AB204

02

May 5, 2015

1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade between individuals or countries? Is it absolute advantage or comparative advantage? Why?

The difference between is that comparative advantage is when a good is produced at a lower opportunity cost (Mankiw 2015). Absolute advantage is when a good is produced using less inputs than another producer (Mankiw 2015). Comparative advantage is more important in determining trade because when countries trade they will trade a good that has a low opportunity cost with another country who will in turn trade their goods that have a low opportunity cost and both countries will benefit from the trade (Mankiw 2015 p.58).

2. Let us assume two students must prepare a presentation for their marketing class. As part of their class presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare the PPT slides.

A. How much time would it take the two students to complete the project if they divide the two tasks equally?

If Larry and Kate divided to two tasks equally it would be based how many hours it each of them to complete each task times half and totaled.

Larry’s time is 10 hrs. for calculations and 10 hrs. to prepare slides

½ (10) = 5hrs to calculate

½ (10) = 5hrs to prepare slides 5 + 5 = 10

Kate’s time is 12 hrs. for calculations and 20 hrs. to prepare slides

½(12) = 6hrs to calculate

½(20) = 10hrs to calculate

6 + 10 = 16

Calculations total = 11

Slide total = 15

Total time = 26 hrs. B. How much time would it take the two students to complete the project if they use comparative advantage and specialize in calculating or preparing slides?

If Larry and Kate use comparative advantage to complete the

References: Mankiw, N, G. (2015). Principles of Macroeconomics. Ten Principles of Economics. [VitalSource Bookshelf version]. pp 52, 53.58 Retrieved from http://online.vitalsource.com/#/books/9781305156067/pages/0