e ps2,203pat (page 1 of 2) Q Search Problem Set 2 is due in class on Thursday, S
ID: 1135273 • Letter: E
Question
e ps2,203pat (page 1 of 2) Q Search Problem Set 2 is due in class on Thursday, September 13. 1. Explain how a PPF with a bow shape illustrates the idea that workers can specialize in making one good or another. 2. There are two workers in an economy, Maeve and Dolores. They can make either cowboy hats or lassos. In one day. Maeve can make 40 cowboy hats or she can make 20 lassos. In the same day, Dolores can make 30 cowbny hats or she can make 10 lassos. (a) What is the price of a cowboy hat for Maeve? (b) What is the price of a lasso for Maeve? (c) What is the price of a cowboy hat for Dolores? (d) What is the price of a lasso for Dolores? (e) Who has the absolute advantage in making cowboy hats? (f) Who has the absolute advantage in making lassos?Explanation / Answer
Ans 1)
Bow shape for PPF curve is due to comparative advantage as we can specialise in any of the trades at which we have higher opportunity cost
Hence to produce one unit of good with lower opportunity cost we need to give up more than 1 unit of good with higher opportunity cost & it keeps on changing for other unit addition therefore nonlinearity could be seen
Ans 2)
a) Price of Cowboy Hat is 0.5 of that of lassos for Maeve
b) Price of Lassos is 2 times of that of Cowboy Hat for Maeve
c) Price of Cowboy Hat is 0.33 of that of lassos for Dolores
d) Price of Lassos is 3 times of that of Cowboy Hat for Dolores
e) Maeve has to give up 0.5 Lassos to produce 1 unit of Hat whereas Dolores needs to give up 0.33 lessos hence Dolores has an absolute advantage in producing Cowboy hats
f) Similarly Maeve needs to give up 2 cowboy hats while producing 1 unit of Lassos and Dolores needs to give up 3 cowboy hats hence Maeve has an absolute advantadge in producing Lassos
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