Question

In: Economics

2. Suppose both Emma and Hakim have small bakeries. They both produce bread and pastries. Below...

2. Suppose both Emma and Hakim have small bakeries. They both produce bread and

pastries. Below are each of their daily production numbers.

Emma’s Bakery

Bakery Hakim

Bread (doz./day)

Pastries (doz./day)

Bread (doz./day)

Pastries (doz./day)

Who has a comparative advantage in producing bread? And who has a

comparative advantage in producing pastries?

Suppose Emma is currently producing and the market is consuming 2 doz. loaves

of bread and 24 doz. pastries and Hakim is currently producing and the market is

consuming 12 doz. loaves of bread and 18 doz. pastries. If either or both have a

comparative advantage in one product or the other, demonstrate how specializing

in what they have a comparative advantage of will make both better off if they

engage in trad

Solutions

Expert Solution

Emma's Bakery		Bakery Hakim
Bread(doz/pay)	Pastries(doz/day)	Bread(doz/pay)	Pastries(doz/day)
0	30	0	45
2	24	4	36
4	18	8	27
6	12	12	18
8	6	16	9
10	0	20	0

If they produce only Bread or, Pastry their output will be

	Emma's Bakery	Bakery Hakim
Bread (doz/day)	10	20
Pastries(doz/day)	30	45

Now we have to determine the opportunity cost

Opportunity Cost
	Emma's Bakery	Bakery Hakim
1 unit of Bread	3 unit of Pastry	2.25 unit of Pastry
1 unit of Pastries	0.33 unit of Bread	0.44 unit of Bread

	1 unit of bread	1 unit of pastry
Emma's Bakery	3 unit of pastry	0.33 unit of bread
Bakery Hakim	2.25 unit of pastry	0.44 unit of bread

Opportunity cost of producing Bread is low for Bakery Hakim while opportunity cost of producing Pastry is low for Emma's Bakery.

A. Bakery Hakim has comparative advantage in producing Bread.

Emma Bakery has comparative advantage in producing Pastry.

	Emma Bakery		Bakery Hakim
	Bread	Pastry	Bread	Pastry
Before Specialization
Consumption	2	24	12	18
After Specialization
Production	0	30	20	0
Trade Action	4	-10	-4	10
Consumption	4	20	16	10

They will agree for any trade that is greater than 2.25 units of pastry or, less than 3 units of pastry for per unit of bread.

Let us assume they agreed to trade at 1 unit of bread = 2.5 units of pastry. From the given information we can construct the following trade. Please my humble request contact if having any query i will be obliged to you for your generous support. Thank You.

Rahul Sunny answered 9 months ago

Next > < Previous

Related Solutions

(a) Suppose Emma can produce 2 cookie or 6 brownies per hour, and Seamus can produce...

(a) Suppose Emma can produce 2 cookie or 6 brownies per hour, and Seamus can produce 4 cookies or 4 brownies per hour. Explain who has an absolute and who has a comparative advantage for cookies and brownies. (b) How would this explain trade between Emma and Seamus?

Suppose Mary and Tom both work at a bakery making muffins and bread. Both Tom and...

Suppose Mary and Tom both work at a bakery making muffins and bread. Both Tom and Mary have two hours to work. It takes Mary 2 minutes to make a loaf of bread and 10 minutes to make a muffin. John takes 5 minutes to make a loaf of bread and 15 minutes to make a muffin. a) Draw the joint Production Possiblity Frontier for bread and muffins. Be sure to label the x-intercept, the y intercept, the slope along...

A small country both produces and imports bread, the world price of which is $1 per...

A small country both produces and imports bread, the world price of which is $1 per loaf. Production of the bread causes a pleasant smell, which the producers of bread are unable to charge for, and which the people in the country enjoy. In fact, it has been ascertained that the value of this smell to society is $0.50 per loaf. 1. Show and explain why, in the absence of any other policy, a tariff on bread in this country...

Suppose that France and Germany both produce wine and schnitzel. The table below shows combinations of...

Suppose that France and Germany both produce wine and schnitzel. The table below shows combinations of the goods that each country can produce in a day. France Germany Wine (Bottles) Schnitzel (Pounds) Wine (Bottles) Schnitzel (Pounds) 0 12 0 25 1 9 1 20 2 6 2 15 3 3 3 10 4 0 4 5 5 0 1. Who has the comparative advantage in producing wine and who has the comparative advantage in producing schnitzel? A. France has...

4. Suppose we have a market for coffee and pastries. a. Graph the market (no need...

4. Suppose we have a market for coffee and pastries. a. Graph the market (no need to give numbers for endpoints of the budget constraint) and show an optimal consumption bundle. b. Suppose the price of coffee drops. Graph the new budget constraint. c. Now, illustrate the INCOME and SUBSTITUTE effects of the price change and show the new optimum. Remember, you must draw the imaginary budget constraint and then find the tangency on the new budget constraint.

Albany Bakery has the following production technology to produce bread: 1 worker produce 10 breads; 2...

Albany Bakery has the following production technology to produce bread: 1 worker produce 10 breads; 2 workers produce 18 breads; 3 workers produce 27 breads; 4 workers produce 34 breads; 5 workers produce 40 breads; 6 workers produce 45 breads. Each bread is sold for 5 dollars. If the company hires 3 workers, which of the following could be the nominal wage rate? 10 20 30 40 50

Consider the typical HO setting: 2 countries, Colombia and Venezuela, produce two goods, manufactures and bread,...

Consider the typical HO setting: 2 countries, Colombia and Venezuela, produce two goods, manufactures and bread, with two factors, capital and labor. Both countries share the same tastes and the same technology. Manufactures’ production is capital intensive. In Colombia there are 200 units of labor and 200 of capital, in Venezuela there are 40 units of labor and 100 of capital. 1. With respect to factor abundancy, which of the following is true a). Venezuela is both capital abundant and...

Consider the typical HO setting: 2 countries, Colombia and Venezuela, produce two goods, manufactures and bread,...

Consider the typical HO setting: 2 countries, Colombia and Venezuela, produce two goods, manufactures and bread, with two factors, capital and labor. Both countries share the same tastes and the same technology. Manufactures’ production is capital intensive. In Colombia there are 200 units of labor and 200 of capital, in Venezuela there are 40 units of labor and 100 of capital 1. Which of the following is NOT an assumption of the Heckscher Ohlin model? a). Same tastes. b). Factor...

Compare two countries one big economy and one small economy. Suppose that both economies have the...

Compare two countries one big economy and one small economy. Suppose that both economies have the same percentage of Current account deficit to GDP ratio. a) Why do you think current account deficit be an economic problem for these countries?, b) Would it be more problematic in small or big economies? Why?

Question 2 Currently Sam and Carla have the only taxi services in a small town. Both...

Question 2 Currently Sam and Carla have the only taxi services in a small town. Both Sam and Carla are thinking about discounting their respective fares by 20% to attract more business. The possible outcomes of this game are as follows. First: Sam offers discounts, while Carla does not, which will result in Sam earning $1000 in profit and Carla earning $800 in profit. Second: Sam and Carla both offer discounts, which will result in Sam earning $600 in profit...

Subjects