NAME: Abdul Wasay

ASSIGNMENT NUMBER: 3
SECTION and ERP ID: 7091/28322
SUBJECT: Principles of Microeconomics
DATE: 23 September 2023
Ans1a)

Ans1b) Not studying 100 pages of sociology means she'll spend 2 hours on 40 pages of economics,
making that the opportunity cost.

Ans2a)

Ans2b)
Ans2c) In the context of economic production, the United States can potentially manufacture up to 400
million cars if they focus solely on this industry. However, this specialization comes at a significant
opportunity cost, as they would have to forgo the production of 1000 million grains to achieve this car
output. This implies that, for each additional car produced beyond their current level, the United States
would have to sacrifice the production of 2.5 million grains.

In contrast, Japan, when fully dedicated to car production, can also manufacture 400 million cars but at a
lower opportunity cost of 500 million grains. Therefore, for every extra car they choose to produce,
Japan would need to give up the production of only 1.25 million grains.

Ans2d)
The United States excels in producing grain without a doubt, but neither country possesses an absolute
advantage when it comes to manufacturing cars

Ans2e)
The United States holds a comparative advantage in grain production, while Japan excels in car
production. To purchase a car, it requires 2.5 tons of grain in the United States, whereas in Japan, it only
takes 1.25 tons.

Ans2f) When half of their workers focus on cars and the other half on grain, Japan produces 200 million
cars and 250 million tons of grain. In comparison, the United States also makes 200 million cars but
produces 500 million tons of grain.

Ans2g) A trade scenario benefiting both the United States and Japan would involve Japan, with its car
production advantage, exporting cars to the United States, while the United States, with its grain
production advantage, exports grain to Japan. This enables both nations to enjoy more cars and grain
than they would if they didn't engage in trade.

Ans3a) Diego's opportunity cost for producing a pizza is half a root beer, while Darnell's opportunity cost
for making a pizza is two-thirds of a root beer. Diego has the comparative advantage in making pizza.
Diego takes 2 hours to make a pizza, while Darnell takes 4 hours. Therefore, Diego has the absolute
advantage in pizza-making.

Ans3b) Diego will exchange pizza for root beer.

Ans3c) Diego insists on getting at least 1/2 a beer for his pizza, while Darnell won't trade more than 2/3
of a beer for a pizza. The agreed-upon price range is between 2/3 and 1/2 of a beer.

Ans4a) The opportunity cost of making a car is the loss of 15 bushels of wheat, while producing one
wheat bushel means giving up 1/15th of a car. These opportunity costs are inversely related.

Ans4b) Canada can have 20 million cars if 10 million workers each produce 2 cars. Alternatively, if all 10
million workers switch to wheat production, they can yield 300 million wheat bushels.
Ans4c) This trade is favorable for Canada as it permits them to gain a substantial quantity of wheat by
exchanging a portion of their car production.

Ans5a) England is better at making scones, while Scotland excels at producing sweaters. Scotland's lower
opportunity cost in sweater production (20 scones per sweater) gives it the comparative advantage in
sweaters, leaving England with the comparative advantage in scones.

Ans5b) In a potential trade, Scotland would produce sweaters and exchange them with England for
scones. The trade would be mutually beneficial with a price range of 20 to 50 scones per sweater.

Ans5c) Despite Scottish workers producing only one sweater per hour, trade would still be advantageous
for both countries. Scotland's comparative advantage in sweater production remains, with an
opportunity cost of 40 scones per sweater, which is still lower than England's 50 scones per sweater.

Ans6a) Without trade, in Boston, one pair of white socks is equivalent to one pair of red socks, and in
Chicago, it's equal to two pairs of red socks.

Ans6b) Boston workers have an absolute advantage in producing both types of socks, while Chicago's
comparative advantage is in red socks due to a lower opportunity cost (1/2 white sock per red sock).
Boston's comparative advantage is in white socks since its opportunity cost (1 red sock per white sock) is
lower than Chicago's (2 red socks per white sock).

Ans6c) In the sock trade, Boston specializes in white socks (its comparative advantage), while Chicago
specializes in red socks (its comparative advantage).

Ans6d) Trade can occur at prices ranging from 1 to 2 pairs of red socks per pair of white socks. Below 1
pair, Boston produces red socks, and above 2 pairs, Chicago makes its own white socks
Ans7a) Trade is beneficial when X is less than three. When X equals three, neither country has a
comparative advantage due to France's opportunity cost of 1 car being 200 cases of wine. For all other X
values, a comparative advantage exists.

Ans7b) For X values greater than 3, Germany exports cars and imports wine. When X is equal to 3,
France excels in wine production, while Germany has a comparative advantage in car production, leading
Germany to export cars and import wine.

Ans8a) As can be seen in the graph, if China spends half the time producing computers and half
producing shirts, it will be at point . Similarly, if the U.S. spends half the time producing shirts and the
other half producing computers, it will be at point (U).

Ans8b) In trade, China specializes in t-shirts, and the U.S. specializes in computers. China produces more
t-shirts (point C1), and the U.S. produces more computers (point U1) due to their respective comparative
advantages.

Ans8c) The U.S. has an opportunity cost of 0.2 for shirts and 5 for computers, while China's opportunity
cost is 0.1 for shirts and 10 for computers. Trade prices will range from 5 to 10 computers and from 0.2
to 0.1 for shirts between these countries.

Ans8d) If China's productivity matches that of the U.S., intra-industry competition will arise, causing an
oversupply of shirts and a drop in computer production. This will create a computer shortage in the
global economy.
Ans9a) True. When one country possesses an absolute advantage in one good, the other country will
have a comparative advantage in another good, and this benefits them when they engage in trade.

Ans9b)
False. No one has a comparative advantage in everything; some excel in one area while others excel in
another. In comparative advantage, having a lower opportunity cost in one good means sacrificing the
benefit of a lower opportunity cost in another

Ans9c) False. Trade can benefit both parties. In a voluntary exchange, both must see an improvement in
their situation, or they wouldn't agree to it.

Ans9d) False. Trade can benefit one party more than the other, especially if one has stronger bargaining
power and negotiates better terms.

Ans9e) False. Occasionally, a trade that benefits the nation can have adverse effects on its citizens.