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PP_Slides_Class_24_Monday_April_14

PP_Slides_Class_24_Monday_April_14 - Good Morning Class 24...

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Good Morning!! Class 24 Monday, April 14
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1. If the production possibilities frontier were a straight line a. the opportunity cost of producing one good would remain the same as more of another good is produced b. the opportunity cost of producing one good would increase as more of another good is produced c. the Law of Increasing Cost would still apply d. the opportunity cost of producing one good would decrease as more of another good is produced
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United States Australia possibility oil coal oil coal A 100 0 200 0 B 50 25 100 20 C 0 50 0 40 1. The cost of an extra unit of oil in the US in terms of coal given up is a. 25 b. 50 c. 2 d. 1/2
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United States Australia possibility oil coal oil coal A 100 0 200 0 B 50 25 100 20 C 0 50 0 40 3. The cost of an extra unit of coal in Australia in terms of oil given up is a. 100 b. 20 c. 5 d. 1/5
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United States Australia possibility oil coal oil coal A 100 0 200 0 B 50 25 100 20 C 0 50 0 40 1. A comparative advantage in the production of oil is held by a. Australia b. US c. both d. neither
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United States Australia possibility oil coal oil coal A 100 0 200 0 B 50 25 100 20 C 0 50 0 40 5. A comparative advantage in the production of coal is held by a. Australia b. US c. both d. neither
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oil coal US 50 25 Aust 100 20 O C O C US 1 ½ 2 1 Aust 1 1/5 5 1
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Australia has a comparative advantage in oil (1/5 < ½) US has a comparative advantage in coal (2 < 5) Can you tell if either country has an absolute advantage in production of both goods? No No cost or per unit of input data is given
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Production Possibilities Curves
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- If Peru produces only corn, how much can it produce? 80 - If Peru produces only cameras, how many can it produce? 40 - If Pakistan produces only corn, how much can it produce? 40 - If Pakistan produces only cameras, how many can it produce? 80
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corn cameras Peru 80 40 Pakistan 40 80 Can we tell if either country has an absolute advantage in the production of both goods? no - we have no cost information
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determine for what good each country has a comparative advantage corn cameras Peru 80 / 80 = 1 40 / 80 = 1/2 Pakistan 40 / 40 = 1 80 / 40 = 2
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likewise corn cameras Peru 80 / 40 = 2 40 / 40 = 1 Pakistan 40 / 80 = 1/2 80 / 80 = 1
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Rewrite corn cameras Peru 1 ½ Pakistan 1 2 Peru has a comparative advantage in corn because it gives up less cameras to produce 1 corn (smaller opportunity cost)
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