Problem_Set_One - ECON 251 Instructor: Justin Krieg Problem...

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ECON 251 Instructor: Justin Krieg Problem Set #1 Problem #1 Two individuals, Anna and Bob, are harvesting corn and tomatoes. Anna can harvest 10 bushels of corn OR 6 bushels of tomatoes in one hour. Bob can harvest 4 bushels of corn OR 5 bushels of tomatoes in one hour. a. Who has the absolute advantage in producing tomatoes? In corn? b. What is the marginal cost of harvesting corn for each individual? For producing tomatoes? c. Who has the comparative advantage in harvesting corn? In producing tomatoes? Explain your reasoning. d. Draw individual PPF’s for both Anna and Bob. Explain the relationship between the slope of the PPF and marginal cost for each person. e. Create an Economy-Wide PPF. Show that Anna and Bob are better off allowing the person who has the comparative advantage produce first. (i.e. If Bob has comparative advantage in tomatoes then he should produce tomatoes before Anna does). Problem #2
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This note was uploaded on 01/09/2011 for the course ECON 251 taught by Professor Blanchard during the Summer '08 term at Purdue University-West Lafayette.

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Problem_Set_One - ECON 251 Instructor: Justin Krieg Problem...

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