Unit 1, Chapter 38
Mr. Maurer
AP Economics
Name: _______________________________
Date: _____________________
Chapter 38, Problem Set #4 – Comparative Advantage and Trade
1. Anna and Barry can grow the following amounts of potatoes and cabbage with a week of labor.
Potatoes per week
100 units
120 units
Anna
Barry
Cabbage per week
200 units
150 units
a. Is this an example of an input problem or an output problem? Explain.
Output. You are given the quantity that each person can
produce, rather than the inputs needed to produce a
certain quantity.
b. What is the opportunity cost for each producer in making each of these products?
Anna:
Barry:
Op. Cost of 1 potato = 2 cabbage
Op. Cost of 1 cabbage = ½ potato
Op. Cost of 1 potato = 5/4 cabbage
Op. Cost of 1 cabbage = 4/5 potato
c. Who has the comparative advantage in producing potatoes?
Barry.
d. Who has the comparative advantage in producing cabbage?
Anna
e. Define the terms of trade that would be acceptable to both. Include who will be exporting which
product and who will be importing which product.
Barry will produce and export potatoes and import
cabbage. Anna will produce and export cabbage and
import potatoes.
Barry must get more than 1¼ cabbage for each potato.
Anna must give up less than 2 cabbages for each potato.
1¼c < 1p < 2c OR
Anna will produce and export cabbage and import
potatoes. Barry will produce and export potatoes and
import cabbage. Anne must get more than ½ potato for
each cabbage. Barry must give up less than 4/5 potato
for each cabbage.
1/2 p < 1c < 4/5 p
Unit 1, Chapter 38
2. Henry and John are fishermen who catch bass and catfish. This chart shows how many of each
type of fish they can catch in one day.
Bass
Catfish
Henry
4 bass
6 catfish
John
24 bass
12 catfish
a. Is this an example of an input problem or an output problem? Explain.
Output. You are given the quantity that each person can
produce, rather than the inputs needed to produce a
certain quantity.
b. What is the opportunity cost for each producer in catching these fish?
Henry: Op. Cost of 1 bass = 1.5 catfish
Op. Cost of 1 catfish = 2/3 bass
John:
Op. Cost of 1 bass = 1/2 catfish
Op. Cost of 1 catfish = 2 bass
c. Who has the comparative advantage in catching bass?
John
d. Who has the comparative advantage in catching catfish?
Henry
e. Define the terms of trade that would be acceptable to both. Include who will be exporting which
product and who will be importing which product.
John will catch and export bass while importing
catfish. Henry will catch and export catfish while
importing bass.
John must get more than ½ catfish for each bass.
Henry must give up less than 1.5 catfish for each bass.
1/2 c < 1b < 1.5 c
OR
Henry will catch and export catfish while importing
bass. John will catch and export bass while importing
catfish. Henry must get more than 2/3 bass for each
catfish. John must give up less than 2 bass for each
catfish.
2/3 b < 1c < 2b
Unit 1, Chapter 38
3. Here are the numbers of acres needed in India and China to produce 100 bushels of corn or 100
bushels of rice each month.
India
9 acres
3 acres
Corn
Rice
China
8 acres
2 acres
a. Is this an example of an input problem or an output problem? Explain.
Input. You are not given the total amount each can
produce, you are given the inputs (acres) required to
produce 100 bushels of each product.
b. What is the opportunity cost for each producer in making each of these products?
India: Let’s assume that India has 9 acres of land.
Then they could grow 100 bushels of corn or 300
bushels of rice. So 100 bushels corn = 300 bushels rice.
India’s opp. cost for 1 bushel corn = 3 bushels rice
India’s opp. cost for 1 bushel rice = 1/3 bushel corn
China: Let’s assume China has 8 acres of land. They
could grow 100 bushels of corn or 400 bushels of rice. So
100 bushels corn = 400 bushels rice.
China’s opp. cost for 1 bushel corn = 4 bushels rice.
China’s opp. cost for 1 bushel rice = ¼ bushel corn.
c. Who has the comparative advantage in producing corn?
India
d. Who has the comparative advantage in producing rice?
China
e. Define the terms of trade that would be acceptable to both. Include who will be exporting which
product and who will be importing which product.
India will produce and export corn while importing rice.
China will produce and export rice while importing
corn. India must get more than 3 bushels of rice for each
bushel of corn. China must give up less than 4 bushels of
rice for each bushel of corn. 3r < 1c < 4r
OR
Unit 1, Chapter 38
Or China must get more than ¼ bushel corn for each
bushel rice. India must give up less than 1/3 bushel corn
for each bushel rice. 1/4c < 1r < 1/3c
Unit 1, Chapter 38
4. This chart shows how many cans of olives and bottles of olive oil can be produced in Zaire and
Columbia from one ton of olives.
Olives
Olive oil
Zaire
60 cans
10 bottles
Columbia
24 cans
8 bottles
a. Is this an example of an input problem or an output problem? Explain.
Output. You are given the quantity that each country can
produce, rather than the inputs needed to produce a
certain quantity.
b. What is the opportunity cost for each producer in making each of these products?
Zaire:
Op. Cost of 1 can olives is 1/6 bottle olive oil
Op. Cost of 1 bottle olive oil is 6 cans olives
Columbia: Op Cost of 1 can olives is 1/3 bottle olive oil
Op Cost of 1 bottle olive oil is 3 cans olives
c. Who has the comparative advantage in producing olives?
Zaire
d. Who has the comparative advantage in producing olive oil?
Columbia
e. Define the terms of trade that would be acceptable to both. Include who will be exporting which
product and who will be importing which product.
Zaire will produce and export olives, while importing
olive oil. Columbia will produce and export olive oil,
importing olives. Zaire must get more than 1/6 bottle of
olive oil for over can of olive oil. Columbia must give up
less than 1/3 bottle of olive oil for each can of olives.
1/6 oil < 1 olive < 1/3 oil
OR
Columbia will produce and export olive oil, importing
olives. Zaire will produce and export olives, importing
olive oil. Columbia must get more than 3 cans of olives
for each bottle of olive oil. Zaire must give up less than 6
cans of olives for each bottle of olive oil.
3 olives < 1 oil < 6 olives