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ps02_sol - ECON1001 ProblemSet#2Solutions Q. following Alex...

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ECON 1001 Problem Set #2 Solutions
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Q.1 Suppose that in one hour Lou and Alex can do the  following: Which of the following is true?  A) Lou has both an absolute and comparative advantage over Alex  in both tasks.  B) Alex has a comparative advantage over Lou in cleaning.  C) Lou has a comparative advantage over Alex in cleaning.  D) Lou has a comparative advantage over Alex in cooking.  E) Both (b) and (d) are true.  Ans: C Alex Lou Whole hour cleaning  3 rooms  5 rooms  Whole hour cooking  3 meals  4 meals  0.5 hour, each  1.5 rooms, 1.5 meals  2.5 rooms, 2 meals 
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Who has absolute advantage? Compare productivity base on same resources (1 hour) Abs adv in CLEANING  == >Lou Abs adv in COOKING ==  Lou Possible to have abs adv on BOTH? Alex Lou 1hour cleaning  3 rooms  5 rooms  1hour cooking  3 meals  4 meals  0.5 hour, each  1.5 rooms, 1.5 meals  2.5 rooms, 2 meals 
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Alex Lou 1hour cleaning  3 rooms  5 rooms  1hour cooking  3 meals  4 meals  0.5 hour, each  1.5 rooms, 1.5 meals  2.5 rooms, 2 meals  To ‘produce’ 1 room, To ‘produce’ 1 meal, Alex = sacrifice 1 meal Alex = sacrifice 1 room Lou = sacrifice 0.8 meal Lou = sacrifice 1.25 room Who has comparative advantage? Compare OPPORTUNITY COST Comp adv in CLEANING == > Lou Comp adv in COOKING == > Alex Possible to have COMPARATIVE adv on BOTH? NO!? WHY?
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Q.2 Alex and Lou have worked out an efficient  arrangement.  Under that arrangement, A) Alex and Lou each spend a half hour on cooking and a half hour  on cleaning.  B) Alex spends all of his time on cleaning, while Lou does all the  cooking.  C) Lou does all of the cleaning and half of the cooking.  D) Lou does all of the household chores.  A) Lou spends all of his time on cleaning, while Alex does all the  cooking  Ans: E
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How much TOTAL OUTPUT if A) Alex = 1.5 R+1.5 M    Lou= 2.5 R+2 M total = 4 R+3.5M  B) Alex = 3 R                 Lou= 4M total = 3 R+4 M  A) Lou: all cleaning+ half cooking.   how much time does it take? Any info?  comparable to other options!? D) Alex = 0 R+0 M           Lou= 2.5 R+ 2M total = 2.5 R+2 M  E)   Alex = 3 M           Lou= 5 R total = 5 R+3 M
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Efficient = econ surplus is maximized = cannot increase output of one good without reducing the output of another good ‘efficient’ arrangement among Alex & Lou = largest total output facing constraint (1 hour) can be achieved by specialization Option Total Output A 4R+3.5M B 3R+4M D 2.5R+2M E 5R+3M How does B compared to E?
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