ps2 (sol)

ps2 (sol) - ECON 1001 Tutorial 2 Q.1 Suppose that in one...

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Unformatted text preview: ECON 1001 Tutorial 2 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 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 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? 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 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 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...
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ps2 (sol) - ECON 1001 Tutorial 2 Q.1 Suppose that in one...

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