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TRAN NGOC BAO MBAIU15003 INTERNATIONAL ECONOMIC PROBLEM SET LECTURER: LE VAN CHON

Chapter 2, question 6:

a) Complete the table for this problem in the same manner as Table 2-2 in the chapter.

| Home Country | Foreign Country | Absolute Advantage | Number of bicycles produced per hour | 4 | 2 | 4/2=2 Home | Number of snowboards produced per hour | 6 | 8 | 6/8=0.75 Foreign | Comparative Advantage | 6/4= 1.5 (snowboards/bicyle) ; to produce one extra bicycles 1.5 snowboard must be given up | 8/2=4to produce one extra bicycle 4 snowboards must be given up | |

b) Which country has an absolute advantage in the production of bicycles? Which country has an absolute advantage in the production of snowboards?

Home has an absolute advantage in the production of bicycles because it is able to produce bicycles with fewer resources (more per hour) than Foreign. Equivalently, labour requirement to produce one more bicycle in Home is aLS = 1/MPLS = 1/4 – it takes 1/4 hours to produce an extra bicycle, whereas in Foreign it takes 1/2 hours. 1/4 < 1/2

Foreign has an absolute advantage in the production of snowboards because it is able to produce snowboards with fewer resources (more per hour) than Home. Equivalently, labour requirement to produce one more snowboard in Home is aLB = 1/MPLB = 1/6 – it takes 1/6 hours to produce an extra snowboard, whereas in Foreign it takes 1/8 hours. 1/8 < 1/6

c) What is the opportunity cost of bicycles in terms of snowboards at Home? What is the opportunity cost of bicycles in terms of bicycles in terms of snowboards in Foreign?

The opportunity cost of B in terms of S is given by the absolute value of the slope of the PPF. The opportunity cost of one bicycle is 3/2 snowboards at Home. The opportunity cost of one bicycle is 8/2 snowboards in Foreign.

d) Which product will Home export, and

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