Embed Size (px)
Citation preview
C h 3 R eview
250
150 75
125 100
300
150
50
popcorn
peanuts peanuts
popcorn
a. No trade; total production of popcorn and peanuts:
Alpha 75 popcorn + Omega 150 popcorn = 225 popcornAlpha 125 peanuts + Omega 50 peanuts = 175 peanuts
Alpha Omega
C h 3 R eview
250
150 75
125 100
300
150
50
popcorn
peanuts peanuts
popcorn
b. Absolute advantage for peanuts? = Alpha
Alpha Omega
C h 3 R eview
250
150 75
125 100
300
150
50
popcorn
peanuts peanuts
popcorn
c. Price range for peanuts? Need to find OC. for peanuts for Alpha and OmegaAlpha’s OC of 1 peanut = 150/250 or 3/5 popcornOmega’s OC of 1 peanut = 300/100 or 3 popcornSo price of peanuts is between 3/5 and 3 popcornd. Alpha’s OC of 1 popcorn? 250/150 or 5/3 or 1 2/3 or 1.6 peanuts
Alpha Omega
C h 3 R eview
250
150 75
125 100
300
150
50
popcorn
peanuts peanuts
popcorn
e. Comparative advantage for popcorn? Alpha’s OC of 1 popcorn = 250/150 or 1.6 peanuts Omega’s OC of 1 popcorn = 100/300 or 1/3 peanutsOmega has the lower OC and comparative adv for popcorn
Alpha Omega
C h 3 R eview
250
150 75
125 100
300
150
50
popcorn
peanuts peanuts
popcorn
f. Trade = 100 popcorn for 100 peanuts Omega has Comp. Adv. In popcorn; will make 300 popcorn; trade; end up with 200 popcorn and 100 peanuts
Alpha Omega
C h 3 R eview
250
150 75
125 100
300
150
50
popcorn
peanuts peanuts
popcorn
g. Before trade: Alpha 75 popcorn + Omega 150 popcorn = 225 popcorn Alpha 125 peanuts + Omega 50 peanuts = 175 peanuts After trade: Omega=300 popcorn
Alpha=250 peanuts
Alpha Omega
Tony 15 Scooters 5 Snowboards
Patty 12 Scooters 3 Snowboards
Tony’s OC 1 Scooter
5/15 1/3 snowboard
Patty’s OC 1 Scooter
3/12 ¼ snowboard
Tony’s OC 1 Snowboard
15/5 3 Scooters
Patty’s OC 1 Snowboard
12/3 4 Scooters
Patty has Comp Adv in Scooters
Tony has Comp Adv in Snowboards
Tony’s OC 1 Scooter
5/15 1/3 snowboard
Patty’s OC 1 Scooter
3/12 ¼ snowboard
Patty has Comp Adv in Scooters
Price Range for Scooters: between 1/3 and ¼ snowboardsA. Patty offers Tony 1 Scooter for .29 snowboards
Tony’s OC 1 Snowboard
15/5 3 Scooters
Patty’s OC 1 Snowboard
12/3 4 Scooters
Tony has Comp Adv in Snowboards
Price Range for Snowboards: between 3 and 4 ScootersE. Tony offers Patty 1 snowboard for 3.5 scooters G. Tony offers Patty 1 snowboard for 3.9 scooters
Atlantis
Xanadu
Cars
Tractors
30
20
10 40
Atlantis Xanadu
Cars 30 OC = 10/30 = 1/3 Tr.
20 OC = 40/20 = 2 Tr.
Tractors 10 OC = 30/10 = 3 Car
40 OC = 20/40 = ½ Car
a. Absolute Adv. Tractors? Explain Xanadu – produce more with the same
resources
b. Comp Adv Cars? Explain Atlantis – lower OC
Atlantis
Xanadu
Cars
Tractors
30
20
10 40
Atlantis Xanadu
Cars 30 OC = 10/30 = 1/3 Tr.
20 OC = 40/20 = 2 Tr.
Tractors 10 OC = 30/10 = 3 Car
40 OC = 20/40 = ½ Car
C. Import Cars? Explain ? Xanadu – comp adv in tractors – specialize and export tractors and import cars
Atlantis
Xanadu
Cars
Tractors
30
20
10 40
Atlantis Xanadu
Cars 30 OC = 10/30 = 1/3 Tr.
20 OC = 40/20 = 2 Tr.
Tractors 10 OC = 30/10 = 3 Car
40 OC = 20/40 = ½ Car
d. Total world production of tractors and cars? Tractors = 40 Cars = 30
Atlantis
Xanadu
Cars
Tractors
30
20
10 40
Atlantis Xanadu
Cars 30 OC = 10/30 = 1/3 Tr.
20 OC = 40/20 = 2 Tr.
Tractors 10 OC = 30/10 = 3 Car
40 OC = 20/40 = ½ Car
e. Price Range for Tractors ? Between ½ car and 3 cars
Atlantis
Xanadu
Cars
Tractors
30
20
10 40
Atlantis Xanadu
Cars 30 OC = 10/30 = 1/3 Tr.
20 OC = 40/20 = 2 Tr.
Tractors 10 OC = 30/10 = 3 Car
40 OC = 20/40 = ½ Car
Xanadu approaches Atlantis with a request to trade. Identify terms of the trade that would be beneficial to each country.
Atlantis
Xanadu
Cars
Tractors
30
20
10 40
Atlantis Xanadu
Cars 30 OC = 10/30 = 1/3 Tr.
20 OC = 40/20 = 2 Tr.
Tractors 10 OC = 30/10 = 3 Car
40 OC = 20/40 = ½ Car
Xanadu offers 1 tractor in exchange for 2 cars. On own: Xanadu has to give up 2 tractors to get 1 carAtlantis has to give up 3 cars to get 1 tractor
4. What is the source for the gains from trade?
• The source comes from the lower opportunity costs and comparative advantage.
