1. Given the following Production Possibilities Frontiers, answer the following

Question

1. Given the following Production Possibilities Frontiers, answer the following questions: gardening 200 90 gardening 30 100 housework Housework Brenda Jeremy a. Who has the absolute advantage in the activity of gardening? Who has the absolute advantage for Housework? Explain your answer b. What is the opportunity cost for Brenda to garden in terms of housework? What is the opportunity cost for Brenda to do housework in terms of gardening? What is the opportunity cost for Jeremy to garden in terms of housework? What is the opportunity cost for Jeremy to do housework in terms of gardening? (answer these questions by stating how much one unit of gardening costs in terms of housework, and how much one unit of housework costs in terms of gardening) Who has the comparative advantage for gardening? Who has the comparative advantage for housework? Explain your answer. c. Who should garden? Who should do housework? What would be the benefit of specialization and trade? Defend your answer using economic principles. Explain how this concept relates to global trade

Explanation / Answer

1. a. It is clear that Jeremy has absolute advantage in housework and Gardening both. It is clear from the numbers that Jeremy can produce 100 units of housework and 200 units of Gardening with same resources whereas Brenda can only produce 90 and 30 units respectively with same amount of resources.

b. Following table answers all parts:

c. It is clear that country should focus on those goods/services where it has less opportunity cost. Hence Jeremy should focus on Gardening and Bredu to focus on Housework.

If Brenda focuses on Housework then it is possible to produce around 200 units of housework and Jeremy can provide 400 units of gardening.(Assumin that output approximately doubles after specilization )

If for 1 unit of Housework 2 units of gardening can be traded then ,

Brenda can get 200 units of gardening for 100 housework and Jeremy can get 100 units of housework for 200 gardening, which makes trade possiblw which seemed not possible with absolute advantage theory.

Housework Gardening Opportunity cost for Housework Opportunity cost for Gardening
Jeremy 100 200 2 1/2 Brenda 90 30 1/3 3

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