RUNNING HEAD: PROBLEMS & APPLICATION CHAPTERS 3 & 4 1
Problems & Application Chapters 3 & 4
Pavi-Elle Doane
ECN 400- Managerial Economics
Colorado State University- Global Campus
Steve Nenninger
October 12, 2014
PROBLEMS & APPLICATION CHAPTERS 3 & 4 2
Chapter 3 Question 2
a.
Workers needed to make: One Car One Ton of Grain
U.S. 1/4 1/5
Japan 1/4 1/10
b.
PROBLEMS & APPLICATION CHAPTERS 3 & 4 3
c.
Opportunity Cost of: One Car (in terms of tons of grain given up) One Ton of Grain (in terms of cars given up)
U.S. 5/2 2/5
Japan 5/4 4/5
d. The output per worker is the same for both so neither of the countries have an absolute advantage. The US has a better advantage over Japan in grain production because the output per …show more content…
The country that has a comparative advantage in producing cars would be Japan because of the weight to grain given up which results in a lower opportunity cost. US has a comparative advantage in grain production due to lower opportunity cost also.
f. USA would produce 200 million cars and 500 million tons of grain
Japan would produce 200 million cars and 250 million tons of grain
g. Starting from a position without trade, give an example in which trade makes each country better off.
Example: If the US were to strike a trade deal with Japan to transfer 6 tons of grain in return for 4 cars.
The US produces either 4 cars for 10 tons of grain per worker. By transferring a worker to grain production, they will get 10 tons but will only have to give 6 tons to Japan to get 4 cars which that transferred worker would have produced which would be an advantage for the US.
By transferring a worker to car production, Japan will produce 4 cars and will get 6 tons of grain from US. If the worker produced grain, only 5 tons of grain would be produced. Both countries would receive
Problems & Application Chapters 3 & 4
Pavi-Elle Doane
ECN 400- Managerial Economics
Colorado State University- Global Campus
Steve Nenninger
October 12, 2014
PROBLEMS & APPLICATION CHAPTERS 3 & 4 2
Chapter 3 Question 2
a.
Workers needed to make: One Car One Ton of Grain
U.S. 1/4 1/5
Japan 1/4 1/10
b.
PROBLEMS & APPLICATION CHAPTERS 3 & 4 3
c.
Opportunity Cost of: One Car (in terms of tons of grain given up) One Ton of Grain (in terms of cars given up)
U.S. 5/2 2/5
Japan 5/4 4/5
d. The output per worker is the same for both so neither of the countries have an absolute advantage. The US has a better advantage over Japan in grain production because the output per …show more content…
The country that has a comparative advantage in producing cars would be Japan because of the weight to grain given up which results in a lower opportunity cost. US has a comparative advantage in grain production due to lower opportunity cost also.
f. USA would produce 200 million cars and 500 million tons of grain
Japan would produce 200 million cars and 250 million tons of grain
g. Starting from a position without trade, give an example in which trade makes each country better off.
Example: If the US were to strike a trade deal with Japan to transfer 6 tons of grain in return for 4 cars.
The US produces either 4 cars for 10 tons of grain per worker. By transferring a worker to grain production, they will get 10 tons but will only have to give 6 tons to Japan to get 4 cars which that transferred worker would have produced which would be an advantage for the US.
By transferring a worker to car production, Japan will produce 4 cars and will get 6 tons of grain from US. If the worker produced grain, only 5 tons of grain would be produced. Both countries would receive