Posted: March 17th, 2022
Suppose two nations, Beta and Gamma, each make aircraft and corn. The main resource in each nation is hours of “labor”. Production occurs in each nation according to the following table. With one hour, a worker in each nation can produce the following: Table showing Aircraft and Corn produced per hour Aircraft Corn Beta 1 per hour 500 per hour Gamma 2 per hour 300 per hour What is the opportunity cost of each good (in terms of the other good) for each nation? Try creating a small table of the opportunity costs such as this: Beta: 1 aircraft = _______ corn 1 corn = _______ aircraft Gamma: 1 aircraft = _______ corn 1 corn = _______ aircraft Which nation has the Absolute Advantage in aircraft? Which nation has the Absolute Advantage in corn? Which nation has the Comparative Advantage in aircraft? Which nation has the Comparative Advantage in corn? If these two nations trade, what good should each specialize in and export to the other? What would be the range for the terms of trade (price of aircraft in terms of corn, for example) that would make both of these nations benefit economically from trade? Suppose two roommates, Sam and Terry, agree that they should clean the apartment each week. It takes Sam one hour to vacuum, and one hour to clean the bathroom. It would take Terry 90 minutes to vacuum and 2 hours to clean the bathroom. Does Terry have a Comparative Advantage in one of these activities? Is it possible that if the roommates each do only one of the tasks every week they would have more combined free time than if they alternated weeks of vacuuming and bathroom cleaning? Please address all parts of the questions and submit your responses with a Word document file upload.
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