Answers to Comparative & Absolute Advantage Problems

Thursday, Sept 27th, 2012:

1. Canada wheat and cars problem: 

a. Draw table.

b. 1/15 of a car

c. PPF w/ straight line.  20 million cars, 300 million bushels of wheat

d. 150 million bushels of wheat, halfway point on the frontier/line

e. 200 bushels of wheat, outside the frontier

2. England and Scotland scones and sweaters problem:

a. England: scones, Scotland: sweaters

b. Draw table.

c. Scones: England

d. Sweaters: Scotland

e. Scotland trades sweaters because it has a comparative advantage in sweater production.

f. Yes, because Scotland still has a comparative advantage in sweaters, and England would still produce scones.  Both would still end up consuming outside of their frontier.

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