Melissa Langhoff

Bu204_02

Unit 2 Assignment

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?

Absolute advantage is the ability to produce more than one product efficiently and at the lowest cost. Comparative advantage is the ability to specialize in producing one product at the lowest cost. Comparative advantage affects trade the most because with specializing in producing one product the companies must trade to receive other products. Comparative advantage also considers the opportunity of cost to produce one product verse the other.

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?

It would take both students about 26 hours if the work is divided evenly.

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?

It would take both students 22 hours total if Larry prepares the slides and if Kate does the calculations.

C. If Larry and Kate have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

Specializing in the calculations or preparing the slides is the best option for both Larry and Kate. It reduces the amount of time that they will spend on the project and helps to reduce their opportunity cost as well.

3. Let us assume there are only two

References: Mankiw, N. Principles of Macroeconomics. 7th Edition. Cengage Learning, 2015.