sol_even_2.ppt

sol_even_2.ppt - Chapter 2 2. Ted can wax a car in 20...

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Chapter 2
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2. Ted can wax a car in 20 minutes or wash a car in 60 minutes. Tom can wax a car in 15 minutes or wash a car in 30 minutes. What is each man’s opportunity cost of washing a car? Who has comparative advantage in washing cars?
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2. Wax car Wash car Ted 20 minutes 60 minutes Tom 15 minutes 30 minutes Note: the information given is in “minutes” Ted opportunity cost of washing a car: 60 minutes/20 minutes = 3 waxing job Tom opportunity cost of washing a car: 30 minutes/15 minutes = 2 waxing job Since Tom has a lower opportunity cost of washing a car than Ted does, Tom has a comparative advantage in washing cars.
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4. Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a comparative advantage.
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4. Clutch Brake Nancy 4 hours 2 hours Bill 6 hours 2 hours Note: the information given is in “hours” Absolute advantage: the one who takes fewer hours to perform a task Nancy has an absolute advantage in replacing clutches over Bill. Since it takes her 2 hours less than it takes Bill to perform that job. For brake, each takes the same amount of time to replace a set of brakes. So, neither person has an absolute advantage in replacing a set of brakes .
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Nancy’s opportunity cost in replacing a clutch: 4 hours/2hours = 2 of a set of brakes Bill’s opportunity cost in replacing a clutch: 6 hours/2 hours = 3 hours Nancy’s opportunity cost in replacing a clutch is lower than Bill’s opportunity cost. Nancy has a comparative advantage in replacing clutch. Bill has a comparative advantage in replacing a set of brakes.
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1. Refer to Q5. Which of the points listed below is efficient? Which is attainable? a) 28 dresses per day, 16 loaves per day b) 16 dresses per day, 32 loaves per day c) 18 dresses per day, 24 loaves per day Q5) Sewing dresses Baking bread 4 dresses/hour 8 loaves/hour (She works total of 8 hours per day)
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6a) 28 dresses per day, 16 loaves per day She can sew 4 dresses / hour, 8 loaves / hour If she wants to make 28 dresses: 28 dresses / 4 dresses = 7 hours (so, she needs to spend 7 hours on sewing dress if she wants to make 28 dresses per day) If she wants to make 8 loaves: 16 loaves / 8 loaves = 2 hours ( so, she needs to spend 2 hours on baking bread if she wants to bake 8 loaves per day)
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This note was uploaded on 09/06/2010 for the course FBE ECON1001 taught by Professor Dr.demurger during the Fall '08 term at HKU.

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sol_even_2.ppt - Chapter 2 2. Ted can wax a car in 20...

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