1.Does the concept of comparative advantage apply to individuals, countries, or both? Explain.
2 Suppose that one day of labor in each country produces the following quantities of fish and cheese:
Country Fish (tons) Cheese (tons)
France 80 40
Japan 200. 50
Does France have a comparative advantage in the production of fish, cheese, or neither? Explain.
3.Suppose that one day of labor in each country produces the following quantities of fish and cheese:
Country Fish (tons) Cheese (tons)
PAGE ONE Economics the back story on front page economics NEWSLETTER November I 2013 The Global Economy: \"It's a Small World After All\" Erin A. Yetter, Ph.D., Economic Education Specialist \"1:1; a world of laughter; at world ofteors It's a world ofhopes and a world ofar Therefr so much that we share That it's time we're aware It's a Small World after oll.'l Written by Robert B. and Richard M. Sherman for the Walt Disney Company Think about how you start a typical day. When you wake up in the morning, you enjoy a glass of orange juice, a cup of coffee, and a bowl of cereal. Your juice was made from Florida oranges, the coffee from Colombian beans, the cereal from Kansas wheat, and the milk from a Wisconsin dairy farm. Because it's impossible for you to physically live in all these different places, other people must provide the goods and services to make your breakfast possible. They do so through a process known as trade, an interdependent system of exchanging goods and services. For instance, trade makes it possible for me to enjoy Florida orange juice while living in Kentucky. Why Do People Trade? To understand why people trade, suppose you were limited to consuming only items you could nd within walking distance of your house. Or, perhaps even worse, only items you could produce yourself. For most of us, this restriction would severely diminish the variety of goods and services we enjoy on a daily basis. Therefore, the simplest answer to the question is that people (or entire countries) trade because they will enjoy a wider variety of goods. How Do People Know What to Trade? [fa country can produce a good or service with fewer resources, it has an absolute advantage over other countries in the production of that good or service. For example, copper is a natural resource in both the United States and Mexico. Consider this example: US. producers have manufacturing technology that allows them to make a foot of copper wire with only one ounce of copper. Producers in Mexico must use two ounces of copper to make that same foot of copper wire. Mexico uses more inputs (effort and materials) to produce the same product. So, all else equal, the United States has an absolute advantage in the production of copper wire. Therefore, the United States should produce copper wire, sell it or trade it with Mexico or other countries, and buy other goods from them. Trade also involves another type of advantagecomparative advantage. To continue our example, consider that copper can be used to produce either wire or pipes. As discussed above, with one pound of copper, the United States can produce 16 feet of copper wire (one ounce of
