Homework Assignments

Homework Assignments
Question 1
Suppose Mike and Johnson produce two products—hamburgers and T-shirts. Mike produces 10 hamburgers or 3 T-shirts a day and Johnson produces 7 hamburgers or 4 T-shirts. Assuming they can devote time to making either hamburgers or T-shirts.
a. Draw the production possibility curve.
b. Who enjoys the absolute advantage of producing both?
c. Who has a higher opportunity cost of making T-shirts? Who has a comparative
advantage in producing hamburgers?
Answer 1 (a)
PPF for Mike PPF for Johnson
Hamburgers (10) Hamburgers (7)


T-shirts (3) T-shirts (4)

Answer 1 (b)

Both Mike and Johnson do not have absolute advantage of producing these two products. Since, Mike has absolute advantage of producing hamburgers (10), as for Johnson, he has absolute advantage of producing t-shirts (4).
Answer 1 (c)
Mike has higher opportunity cost of making t-shirts according to formula of finding opportunity cost (10/3=3.33) which is 3.33 for Mike, when we apply the same formula (7/4=1.75) to find Johnson’s opportunity cost that equals 1.75. This simply means that Mike has to sacrifice 3.33 hamburgers to produce t-shirts but Johnson 1.75 hamburgers.

Outputs	Hamburgers	T-shirts
Mike	10	3
Johnson	7	4

Question 2

The following table shows how many units of labor it takes for a worker to produce one unit of products in each country:

Input	Hamburger	T-shirt
Home	5	1
Foreign	3	4

Home has 20 units of labor, and Foreign has 25 units of labor.

a. Graph both countries’ production possibilities frontier.
b. Which country should specialize in which product? Why?
c. How much of each good should the countries produce after trade?

Answer 2 (a)

PPF of Home PPF of Foreign

Hamburger (4) Hamburger (8.33)


T-shirt (20) T-shirt (6.25)
Answer 2 (b)

Home should be specialized in producing t-shirts since its opportunity cost is lower (0.2). Foreign should be specialized in producing hamburgers because its opportunity cost is lower (0.75) in it.

Opportunity cost table

	Hamburgers	T-shirts
Home	5	0.2(1/5)
Foreign	0.75(3/4)	1.33(4/3)

Answer 2 (c)

I could not solve this problem, please explain it in seminar classes!!!

Question 3.

In the light of what we have learnt in class so far, how might you evaluate the claim by developing countries that they are at a disadvantage in trade with powerful industrialized countries?

Answer 3

To evaluate the claim by developing countries that they are at a disadvantage in trade with powerful industrialized countries, one should analyze the degree to which several factors are present. These factors include: the existence of economic power imbalances between developed and developing countries; the presence of trade restrictions or policies favoring one side over another; access to resources such as technology, infrastructure, expertise, or finance; and the terms of any existing bilateral or multilateral trade arrangements. Additionally, studies comparing relative market access across different countries and regions can be conducted to quantify potential inequities between trading partners. With sufficient evidence of unequal treatment in these areas, it is clear that developed countries have an unfair advantage when engaging in international trade with less developed nations.