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Chapter 3 Mankiw Questions

Chapter 3 Mankiw Questions - SOLUTIONS TO TEXT PROBLEMS...

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37 SOLUTIONS TO TEXT PROBLEMS – Chapter 3: Quick Quizzes The answers to the Quick Quizzes can also be found near the end of the textbook. 1. Figure 1 shows Robinson Crusoe’s production possibilities frontier for gathering coconuts and catching fish. If Crusoe lives by himself, this frontier limits his consumption of coconuts and fish, but if he can trade with natives on the island, he will possibly be able to consume at a point outside his production possibilities frontier. Figure 1 2. Crusoe’s opportunity cost of catching one fish is 10 coconuts, since he can gather 10 coconuts in the same amount of time it takes to catch one fish. Friday’s opportunity cost of catching one fish is 15 coconuts, since he can gather 30 coconuts in the same amount of time it takes to catch two fish. Friday has an absolute advantage in catching fish, since he can catch two per hour, while Crusoe can catch only one per hour. But Crusoe has a comparative advantage in catching fish, since his opportunity cost of catching a fish is less than Friday’s. 3. If the world’s fastest typist happens to be trained in brain surgery, he should hire a secretary because the secretary will give up less for each hour spent typing. Although the brain surgeon has an absolute advantage in typing, the secretary has a comparative advantage in typing because of the lower opportunity cost of typing. Questions for Review 1. Absolute advantage reflects a comparison of the productivity of one person, firm, or nation to that of another, while comparative advantage is based on the relative opportunity costs of the persons, firms, or nations. While a person, firm, or nation may have an absolute advantage in producing every good, they cannot have a comparative advantage in every good. 2. Many examples are possible. Suppose, for example, that Roger can prepare a meal of hot dogs and macaroni in just ten minutes, while it takes Anita 20 minutes. Also suppose that Roger can do all the laundry in three hours, while it takes Anita four hours. Roger has an absolute advantage in both cooking and doing the laundry, but Anita has a comparative advantage in
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Chapter 3/Interdependence and the Gains from Trade ) 38 doing the laundry. For Anita, the opportunity cost of doing the laundry is 12 meals; for Roger, it is 18 meals. 3. Comparative advantage is more important for trade than absolute advantage. In the example in problem 2, Anita and Roger will complete their chores more quickly if Anita does at least some of the laundry and Roger cooks the meals for both, because Anita has a comparative advantage in doing the laundry, while Roger has a comparative advantage in cooking. 4. A nation will export goods for which it has a comparative advantage because it has a smaller opportunity cost of producing those goods. As a result, citizens of all nations are able to consume quantities of goods that are outside their production possibilities frontiers.
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