Solutions to questions in class

1
Solutions to questions in class

• Pages 56 57
• Questions 5 and 4

2
Question 5

• 10 million workers
• Each worker can produce
• 2 cars
• 30 bushels of wheat
• In each year

3
a)

• Cost of 1 car 15 bushels of wheat
• Cost of 1 bushel of wheat 1/15 car

4
b)
Production10 m cars 150 m bushels of wheat
5
c)

• The US offers to buy 10 million cars at 20
  bushels of wheat per car.

It costs less to buy wheat in the market than to
produce wheat.
6
c)
7
c)
Production20 m cars 0 wheat
Consumption10 m cars 200 wheat
8
Question 4
9
a)

• Pats cost of 1 pizza 1/2 gallon root beer
• Kriss cost of 1 pizza 2/3 gallon root beer
• Pats cost of 1 gallon root beer 2 pizzas
• Kriss cost of 1 gallon root beer 1½ pizzas
• Pat has an absolute advantage in both Pizza and
  Root Beer
• Pat has a comparative advantage in Pizza (1/2 lt
  2/3)
• Kris has a comparative advantage in RB (1½ lt 2)

10
b)

• Pat has a comparative advantage in Pizza so he
  will make the pizza
• Kris has a comparative advantage in Root Beer so
  he will make the root beer

11
c)
The price of pizza must be between
1/2 gallon and 2/3 gallon root beer

• What if the price was BELOW ½ gallonat ¼ gallon

12
c)
The price of pizza must be between
1/2 gallon and 2/3 gallon root beer

• What if the price was ABOVE 2/3 gallonat 1gallon

13
c)
The price of pizza must be between
1/2 gallon and 2/3 gallon root beer

• What if the price was 0.6 gallon