MACRO W1A1 Your son is graduating from high school and is about to enter the wor
ID: 1112289 • Letter: M
Question
MACRO W1A1
Your son is graduating from high school and is about to enter the work force. He has developed a strong curiosity about our economic system and how it works. Because you have a good understanding of basic economics, he has asked you to explain several concepts that are essential to an understanding of how the economy works. Your son has asked you to explain the following concepts and ideas:
Absolute and comparative advantage: Explain how these concepts describe the benefits and costs of international trade.
"Invisible hand": What is it and how does it affect the decision-making process in our economic system?
Circular flow diagram: Include the government sector in your explanation, a description of the roles that each participant plays in the economy, and how the different sectors interact in the markets.
The Production Possibilities model: Provide an example and include a summary of what the model is illustrating and the economic implications for the economy.
Microeconomics and macroeconomics: Explain the differences between the two and why economics is divided into these two subdivisions.
Deliverables:
Prepare a 5-6 page Microsoft Word document that addresses the above-noted concerns and meets APA standards.
Include a summary section in your report that contains 5-7 bullet points identifying your major findings or conclusions of your paper.
Include the full report as an attachment to your posting.
Explanation / Answer
First concept is explained below.
Absolute advantage refers to the ability of a country or producer to be able to produce more units of a good than the other country or producer, in absolute terms.
For eg if A can produce 8 bananas and B can produce 4 bananas, then A has absolute advantage in production of bananas.
Comparative advantage refers to the ability of a producer to produce a good at a lower opportunity cost than other country, giving it an edge over the other producer.
Eg if A can produce 2 apples and 3 bananas, then opportunity cost of producing 1 apple is 3/2 = 1.5 bananas
If B can produce 2 apples and 4 bananas, then opportunity cost of producing 1 apple is 4/2 = 2 bananas
Thus A has comparative advantage in producing apples.
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