PROBLEM 1 (QUESTIONS 1 TO 8) Table 1Specialisation and trade us ours required to

Question

PROBLEM 1 (QUESTIONS 1 TO 8) Table 1Specialisation and trade us ours required to harvest one bushel of: eat or corn harvested in a 40-hour week umn Wheat umn Corn umn umn Corn Wheat 40 40 ?? ??? 40 1. Who has an absolute advantage in harvesting wheat from columns 1 and 2 of Table 1? a) Joel; b) Moe; c) Neither Joel nor Moe; d) Both Joel and Moe 2. Who has an absolute advantage in harvesting com from columns 1 and 2 of the Table 1? a) Joel; b) Moe; c) Neither Joel nor Moe; d) Both Joel and Moe 3. Who has an absolute advantage in harvesting wheat from columns 3 and 4 of Table 1? a) Joel, b) Moe; c) Neither Joel nor Moe; d) Both Joel and Moe 4. Who has an absolute advantage in harvesting corn from columns 3 and 4 of Table 1? a) Joel; b) Moe; c) Neither Joel nor Moe; d) Both Joel and Moe 5. Who has a comparative advantage in harvesting wheat from columns 1 and 2 of Table 1? a) Joel; b) Moe; c) Neither Joel nor Moe; d) Both Joel and Moe 6. Who has a comparative advantage in harvesting corn from columns 1 and 2 of Table 1? a) Joel; b) Moe; c) Neither Joel nor Moe; d) Both Joel and Moe 7. Who has a comparative advantage in harvesting wheat from columns 3 and 4 of Table 1? a) Joel; b) Moe; c) Neither Joel nor Moe; d) Both Joel and Moe 8.What are the limits to trade in bushels of corn? ) 0.5W s 1C 2 1W; b) 1W s 1C 2 0.5W; c) 1W s 1C 2 2W; d) None of these answers

Explanation / Answer

Solution :

A person has an absolute advantage in producing or harvesting something if it's production utilizes lesser labor hours for equal amount of production, or more amount of production for equal number of labor hours. Then,

1) It takes 2 hours for Joel to harvest 1 bushel of wheat, while it takes only 1 hour for Moe to harvest 1 bushel of wheat. Since 2 > 1, clearly Moe has an absolute advantage in harvest of wheat. So, correct answer is b) Moe.

2) It takes equal number of labor hours to both Joel and Moe to harvest one bushel of corn. Thus, neither of them has an absolute advantage in it's harvest. So, correct answer is c) Neither Joel noe Moe.

3) For the same time period, Joel harvests 20 bushels of wheat, while Moe harvests 40 bushels (higher) of wheat. So, clearly Moe has an absolute advantage in harvesting wheat. So, correct answer is b) Moe

4) For the same time period, Joel and Moe,both harvest equal amount of corn, i.e, 40 bushels of corn. So, none has an absolute advantage in harvesting wheat. So, correct answer is c) Neither Joel nor Moe.

Comparative advantage is found by calculating the opportunity cost of harvesting of one good rather than others. In other words, it is the amount of other good given up due to production or harvest of one good. Thus,

In columns 1 & 2, for Joel, one hour provided can be either used in harvest of (1/2) bushel of wheat or 1 bushel of corn. For Moe, same one hour can be either used in harvest of 1 bushel of wheat or 1 bushel of corn.

In columns 3 & 4, for Joel, in 40-hour week, he can produce 20 bushels of wheat or 40 bushels of corn. Moe, on the other hand, can produce 40 bushels of wheat or 40 bushels of corn, for the same time period.

5) So, in harvest of 1 bushel of wheat, Joel gives up 2 bushels of corn, while Moe gives up 1 bushel of corn. So, Moe has a comparative advantage in harvest of wheat. Correct answer is b) Moe.

6) In harvest of 1 bushel of corn, Joel gives up (1/2) bushel of wheat, while Moe gives up 1 bushel of wheat. Thus, Joel has a comparative advantage in harvest of corn. Correct answer is a) Joel.

7) In harvest of 1 bushel of wheat, Joel gives up 40/20 = 2 bushels of corn. And in harvest of 1 bushel of wheat, Moe gives up 40/40 = 1 bushel of corn. So, again, comparative advantage in harvest of wheat is with Moe. Correct answer is b) Moe.

8) Limit to trade in bushels of corn : 0.5W <= 1C <= 1W

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