Facts and Tools 1.Use the idea of the “division of knowledge” to answer the following questions. a.Which country has more knowledge: Utopia, where in the words of Karl Marx, each person knows just enough about hunting, fishing, and cattle raising to “hunt in the morning, fish in the afternoon, [and] rear cattle in the evening,” or Drudgia, where one-third of the population learns only about hunting, one- third only about fishing, and one-third only about cattle raising? b.Which planet has more knowledge: Xeroxia, each of whose one million inhabit- ants knows the same list of one million facts, or Differentia, whose one million inhabitants each know a different set of one million facts? How many facts are known in Xeroxia? How many facts are known in Differentia? 1. a.There is more knowledge in Drudgia. SolutionMODERNPRINCIPLES : MACROECONOMICS MODERNPRINCIPLESOFECONOMICS2 2The Power of Trade and Comparative Advantage
2. In the Wealth of Nations, Adam Smith said that one reason specialization makes someone more productive is because “a man commonly saunters a little in turning his hand from one sort of employment to another.” How can you use this observation to improve your pattern of studying for your four or five college courses this semester? Solution
S-1 3.“Opportunity cost” is one of the tougher ideas in economics. Let’s make it easierby starting with some simple examples. In the following examples below, find the opportunity cost:Your answer should be a rate, as in “1.5 widgets per year” or “6 lectures per month.” Ignoring Adam Smith’s insight from the previous question, assume that these relationships are simple linear ones, so that if you put in twice the time you get twice the output, and half the time yields half the output. a.Erin has a choice between two activities: She can repair one transmission per hour or she can repair two fuel injectors per hour. What is the opportunity cost of repairing one transmission? Cowen3e_CH02_Solutions.indd126/06/158:13 PM
