Does this sound familiar? this is the same result we

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International Economics
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Chapter 4 / Exercise 7
International Economics
Carbaugh
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Nancy's i/2 radio). Does this sound familiar.ÿ This is the same result we reached using the input method,The differences in opportunity costs define the limits of a trade in which both parties will benefit. IfNancy, specializes in radio production, she wilt accept no less than two bushels of wheat for one radio.Ted will pay no more than four bushels of wheat per radio. Thus, the"terms of trade" acceptable to bothproducers must lie in the range between two bushels for one radio and four bushels for one radio. Forexample, suppose they agree to trade one radio for three bushels of wheat. By producing and trading oneradio to Ted, Nancy will have a net gain of one bushel. Her opporttmity cost of producing the radio is twobushels and she receives three bushels in return for the radio. Because his opportunity cost of producingone bushel is ¼ radio, Ted's opporttmity cost of producing the three bushels, which he trades to Nancy; is ¾radio. Thus, the trade gives Ted a net gain of 14 radio. Both producers gain by spedalizing according to theircomparative a&antage.When it comes to producing wheat, Ted would have to receive at least 14 of a radio in trade for abushel of wheat. Nancy would require at least I/1 of a radio before she Would trade a bushel of wheat, Theacceptable terms of trade would be found between !4 radio and IA radio per bushel of wheat.The output data in Table 1-3.3 can be used to create production possibiÿty frontiers for Ted and Nancyto show the combinations of radios and wheat each can produce in one hour of work. See Figure 1-3.1.rAdvanced Placement Economics Macroeconomlcs: Student Resource Manual © Council for Economic Education, New York, N.Y.17\
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International Economics
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Chapter 4 / Exercise 7
International Economics
Carbaugh
Expert Verified
Figure 1-3.1, Production Possibilities Curves for Ted and NanÿTed Nancy3m OO2 ÿ2<< 1 10- 4 8 12 0 2 4WHEAT WNEATPart B: Comparative Advantage ExercisesFor each of the following scenarios,' answer the questions following the chart. The first problem isanswered f6r you. 1. Anna and Barÿ can grow the following amounts of potatoes and cabbage with a week of labor. i Potatoes per week Cabbage per week Anna 100 units 200 units Barry 120 units 150 units 5 2 (A) Is this an example of an inputproblem or an output problem? (B) What is the opportunity cost for each producer in making these products? (1) Anna's opportunity cost of producing a unit of potatoes is ÿ units of cabbage. 18 (2) Barry's oppormniÿ cost of producing a unit of potatoes is units of cabbage. Advanced Placement Economics Macroeconomics: student Resource Manual © Councft for Economic Education, New York, N.xq i { i i {
(3) Anna's opportunity cost of producing a unit of cabbage is __ units of potatoes. (4) Barry's opportunity cost of producing a unit of cabbage is __ units of potatoes. I i l ] (C) Who has the comparative advantage in producing potatoes? __ (D) Who has the comparative advantage in producing cabbage?

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