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Chapter 33: Q. 22. (page 804)

You just got a job in Washington, D.C. You move into an apartment with some acquaintances. All your roommates, however, are slackers and do not clean up after themselves. You, on the other hand, can clean faster than each of them. You determine that you are 70% faster at dishes and 10% faster with vacuuming. All of these tasks have to be done daily. Which jobs should you assign to your roommates to get the most free time overall? Assume you have the same number of hours to devote to cleaning. Now, since you are faster, you seem to get done quicker than your roommate. What sorts of problems may this create? Can you imagine a trade-related analogy to this problem?

Short Answer

Expert verified

Trade related analogy is that the roommates will be dependent on me as I work with low opportunity cost.

Step by step solution

01

Step 1. Meaning of comparative advantage.

The ability to produce a product at a relatively lower cost or to produce a higher quantity at the same cost is known as absolute advantage. While, the ability to produce at a realtively lower opportunity cost is known as competitive advantage.

02

Step 2. Jobs assign on the basis of comparative advantage.

In the above question it is given that I an 70% faster at dishes and 10% faster with vacuuming. Thus, on the basis of comparative advantage, I need to assign jobs to my roommates so that the work will be done with lower opportunity cost.

As, I am faster at everything, it may make my roommates resent that they have to help out.

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Most popular questions from this chapter

Why might intra-industry trade seem surprising from the point of view of comparative advantage?

True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.

Table 19.15 shows how the average costs of production for semiconductors (the 鈥渃hips鈥� in computer memories) change as the quantity of semiconductors built at that factory increases.

a. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale?

b. If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors 50,000 semiconductors? 30,000 semiconductors?

c. Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.

What are the two main sources of economic gains from intra-industry trade?

Review the numbers for Canada and Venezuela from Table 19.12 which describes how many barrels of oil and tons of lumber the workers can produce. Use these numbers to answer the rest of this question.

a. Draw a production possibilities frontier for each country. Assume there are 100 workers in each country. Canadians and Venezuelans desire both oil and lumber. Canadians want at least 2,000 tons of lumber. Mark a point on their production possibilities where they can get at least 3,000 tons.

b. Assume that the Canadians specialize completely because they figured out they have a comparative advantage in lumber. They are

willing to give up 1,000 tons of lumber. How much oil should they ask for in return for this lumber to be as well off as they were with no trade? How much should they ask for if they want to gain from trading with Venezuela? Note: We can think of this 鈥渁sk鈥� as the relative price or trade price of lumber.

c. Is the Canadian 鈥渁sk鈥� you identified in (b) also beneficial for Venezuelans? Use the production possibilities frontier graph for Venezuela to show that Venezuelans can gain from trade.
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