Chapter 2: Q10 (page 43)
What is comparative advantage?
Short Answer
Comparative advantage is the ability to produce a good with lesser opportunity cost.
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Chapter 2: Q10 (page 43)
What is comparative advantage?
Comparative advantage is the ability to produce a good with lesser opportunity cost.
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What is the difference between a positive and a normative statement?
Suppose Alphonso’s town raised the price of bus tickets to \(1 per trip (while the price of burgers stayed at \)2 and his budget remained $10 per week.) Draw Alphonso’s new budget constraint. What happens to the opportunity cost of bus tickets?
Suppose Alphonso’s town raises the price of bus
tickets from \(0.50 to \)1 and the price of burgers rises
from \(2 to \)4. Why is the opportunity cost of bus tickets
unchanged? Suppose Alphonso’s weekly spending
money increases from \(10 to \)20. How is his budget
constraint affected from all three changes? Explain.
Explain why scarcity leads to tradeoffs.
Return to the example in Figure 2.4. Suppose there is an improvement in medical technology that enables more healthcare with the same amount of resources. How would this affect the production possibilities curve and, in
particular, how would it affect the opportunity cost of education?
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