Sonny and his girlfriend are stranded on an island. Sonny can produce 8 cups of berries per day, or 3 ounces of honey. His girlfriend can produce 10 cups of berries per day, or 6 ounces of honey. Explain who has the absolute advantage in berry
production and who has the absolute advantage in honey production. Explain why the person who has the absolute advantage in berry production should not produce berries.
His girlfriend has the absolute advantage in both berries and honey production, because she can produce more of each than Sonny can. However, Sonny should specialize in berry production because he has the lower opportunity cost associated with berry production. He gives up the opportunity to produce only 0.375 ounces of honey when he produces a cup of berries, while his girlfriend gives up the opportunity to produce 0.6 ounces of honey when she produces a cup of berries.
You might also like to view...
One guideline that should be used whenever possible in developing a model is to
a. keep the model as simple as possible b. make the model as complex as possible so that it will be more accurate than other models c. rely on as many assumptions as possible d. not be concerned about including unnecessary details e. make certain that the model is an accurate, complete depiction of reality
A recent study found that the price elasticity of demand for apples is -0.4. This year's early freeze in major apple growing regions has led to a 6% decrease in the apple production (supply) compared to last year. What is the implied change in price expected this year for apples (and assume no apple exports or changes in stocks)?
a. Decrease by 3% b. Decrease by 15% c. Decrease by 24% d. Increase by 15% e. Increase by 24%
The essential precondition for economic growth, according to the textbook, is
What will be an ideal response?
The power of the supply and demand model lies in its ability
A) to generally predict how price and quantity will change with supply and demand shocks. B) to precisely predict the impact of government regulations on quantity and price. C) to precisely determine the difference between price ceilings and price floors. D) to generally predict how profit motive impacts the distribution of goods and services.