Name ______Block ______Date ______

PPF and Comparative Advantage problem setAP Micro

Inquiry:

1. Why would Jamaica run Usain Bolt (The Fastest Man) THIRD in the relay? (youtube: picking the Jamaican relay team)/ Dr. Liam Lenten

Fill in the data

If he runs. . . / Usain Bolt / Asafa Powell
3rd leg
4th leg

Who has the absolute advantage?

Which position would you run usain? Why?

2. Should Lebron James mow his lawn?

Lebron James is a great basketball player and a great lawn mower. However, Lebron has a young neighbor named Scotty who is willing to mow his lawn.

Lebron / Scotty
Job / 2 hour Nike commercial: paid 10,000 / 4 hours at Mcdonalds: $40
Mowing the lawn speed / 2 hours to complete / 4 hours to complete
  1. Lebron’s OC of mowing his lawn:
  2. Who has absolute advantage (best at)Lawn mowing : Job:
  3. Who has the comparative advantage (who should mow the lawn)

Name ______Block ______Date ______

PPF and Comparative Advantage problem setAP Micro

Practice Problems

  1. Use the following data to construct a PPF for Venus and Mars. Both countries use all of their resources to produce two goods: butter and guns.

Venus

Butter / Guns
0 / 10
20 / 9
40 / 6
60 / 3
80 / 0

Mars

Butter / Guns
0 / 20
15 / 15
30 / 10
45 / 5
60 / 0
  1. Who has the absolute advantage in producing guns? Butter?
  1. Calculate the opportunity costs of each economy for (use the either/ or extreme): Follow my lead on how I completed Venus for Mars):

Venus / Mars
Butter / 80 / ??
Guns / 10 / ??
  1. Since this is an output problem, what is the rule for calculating opportunity cost? (remember my model: make the ratio- be patient)
  1. Which planet should produce butter? Why?
  1. Which planet should produce guns? Why?
  1. Say Mars conquered Pluto and now has a greater endowment of factors overall, thereby doubling its production capabilities of both goods. Does that mean Mars should no longer trade with Venus? Explain.

Calculating opportunity costs / comparative advantage: Output versus input

Sometimes you will be given the amount of input required by an economy to produce 1 of each of the goods, instead of the outputs that can be produced with a fixed resource. (In these problems, the focus is how much of a resource does it take to produce 1 unit of X and 1 unit of Y.) The economy with the lower opportunity cost still has the comparative advantage in producing that good. Nothing else changes except:

Method or rule for input problems: IOU.

For input problems, the other goes under when calculating opportunity cost.

  1. Practice input problem:

The following chart illustrates the number of hours it takes to produce one loaf of bread and one bushel of corn.

Bread / Corn
United States / 4 / 2
France / 4 / 6
  1. Who has the absolute advantage in producing bread?Corn?
  2. Calculate opportunity costs for each country. Set up the same chart as normal, but use the IOU method:

What is the opportunity cost of / U.S. / France
Bread
Corn
  1. Who has the comparative advantage and should specialize in producing bread?Corn?

More practice… For each question, ID if it is an output or input question.Then, ID who has the comparative advantage, therefore who should specialize in the production of which good. (remember to make a 3 by 3 table), and do the ratios) Think Lebron

  1. Sara gives 2 haircuts or 1 perm per hour. Megan gives 3 haircuts or 2 perms per hour.
  2. Justin fixes 4 flats or 8 brakes per day. Tim fixes 1 flats or 5 brakes per day.
  3. Hannah takes 30 minutes to wash dishes and 1 hour to vacuum the house. Kevin takes 15 minutes to wash dishes and 45 minutes to vacuum.
  4. Americans produce 50 computers or 50 TVs per hour. Chinese produce 30 computers or 40 TVs per hour.