Question

Washington can grow 1 grape or 26 apple bushels per acre and California can grow 20 of either.

1.For Washington to grow one grape, it must give up __ apples.

a)For California to grow one grape, it must give up __ apple.

b)The absolute advantage in apple production is had by:

2.The absolute advantage in grape production is had by:

a)The comparative advantage in apple production is had by:

b)The comparative advantage in grape production is had by:

3.The difference in apples each state must sacrifice to grow a bushel of grapes is __

4.The square route of this difference equals __ apples for each grape- and this will be our terms of trade- though there are other ways to calculate terms of trade.

Answer 1

1. For Washington to grow one grape, it must give up 26 apples.

a) For California to grow one grape, it must give up 20apples/20 grapes = 1 apple.

b) The absolute advantage in apple production is had by Washington
(As it can produce more apples because 26 > 20)

2.The absolute advantage in grape production is had by: California
(As it can produce more grapes because 20 > 1)

a)The comparative advantage in apple production is had by: Washington
(Because California's opportunity cost is lower for grapes so Washington's opportunity cost will be lower for apples and thus Washington has comparative advantage in apple)

b) b)The comparative advantage in grape production is had by: California
(As it has to give up lesser number of apples than Washington)

3. The difference in apples each state must sacrifice to grow a bushel of grapes is 25
(26 apples - 1 apple = 25)

4. The square route of this difference equals _5_ apples for each grape- and this will be our terms of trade- though there are other ways to calculate terms of trade
(Square root of 25 = 5)