Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 2, Problem 2.2.12PA
To determine
Impact of decreasing transportation cost.
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Suppose you have a team of two workers: one is a baker and one is a chef. Your baker is talented but is inexperienced. Your chef is not only an elite chef but is also faster at baking.
If your kitchen specialized according to absolute advantage, who would do the cooking? Who would do the baking?
If your kitchen specialized according to comparative advantage, who would do the cooking? Who would do the baking?
Which approach above is more efficient? Explain your answer.
What is the relationship between production costs and comparative advantage?
Group of answer choices
Comparative advantage considers, “How much am I giving up to produce this good in this country?”
Comparative advantage identifies the good for which the producer’s absolute advantage is relatively smaller.
Comparative advantage identifies where the producer’s absolute productivity disadvantage is relatively larger.
Comparative advantage happens when the production costs for both trading partners are the same.
Jefferson
Franklin
1 wheat 1/2 cotton
The table above shows the number of hours required to produce one
bushel of cotton and one bushel of wheat for Jefferson and Franklin. If
each person specializes according to his comparative advantage(s), a
mutually beneficial price ratio would be
=
1 wheat= 2/3 cotton
1 wheat = 0.4 cotton
Cotton (per bushel)
10 hours
12 hours
1 wheat 1/3 cotton
=
Wheat (per bushel)
5 hours
4 hours
ra
Chapter 2 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 2 - Prob. 1TCCh. 2 - Prob. 2TCCh. 2 - Prob. 2.1.1RQCh. 2 - Prob. 2.1.2RQCh. 2 - Prob. 2.1.3RQCh. 2 - Prob. 2.1.4PACh. 2 - Prob. 2.1.5PACh. 2 - Prob. 2.1.6PACh. 2 - Prob. 2.1.7PACh. 2 - Prob. 2.1.8PA
Ch. 2 - Prob. 2.1.9PACh. 2 - Prob. 2.1.10PACh. 2 - Prob. 2.1.11PACh. 2 - Prob. 2.1.12PACh. 2 - Prob. 2.1.13PACh. 2 - Prob. 2.1.14PACh. 2 - Prob. 2.2.1RQCh. 2 - Prob. 2.2.2RQCh. 2 - Prob. 2.2.3PACh. 2 - Prob. 2.2.4PACh. 2 - Prob. 2.2.5PACh. 2 - Prob. 2.2.6PACh. 2 - Prob. 2.2.7PACh. 2 - Prob. 2.2.8PACh. 2 - Prob. 2.2.9PACh. 2 - Prob. 2.2.10PACh. 2 - Prob. 2.2.11PACh. 2 - Prob. 2.2.12PACh. 2 - Prob. 2.2.13PACh. 2 - Prob. 2.2.14PACh. 2 - Prob. 2.2.15PACh. 2 - Prob. 2.3.1RQCh. 2 - Prob. 2.3.2RQCh. 2 - Prob. 2.3.3RQCh. 2 - Prob. 2.3.4RQCh. 2 - Prob. 2.3.5RQCh. 2 - Prob. 2.3.6RQCh. 2 - Prob. 2.3.7PACh. 2 - Prob. 2.3.8PACh. 2 - Prob. 2.3.9PACh. 2 - Prob. 2.3.10PACh. 2 - Prob. 2.3.11PACh. 2 - Prob. 2.3.12PACh. 2 - Prob. 2.3.13PACh. 2 - Prob. 2.3.14PACh. 2 - Prob. 2.3.15PACh. 2 - Prob. 2.3.16PA
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- If a consultant earns P500 an hour from his consulting jobs but can also type better and faster than his secretary who gets P50 per hour, does it pay for the consultant to fire his secretary and do his own typing? (Justify your answer by relating this to the law of comparative advantage.)arrow_forwardGhana imports and exports food from and to neighbouring Côte d'Ivoire. The latter nation is very similar to Ghana in most ways. It has a similar environment, a similar level of education, and similar institutional background. Would you argue that trade between the two countries can be explained by comparative advantage? Why or why not? Ghana also exports food to Switzerland. The latter nation is very different to Ghana in most ways. Would you argue that trade between the two countries can be explained by comparative advantage? Why or why not?arrow_forwardGhana imports and exports food from and to neighbouring Côte d'Ivoire. The latter nation is very similar to Ghana in most ways. It has a similar environment, a similar level of education, and similar institutional background. Would you argue that trade between the two countries can be explained by comparative advantage? Why or why not? Ghana also exports food to Switzerland. The latter nation is very different to Ghana in most ways. Would you argue that trade between the two countries can be explained by comparative advantage? Why or why not? Explain import substitution industrialisation and how it can affect Ghana. What role does learning by doing play and when does it make sense for the government to interfere? Ghana’s president’s ISI strategy is to ask Switzerland to adopt a voluntary export restraint (VER). He believes that this is likely to increase Ghanaian welfare. Using two diagrams (one for each country) explain the Ghanaian welfare consequences of this policy.arrow_forward
- Question 1/1 What do you know about globalization? Using the thinking map below, connect words that you can associate to this concept? [Your expression must be based on your own prior knowledge...]arrow_forwardConsider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2 (with labor and land). Initially, both countries have the same supply of labor (250 units each), capital, and land. The capital stock in Home then grows. This change shifts out both the production curve for good 1 as a function of labor employed and the associated marginal product of labor curve. Nothing happens to the production and marginal product curves for good 2. a. Show how the increase in the supply of capital for Home affects its production possibility frontier. Using the three-point curved line drawing tool, draw a new PPF for Home that reflects the increase in the supply of capital. Properly label the curve. Carefully follow the instructions above and only draw the required object. Output of good 2 250 Home 250 PPF0 Output of good 1 Qarrow_forwardAs the manager at a local florist, you supervise two employees, Anita and Jerome. There are two tasks that need to be completed: floral arrangements and flower delivery. It takes Anita 30 minutes to finish one floral arrangement and it takes her 40 minutes to make one delivery. It takes Jerome 10 minutes to finish one floral arrangement and it takes him 30 minutes to make one delivery. a. Who has a comparative advantage in floral arrangements? What about deliveries? b. Suppose, initially, Jerome and Anita each spent 4 hours each day doing floral arrangements and 2 hours each day doing deliveries. If you changed their tasks so that each individual did nothing but the task for which they had a comparative advantage, how many more floral arrangements would your store make, and how many more deliveries?arrow_forward
- At the start of 2010 a new free trade area was established incorporating China and the six founding members of the Association of South East Asian Nations (ASEAN). These countries are Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand. The aim is to eliminate 90% of imported goods. This deal created the largest trade area in the world, with nearly 1.9bn people. Although there are undoubted gains there have also been warnings from South East Asia that some industries are not ready to compete with China and that jobs will be lost. Questions What is a free trade area? Outline the potential advantages and disadvantages of joining this area for the member countries. What factors determine the extent to which industries within a country gain or lose?arrow_forwardThe principle of comparative advantage does not provide answers to certain questions. One of those questions is Do specialization and trade benefit more than one party to a trade? Is it absolute advantage or comparative advantage that really matters? How are the gains from trade shared among the parties to a trade? Is it possible for specialization and trade to increase total output of traded goods?arrow_forwardAt the start of 2010 a new free trade area was established incorporating China and the six founding members of the Association of South East Asian Nations (ASEAN). These countries are Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand. The aim is to eliminate 90% of imported goods. This deal created the largest trade area in the world, with nearly 1.9bn people. Although there are undoubted gains there have also been warnings from South East Asia that some industries are not ready to compete with China and that jobs will be lost. Question: What factors determine the extent to which industries within a country gain or lose?arrow_forward
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