1. Ch 3 Study Guide #1 Angela is a college student She has 5 hours / wk for pottery hobby Makes 2 clay pots/hour or 4 coffee mugs/hour In 5 hours = 10 pots or 20 mugs A. Draw ppf 20 mugs 10 pots

2. B. What is Angela’s OC of 1 pot ? ……10 pots? OC of 1 pot = 4 mugs/hr 2 pots / hr OC of 10 pots= takes 5 hours to make 10 pots …in 5 hours she could make 20 mugs = 2 mugs

3. C. Angela’s OC of 1 mug? …..10 mugs? OC of 1 mug = 2 pots/hr 4 mugs/hr OC of 10 mugs = takes 2.5 hours to make 10 mugs ……in 2.5 hours she could make 5 pots =.5 pots

4. D. Why is ppf straight and not bowed out? Technology and resources for production are the same. She can switch from one good to the other at a constant rate

5. #2 a. Fill in table Computers Grain Germany 15/mo. 5 tons/mo. Poland 4/mo. 4 tons/mo.

6. B. Graph the production possibilities frontier for each country 15 5 4 4 Computer Grain Computer GermanyPoland

7. C. What is OC of computer in Germany? ….ton of grain? OC of computer = 5 tons 15 comp. OC of ton of grain = 15 comp. 5 tons = 1/3 ton grain = 3 computers

8. D. What is OC of computer in Poland? ….ton of grain? OC of computer = 4/4 = 1 ton grain OC of ton of grain = 4/4 = 1 computer

9. E. Which country has the absolute advantage in coputers?......grain? Computers Grain Germany 15/mo. 5 tons/mo. Poland 4/mo. 4 tons/mo.

10. F. Which country has comparative advantage in computers?.....grain? Germany OC of computer = 1/3 ton grain Poland OC of computer = 1 ton grain Germany OC of ton grain = 3 computers Poland OC of ton grain = 1 computer

11. G. Each country should tend toward specialization in the production of which good? Why? Germany specializes in computers b/c they have the lower OC Poland specializes in grain b/c they have the lower OC

12. H. Range of prices for computers and grain ? Germany OC of computer = 1/3 ton grain Poland OC of computer = 1 ton grain Germany OC of ton grain = 3 computers Poland OC of ton grain = 1 computer

13. I. Price of 2 computers for 1 ton Specialize and trade 4 computers for 2 tons 15 5 4 4 Computer Grain Computer GermanyPoland 11 ; 2 4; 2 Now, both countries are operating outside of their PPF

14. J. Productivity doubles in Poland Computers Grain Germany 15/mo. 5 tons/mo. Poland 8/mo. 8 tons/mo. Which country has absolute advantage in computers and grain?

15. K. After production doubled, comparative adv in comp and grain ? Germany OC of computer = 1/3 ton grain Poland OC of computer = 1 ton grain Germany OC of ton grain = 3 computers Poland OC of ton grain = 1 computer Has comp. adv. changed? No- ratios and OC are still the same

16. K. …continued…Has material welfare of either country changed? 15 5 4 4 Computer Grain Computer GermanyPoland 11 ; 2 4; 2 8 8 4;6 Poland’s has increased: now have more choices than before : Same trade still allows them to be outside of new PPF **Increase Production = Increase Standard of Living

17. L. How does analysis change if each country has 10 million workers? It wouldn’t The ratios and OC are still the same, the numbers simply multiply by 10 million

18. #3 a. Fill in table Cars Computers US 4/mo. 20/mo. Russia 1/mo. 5/mo. B. Which country has absolute adv. in cars? …computers?

19. C. Which country has comparative advantage in cars? ….computers? US OC 1 car = 20/4 = 5 computers Russ OC 1 car = 5/1 = 5 computers = Neither US OC 1 computer = 4/20 = 1/5 car Russ OC 1 computer = 1/5 = 1/5 car = Neither

20. D. Are there any gains to be made from trade? NO! Each can get same tradeoff between the goods by being self sufficient E. Pinpoint the “source for gains from trade” Lower OC

21. F. What makes two countries have different OC? Available resources/tech Varying education/skilled labor Quality of L, L, K