b Which tribe has the comparative advantage in spaghetti production In meatball

# B which tribe has the comparative advantage in

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b. Which tribe has the comparative advantage in spaghetti production? In meatball production? In A . D . 100 the Frivoli discover a new technique for making meatballs that doubles the quantity of meatballs they can produce each month. c. Draw the new monthly production possibility frontier for the Frivoli. d. After the innovation, which tribe now has an absolute advantage in producing meatballs? In producing spaghetti? Which has the comparative advantage in meat- ball production? In spaghetti production? 4. a. The accompanying diagram shows the production possibility frontier for the Tivoli in panel (a) and for the Frivoli as the line labeled “Original Frivoli PPF ” in panel (b). The production possibility frontier for the Tivoli was calculated as follows: the Tivoli can produce either 30 pounds of spaghetti and no meatballs, or they can produce no spaghetti but 50 pounds of meatballs. That is, the opportunity cost of 1 pound of meatballs is 3 / 5 of a pound of spaghetti: in order to produce 1 more pound of meatballs, the Tivoli have to give up 3 / 5 of a pound of spaghetti. This means that the slope of their production possibility frontier is 3 / 5 . A similar argument for the Frivoli shows that their production possibility frontier has a slope of 4 / 3 . b. For the Tivoli, the opportunity cost of 1 pound of meatballs is 3 / 5 of a pound of spaghetti. For the Frivoli, the opportunity cost of 1 pound of meatballs is 4 / 3 pounds of spaghetti. That is, the Tivoli have a comparative advantage in meatball production because their opportunity cost is lower. For the Tivoli, the opportunity cost of 1 pound of spaghetti is 5 / 3 pounds of meatballs. For the Frivoli, the oppor- tunity cost of 1 pound of spaghetti is 3 / 4 pound of meatballs. That is, the Frivoli have a comparative advantage in spaghetti production because their opportunity cost is lower. 50 40 30 20 10 0 Quantity of spaghetti (pounds) Quantity of meatballs (pounds) 20 10 50 40 60 30 (a) P r oduction possibility f r ontie r fo r the Tivoli 50 40 30 20 10 0 Quantity of spaghetti (pounds) Quantity of meatballs (pounds) 20 10 50 40 60 30 Original Frivoli PPF New Frivoli PPF (b) P r oduction possibility f r ontie r fo r the F r ivoli S-14 C H A P T E R 2 E C O N O M I C M O D E L S : T R A D E - O F F S A N D T R A D E S11-S22_Krug2e_Macro_PS_Ch02.qxp 2/25/09 7:59 PM Page S-14
Solution Solution c. The Frivoli’s new production possibility frontier is the line labeled “New Frivoli PPF ” in panel (b) of the diagram. Instead of producing 30 pounds of meatballs (if they produce no spaghetti), they can now produce 60 pounds. d. Now the Frivoli have the absolute advantage in both meatball production and spaghetti production. The Frivoli’s opportunity cost of meatballs has now fallen to 4 / 6 = 2 / 3 ; that is, for each pound of meatballs that the Frivoli now produce, they have to give up producing 2 / 3 of a pound of spaghetti. Since the Frivoli’s opportu- nity cost of meatballs ( 2 / 3 ) is still higher than the Tivoli’s ( 3 / 5 ), the Tivoli still have the comparative advantage in meatball production. The Frivoli’s opportunity cost

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