(a) Define the following terms: (1) Absolute advantage; (2) Comparative advantage. Consider the following table, where the numbers indicate the number of hours needed to make 1 unit of each good: Bread Butter Jack 1 1 Jill 4 1 Who has an absolute advantage in producing each of the two goods? Who has a comparative advantage in producing each of the two goods? (b) Suppose Jack and Jill each have 8 hours of labour. Draw the Production Possibilities Frontier for Jack and Jill. If before trade both Jack and Jill each spend half their time producing each good, label the no-trade production point in your graph. (c) Now suppose that Jack and Jill are allowed to trade with each other. Suppose that the free trade relative price is 2 butter for 1 bread. Add the free trade price line to the diagram of the Production Possibilities Frontier, and show the free trade production and consumption points. What will Jack and Jill produce in the free trade equilibrium? Will both Jack and Jill gain from trade? Explain your answers.

Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter2: Some Tools Of The Economist
Section: Chapter Questions
Problem 7CQ
icon
Related questions
Question
(a) Define the following terms: (1) Absolute advantage; (2) Comparative advantage.
Consider the following table, where the numbers indicate the number of hours
needed to make 1 unit of each good:
Bread
Butter
Jack
1
1
Jill
4
1
Who has an absolute advantage in producing each of the two goods? Who has a
comparative advantage in producing each of the two goods?
(b) Suppose Jack and Jill each have 8 hours of labour. Draw the Production
Possibilities Frontier for Jack and Jill. If before trade both Jack and Jill each spend
half their time producing each good, label the no-trade production point in your
graph.
(c) Now suppose that Jack and Jill are allowed to trade with each other. Suppose that
the free trade relative price is 2 butter for 1 bread. Add the free trade price line
to the diagram of the Production Possibilities Frontier, and show the free trade
production and consumption points. What will Jack and Jill produce in the free
trade equilibrium? Will both Jack and Jill gain from trade? Explain your answers.
Transcribed Image Text:(a) Define the following terms: (1) Absolute advantage; (2) Comparative advantage. Consider the following table, where the numbers indicate the number of hours needed to make 1 unit of each good: Bread Butter Jack 1 1 Jill 4 1 Who has an absolute advantage in producing each of the two goods? Who has a comparative advantage in producing each of the two goods? (b) Suppose Jack and Jill each have 8 hours of labour. Draw the Production Possibilities Frontier for Jack and Jill. If before trade both Jack and Jill each spend half their time producing each good, label the no-trade production point in your graph. (c) Now suppose that Jack and Jill are allowed to trade with each other. Suppose that the free trade relative price is 2 butter for 1 bread. Add the free trade price line to the diagram of the Production Possibilities Frontier, and show the free trade production and consumption points. What will Jack and Jill produce in the free trade equilibrium? Will both Jack and Jill gain from trade? Explain your answers.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Absolute Advantage
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Microeconomics: Private and Public Choice (MindTa…
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Macroeconomics: Private and Public Choice (MindTa…
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours…
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Microeconomics
Microeconomics
Economics
ISBN:
9781337617406
Author:
Roger A. Arnold
Publisher:
Cengage Learning