross has a comparative advantage in garden gnomes production.

Answer: Option (A)

------------------------------------------------------------------------------

(10) After comparative advantage Ross will specialize in garden gnomes and produce only garden gnomes and Rachel will specialize in clay pots produce only clay pots.

After comparative advantage and specilazaton production:

Ross: 40 garden gnomes and 0 clay pots

Rachel: 0 garden gnomes and 16 clay pots.

Therefore, total 40 garden gnomes anf 16 clay pots are produced after comparative advantage.

-------

Before comparative advantage and specilazaton production:

Ross : 32 garden gnomes and 4 clay pots

Rachel :4 garden gnomes and 8 clay pots

Therefore, total 36 garden gnomes anf 12 clay pots are produced before comparative advantage.

------------------------------------------

Increase in production of garden gnomes after comparative advantage (specilazaton)= 40 -36 = 4

Increase in production of clay pots after comparative advantage (specilazaton) = 16 - 12 = 4

Answer: Option (B)