PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 2, Problem 6P
(a)
To determine
The maximum number of pounds of coffee beans and nuts that Tom and Susan can gather in a day.
(b)
To determine
Changes in the quantity of coffee and nuts if they decide to gather 8 pounds of coffee per day.
(c)
To determine
Whether a combination of 26 pounds of nuts and 20 pounds of coffee per day is attainable or not.
(d)
To determine
Whether a combination of 30 pounds of coffee per day and 12 pounds of nuts per day is attainable or not.
(e)
To determine
The
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Suppose there are two countries, Home and Foreign, that produce two goods, fish (F) and edamame (E), using only labor. In the Home country 6 units of labor are required to produce each unit of fish and the same for each unit of edamame. In the Foreign country, 2 units of labor is required to produce each fish and 3 units of labor are required for each unit of edamame. Each country has a labor force of 30 units available for production.
Suppose further that consumers in both countries have identical Leontief preferences, utility function U(CF, CE) = min(CF, CE), meaning that they want to consume the two goods in a fixed proportion of one-to-one, i.e. CF = CE (there is no substitution between the goods).
Suppose now that the labor force of the Home country is 6 times as big (i.e. 180 units, instead of 30).
How does this increase in labor force at Home change the pattern of trade?
Will the gains from trade for the Home country be higher or lower now? What happens to the welfare of the…
Once again, consider Babs and Donna, who can each produce cake, beer, or some combination of
the two using only 40 hours of labor each. Babs can produce a maximum of 50 cakes if she
produces no beer, and 100 units of beer if she produces no cake. Donna can produce a maximum
of 100 cakes with no beer produced; if she makes no cake, she can produce 120 units of beer.
In autarky, each producer spent half of her time producing cake and the other half producing
beer. But now let's say that Babs and Donna decide to trade with each other. They decide that
each producer will fully specialize in the good where she has comparative advantage. Later, they
will work out the details on how much beer will trade for how many cakes and vice versa.
Calculate the gains in trade in cakes that Babs and Donna together (as a group) will experience
due to trading. In other words, tell me how many more cakes the two of them can now consume
(together) by trading instead of remaining in autarky.
(Carefully…
Once again, consider Babs and Donna, who can each produce cake, beer, or some combination of
the two using only 40 hours of labor each. Babs can produce a maximum of 50 cakes if she
produces no beer, and 100 units of beer if she produces no cake. Donna can produce a maximum
of 100 cakes with no beer produced; if she makes no cake, she can produce 120 units of beer.
In autarky, each producer spent half of her time producing cake and the other half producing
beer. But now let's say that Babs and Donna decide to trade with each other. They decide that
each producer will fully specialize in the good where she has comparative advantage. Later, they
will work out the details on how much beer will trade for how many cakes and vice versa.
Calculate the gains in trade in cakes that Babs and Donna together (as a group) will experience
due to trading. In other words, tell me how many more cakes the two of them can now consume
(together) by trading instead of remaining in autarky.
(Carefully…
Chapter 2 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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