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Nick Connolly
FIN 417
Dr. Griffiths
08/31/2011
Comparative advantage exercises
Due at noon Thursday, January 20, 2011
Consider two countries, Miamiland and Buckeye State. Workers in each country (known as
“students”) are capable of producing one of two goods, truth or beauty. Truth comes in units
called “propositions” and beauty in units called “objects.” Buckeye State has 1000 workers,
while Miamiland has 500 workers.
Suppose each Buckeye State student can produce 4 beautiful objects in an hour, or 1 true
proposition. Each Miamilander can produce 6 beautiful objects in an hour or 3 true propositions.
1.
Consider the PPF (production possibilities frontier) per hour for each country. How much
can each country make in an hour?
Remember there are a different number of students in
country. Draw the PPF for each country. Put truth on the yaxis and beauty on the xaxis.
(Truth over beauty.) Label the intercepts and axes. Do this on a total
NOT
per worker
basis.
MiamiLand can make 1,500 Truths per hour and 3,000 Beauty per hour while,
Buckeye State can make 1,000 Truths per hour and 4,000 Beauties per hour.
(y)
Truth
(x)
Beauty
2.
Which country has an absolute advantage in truth?
Miami Land
3.
Which country has an absolute advantage in beauty?
Miami Land
4.
Which country is more productive (on a per worker basis) in truth?
Miami Land
5.
Which country is more productive (on a per worker basis) in beauty?
Buckeye State
6.
What is Miamiland’s opportunity cost of producing truth? Evaluate this on an hourly
basis per worker.
500 * (3/6)= 250
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What is Buckeye State’s opportunity cost of producing truth? Evaluate this on an hourly
basis per worker.
1000 * (1/4) = 250
8.
What is Miamiland’s opportunity cost of producing beauty (create an equation that
expresses
b
in terms of
t
)?
500 * (6/3)= 1,000
9.
What is Buckeye State’s opportunity cost of producing beauty (create an equation that
expresses
b
in terms of
t
)?
1000 * (4/1)= 4,000
10. Which country has a comparative advantage in truth?
Buckeye State
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This note was uploaded on 11/15/2011 for the course FIN 417 taught by Professor Griffith during the Fall '11 term at Miami University.
 Fall '11
 Griffith

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