Macroo2

1. An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce

of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans

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in 50 minutes and an ounce of coffee in 75 minutes.

a. Who has the absolute advantage in coffee?

b. Who has the comparative advantage in coffee?

c. If the two countries specialize and trade with each other, who will import coffee?

 

2. Pacifica is an isolated country producing rice and coconuts. The following table shows

different combinations of rice and coconuts that Pacifica can produce in a year. Due to

limited resources and technology, as Pacifica increases production of one good it must

decrease production of the other good.

 

Maximum annual

output options

Rice

(Bushels)

Coconuts

(pounds)

A 2,000 0

B 1,600 250

C 1,200 450

D 800 600

E 400 700

F 0 800

 

a. Graph combinations A-F on the graph to create the production possibilities curve for

Pacifica

b. Consider the following production combinations for Pacifica. For each combination

determine which of the following classifications best describes the combination:

I. The combination is feasible and efficient

II. The combination is feasible but inefficient

III. The combination is not feasible

-300 pounds of coconuts, 1200 bushels of rice

-450 pounds of coconuts, 1,400 bushels of rice

-500 pounds of coconuts, 600 bushels of rice

-725 pounds of coconuts, 600 bushels of rice

-250 pounds of coconuts, 1,600 bushels of rice

 

 

3. George and Kim own a cleaning and yard service business and are its only source of labor.

George can rake 1 yard in 1 hour or clean 1 house in 4 hours. Kim can rake 1 yard in 2 hours

or clean 1 house in 2 hours.

 

a. fill in the following table for George and Kim

George Kim

Hours to rake a yard Hours to clean a

house

Hours to rake a yard Hours to clean a

house

 

 

b. Fill in the following table showing production possibility combinations that are

feasible and efficient for George and Kim if they each work 40 hours. And draw

George’s and Kim’s PPCs.

George’s production possibilities Kim’s production possibilities

Number of yards

raked

Number of houses

cleaned

Number of yards

raked

Number of houses

cleaned

0 0

5 10

0 0

c. If George and Kim specialize according to their comparative advantages, what will

George do?