Ch3ak - Econ 2 Principles of Economics Chapter 3 Questions for Review 1 Absolute advantage reflects a comparison of the productivity of one person

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1 Econ 2: Principles of Economics Chapter 3 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 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. Problems and Applications 1. a. See Figure 2. If Maria spends all five hours studying economics, she can read 100 pages, so that is the vertical intercept of the production possibilities frontier. If she spends all five hours studying sociology, she can read 250 pages, so that is the horizontal intercept. The opportunity costs are constant, so the production possibilities frontier is a straight line. Figure 2
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This note was uploaded on 04/01/2008 for the course ECON 2 taught by Professor Hou during the Winter '07 term at UCLA.

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Ch3ak - Econ 2 Principles of Economics Chapter 3 Questions for Review 1 Absolute advantage reflects a comparison of the productivity of one person

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