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    Tutorial 2 by Colin

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    Chris Wong
    Vivian has a comparative advantage in making egg tarts and Veronica has a comparative advantage in making muffins. Joan will specialize in producing 25 jackets per day and Tanya will specialize in producing 20 pairs of shoes per day. If the world prices are $2 per square yard of shelter and $3 per pound of food, Ann and Ben will produce 6 square yards of shelter and 10 pounds of food per week.

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    Tutorial 2 by Colin

    Uploaded by

    Chris Wong
    47 views4 pages
    Vivian has a comparative advantage in making egg tarts and Veronica has a comparative advantage in making muffins. Joan will specialize in producing 25 jackets per day and Tanya will specialize in producing 20 pairs of shoes per day. If the world prices are $2 per square yard of shelter and $3 per pound of food, Ann and Ben will produce 6 square yards of shelter and 10 pounds of food per week.

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    Vivian has a comparative advantage in making egg tarts and Veronica has a comparative advantage in making muffins. Joan will specialize in producing 25 jackets per day and Tanya will specialize in producing 20 pairs of shoes per day. If the world prices are $2 per square yard of shelter and $3 per pound of food, Ann and Ben will produce 6 square yards of shelter and 10 pounds of food per week.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    47 views4 pages

    Tutorial 2 by Colin

    Uploaded by

    Chris Wong
    Vivian has a comparative advantage in making egg tarts and Veronica has a comparative advantage in making muffins. Joan will specialize in producing 25 jackets per day and Tanya will specialize in producing 20 pairs of shoes per day. If the world prices are $2 per square yard of shelter and $3 per pound of food, Ann and Ben will produce 6 square yards of shelter and 10 pounds of food per week.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    You are on page 1of 4

    Please preview the notes and bring your questions to my tutorial!

    ECON1210 Tutorial 2
    Xiaokang SHENG
    Email: csxk@hku.hk Office: KK1026

    Sep 17, 2020

    Ch 2. Power of Trade and Comparative Advantage

    1. Comparative Advantage

    1.1 Given time


    Time required by each to complete each type of job:
    Painting Roofing
    Paul 300 hrs 400 hrs
    Ron 200 hrs 100 hrs

    Remember: The smaller, the better!


    OC Painting OC Roofing
    Paul 300/400 = 400/300 =
    0.75 roofing 1.33 painting
    Ron 200/100 = 100/200 =
    2 roofing 0.5 painting

    Comparative Advantage:
    An agent who has lower opportunity cost of producing that good.
    Paul has a comparative advantage over Ron at painting, which means that he is
    relatively more efficient at painting than Ron is.

    Q1. The following tables shows the number of hours needed for Vivian and Veronica
    to bake a dozen of egg tarts or a dozen of muffins.

    We can conclude that ________ has/have comparative advantage in making egg tarts
    and _________ has/have comparative advantage in making muffins.
    Page 1 of 4
    1.2 Given quantity
    Units produced per day:
    Sandwiches Hamburgers
    Chris 25 60
    Jenny 10 50

    Remember: The larger, the better!

    OC Sandwiches OC Hamburgers
    Chris 60/25 = 2.4 H 25/60 = 0.42 S
    Jenny 50/10 = 5 H 10/50 = 0.2 S

    • Chris will specialize in producing sandwich and Jenny will specialize in producing
    hamburger;
    • Chris and Jenny will only agree to trade when the ToT is mutually beneficial. So,
    the range of ToT lies between 2.4 and 5 units of hamburgers per sandwich.

    (What if the ToT is larger than 5 or smaller than 2.4?)

    Q2. Suppose that Joan and Tanya both produce jacket and shoes. In a day, Joan can
    produce either 25 jackets or 10 pairs of shoes. In a day, Tanya can produce either 60
    jackets or 20 pairs shoes. Assume that Joan and Tanya decide to COMPLETELY
    specialize in the production of one type of goods and trade with one another. In a day,
    Joan will produce __________ jackets and ___________ pairs of shoes, while Tanya
    will produce ________ jackets and _________ pairs of shoes.

    Q3. Ann can produce 10 square yards of shelter or 10 pounds of food per week. Ben
    can produce 6 square yards of shelter or 3 pounds of food per week. Suppose the two-
    person economy that consists of Ann and Ben can now trade in the world market, where
    the price per square yard of shelter is $2 and the price per pound of food is $3. Then
    they will produce _____ square yards of shelter and _____ pounds of food per week.

    Page 2 of 4
    2. PPC & CPC

    PPC: Flatter, lower O.C. of producing X; steeper, higher O.C. of producing X (lower
    O.C. of producing Y).

    • Closed-economy: PPC=CPC;
    • Open-economy: We can BENEFIT from it!

    Suppose A(x0, y0), we have pxx0+pyy0=I.


    Actually, any consumption bundle (x, y) must satisfy pxx+pyy=I.
    𝐼 𝑝𝑥
    Rearrange, we get 𝑦= − 𝑥.
    𝑝𝑦 𝑝𝑦

    Q4a. The following graph shows the Neverland’s production possibilities. Neverland
    is a small nation. Suppose the world price of Tea is $2 per kg and the world price of
    Banana is $1 per kg, and Neverland decides to open up to the world market and trade.
    How many kgs of banana could they consume if they were to consume 10 kgs of tea?

    Page 3 of 4
    Q4b. Suppose the world price of Tea is $1 per kg and the world price of Banana is $2
    per kg. How many kgs of banana could they consume if they were to consume 10 kgs
    of tea?

    Q4c. Suppose the world price of Tea is $4 per kg and the world price of Banana is $1
    per kg. How many kgs of banana could they consume if they were to consume 10 kgs
    of tea?

    Q5. Is the kink point always optimal?

    Hint:
    In a two-person economy, slopes of their PPCs are -a and -b respectively (0<a<b):
    px
    ①0< < a, __________;
    py
    px
    ②a< < b, __________;
    py
    px
    ③ > b, __________.
    py

    --END--

    Page 4 of 4

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