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Appendix 1 Homework

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  1. Appendix 1 Homework • Number 2: Celia Correa • Number 6: Lori Kuttler • Number 8: Dereck Lafontant • Number 10: Stephanie Martins • Alternates: Tess Duffin and Winston Hibberd

  2. Chapter 2 Efficiency and Allocation in the Global Economy

  3. What are the opportunity costs? • Elizabeth • If decide to only produce bread how many apples does she give up ? • 10 units • If decide to only produce apples how much bread does she give up? • 10 units • Opportunity Costs • 10 Bread = 10 Apples • 1 Bread = 1 Apple

  4. What are the opportunity costs? • Brian • If decide to only produce apples how much bread does he give up? • 5 units • If decide to produce only bread how many apples does he give up? • 15 units • Opportunity Costs • 5 Bread = 15 Apples • 1 Bread = 3 Apples • 1/3 Bread = 1 Apple

  5. Should we specialize? • Elizabeth • 1 Bread = 1 Apple • Brian • 1 Bread = 3 Apples • 1/3 Bread = 1 Apple • Who produces apples cheaper? • What does cheaper mean? • Lower opportunity cost (give up less) • Brian!!! Give up only 1/3 loaves of bread • Who produces bread cheaper? • Elizabeth!!! Give up only 1 apple

  6. Here is the deal • Elizabeth produces only bread (20 loaves) • Brian produces only apples (30 apples) • Trade 8 loaves of bread for 12 apples • Breakdown of end result • Elizabeth Bread? • 12 loaves (20 - 8 traded) • Elizabeth Apples? • 12 apples (0 + 12 traded)

  7. Brian Bread • 8 loaves (0 + 8 traded) • Brian Apples • 18 apples (30 -12 traded) • Are they better off??

  8. Are they better off??

  9. Are they better off??

  10. Are they better off??

  11. Are they better off??

  12. Both are Better off!!

  13. Can you do it?? 1. Draw the production possibility curves for both countries. (Clothing on y-axis) 2. Which country has the comparative advantage in clothing? Food? 3. The United States and United Kingdom are negotiating a trade of food and clothing between the countries. If the terms of trade is 25 units of clothing for 15 units of food, should both counties agree?

  14. Chapter 2 homework • Numbers 4, 8 and 12

  15. Trade and the Circular Flow • Imports are goods that are purchased from foreign producers. • A leakage (pay money for the import) from the circular flow. • Exports are goods that are produced domestically and sold to foreign buyers. • An injection (get money for the export) into the circular flow.

  16. Trade and the Circular Flow (cont’d) • The difference between exports and imports is called net exports. • Trade Surplus • Exports > Imports • Trade Deficit • Imports > Exports • Except for right after WWII, the US consistently runs a trade deficit

  17. Table 3.1 U.S. Exports and Imports in 2004 by Product Group (in Billions of Dollars)

  18. Strategy and Policy • Unexpected Victims of Taxation • Tax on luxury items costing more than $100,000 • Who could complain about taxing the yacht industry, an industry that caters to the rich and powerful? • People went to other countries to buy their yachts or bought cheaper boats to avoid the tax • Many unskilled workers lost their jobs! • Tax was revoked

  19. Chapter 3 homework • Numbers 4, 8, 10, and 18

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