Ch 3 Review 250 150 75 125 100 300 150 50 popcorn peanuts popcorn a.No trade; total production of popcorn and peanuts: Alpha 75 popcorn + Omega 150 popcorn.

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Presentation transcript:

Ch 3 Review popcorn peanuts popcorn a.No trade; total production of popcorn and peanuts: Alpha 75 popcorn + Omega 150 popcorn = 225 popcorn Alpha 125 peanuts + Omega 50 peanuts = 175 peanuts Alpha Omega

Ch 3 Review popcorn peanuts popcorn b. Absolute advantage for peanuts? = Alpha Alpha Omega

Ch 3 Review popcorn peanuts popcorn c. Price range for peanuts? Need to find OC. for peanuts for Alpha and Omega Alpha’s OC of 1 peanut = 150/250 or 3/5 popcorn Omega’s OC of 1 peanut = 300/100 or 3 popcorn So price of peanuts is between 3/5 and 3 popcorn d. Alpha’s OC of 1 popcorn? 250/150 or 5/3 or 1 2/3 or 1.6 peanuts Alpha Omega

Ch 3 Review popcorn peanuts popcorn e. Comparative advantage for popcorn? Alpha’s OC of 1 popcorn = 250/150 or 1.6 peanuts Omega’s OC of 1 popcorn = 100/300 or 1/3 peanuts Omega has the lower OC and comparative adv for popcorn Alpha Omega

Ch 3 Review popcorn peanuts popcorn f. Trade = 100 popcorn for 100 peanuts Omega has Comp. Adv. In popcorn; will make 300 popcorn; trade; end up with 200 popcorn and 100 peanuts Alpha Omega

Ch 3 Review popcorn peanuts popcorn g. Before trade: Alpha 75 popcorn + Omega 150 popcorn = 225 popcorn Alpha 125 peanuts + Omega 50 peanuts = 175 peanuts After trade: Omega=300 popcorn Alpha=250 peanuts Alpha Omega

Tony15 Scooters5 Snowboards Patty12 Scooters3 Snowboards Tony’s OC 1 Scooter 5/151/3 snowboard Patty’s OC 1 Scooter 3/12¼ snowboard Tony’s OC 1 Snowboard 15/53 Scooters Patty’s OC 1 Snowboard 12/34 Scooters Patty has Comp Adv in Scooters Tony has Comp Adv in Snowboards

Tony’s OC 1 Scooter 5/151/3 snowboard Patty’s OC 1 Scooter 3/12¼ snowboard Patty has Comp Adv in Scooters Price Range for Scooters: between 1/3 and ¼ snowboards A. Patty offers Tony 1 Scooter for.29 snowboards

Tony’s OC 1 Snowboard 15/53 Scooters Patty’s OC 1 Snowboard 12/34 Scooters Tony has Comp Adv in Snowboards Price Range for Snowboards: between 3 and 4 Scooters E. Tony offers Patty 1 snowboard for 3.5 scooters G. Tony offers Patty 1 snowboard for 3.9 scooters

Atlantis Xanadu Cars Tractors AtlantisXanadu Cars30 OC = 10/30 = 1/3 Tr. 20OC = 40/20 = 2 Tr. Tractors10OC = 30/10 = 3 Car 40OC = 20/40 = ½ Car a.Absolute Adv. Tractors? Explain Xanadu – produce more with the same resources b. Comp Adv Cars? Explain Atlantis – lower OC

Atlantis Xanadu Cars Tractors AtlantisXanadu Cars30 OC = 10/30 = 1/3 Tr. 20OC = 40/20 = 2 Tr. Tractors10OC = 30/10 = 3 Car 40OC = 20/40 = ½ Car C. Import Cars? Explain ? Xanadu – comp adv in tractors – specialize and export tractors and import cars

Atlantis Xanadu Cars Tractors AtlantisXanadu Cars30 OC = 10/30 = 1/3 Tr. 20OC = 40/20 = 2 Tr. Tractors10OC = 30/10 = 3 Car 40OC = 20/40 = ½ Car d. Total world production of tractors and cars? Tractors = 40 Cars = 30

Atlantis Xanadu Cars Tractors AtlantisXanadu Cars30 OC = 10/30 = 1/3 Tr. 20OC = 40/20 = 2 Tr. Tractors10OC = 30/10 = 3 Car 40OC = 20/40 = ½ Car e. Price Range for Tractors ? Between ½ car and 3 cars

Atlantis Xanadu Cars Tractors AtlantisXanadu Cars30 OC = 10/30 = 1/3 Tr. 20OC = 40/20 = 2 Tr. Tractors10OC = 30/10 = 3 Car 40OC = 20/40 = ½ Car Xanadu approaches Atlantis with a request to trade. Identify terms of the trade that would be beneficial to each country.

Atlantis Xanadu Cars Tractors AtlantisXanadu Cars30 OC = 10/30 = 1/3 Tr. 20OC = 40/20 = 2 Tr. Tractors10OC = 30/10 = 3 Car 40OC = 20/40 = ½ Car Xanadu offers 1 tractor in exchange for 2 cars. On own: Xanadu has to give up 2 tractors to get 1 car Atlantis has to give up 3 cars to get 1 tractor

4. What is the source for the gains from trade? The source comes from the lower opportunity costs and comparative advantage.