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Econ 101-7/2 PowerPoint PPT Presentation


Econ 101-7/2 . Interdependence and the Gains from Trade (continued). Exercise 1. Here are the PPF for Robinson Crusoe and Friday with 12 hours of labor. Questions. 1. The opportunity cost of 1 pound of fish for Robinson Crusoe and Friday.

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Econ 101-7/2

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Econ 101 7 2 l.jpg

Econ 101-7/2

Interdependence and the

Gains from Trade (continued)


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Exercise 1

Here are the PPF for Robinson Crusoe and Friday with 12 hours of labor.


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Questions

1. The opportunity cost of 1 pound of fish for Robinson Crusoe and Friday.

2. The opportunity cost of 1 pound of coconut for Robinson Crusoe and Friday

3. Robinson Crusoe has a comparative advantage in __ and Friday has a comparative advantage in__

4. Robinson Crusoe has a comparative advantage in __ and Friday has a comparative advantage in__


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Exercise 2

  • George and Martha face these production possibilities frontiers for brownies and cupcakes.


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Questions

  • a. If George and Martha choose not to trade and divide their time equally between the production of brownies and cupcakes, how many of each would they be able to consume?

  • b. Now assume that George and Martha decide to specialize in the good in which they have a comparative advantage and then trade. Who would trade brownies and who would trade cupcakes?

  • c. If George and Martha decide to trade 60 brownies for 60 cupcakes, how many cupcakes and brownies would each have to consume?

  • d. How do we know each is better off with trade than acting alone?


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