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Unit 2 Assignment: Economic Models and Comparative Advantage 1. Your Assignment should have a cover sheet with the following information:
● Your Name ● Course Number
● Section Number ● Date
2. You may submit your Assignment using the Unit 2 Assignment template.
3. Your answers should follow APA formatting by being in double-spaced paragraph format, with citations to your sources and, at the bottom of your last page, a list of references. Your answers should also be in Standard English with correct spelling, punctuation, grammar, and style.
4. Respond to the questions in a thorough manner, providing specific examples of concepts, topics,
definitions, and other elements asked for in the questions. Your answers should be highly
organized, logical, and focused.
According to the author, economists approach economic problems with economic models, and these models will help familiarize you with how economists approach economic problems. The models also help explain how individuals and countries gain from trade. Accordingly, trade allows
people to specialize in the production of goods and services for which they have comparative advantages and, then trade for goods and services that other people produce based on their comparative advantages.
The Assignment questions deal with the application of the economic models and the roles of comparative advantage in the gains from trade.
1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade between individuals or countries? Is it absolute advantage or
comparative advantage? Why?
2. Assume two students must prepare a presentation for their marketing class. As part of their class presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare the PPT slides.
A. How much time would it take the two students to complete the project if they divide the two
B. How much time would it take the two students to complete the project if they use
comparative advantage and specialize in calculating or preparing slides?
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C. If Larry and Kate have the same opportunity cost of $5 per hour, is there a better solution
than for each to specialize in calculating or preparing slides?
3. Assume there are only two countries in the world, and the two countries face the following production possibilities frontiers. Further assume that the two countries produce popcorn and peanuts.
Country A’s Production Possibilities Frontier Country B’s Production Possibilities Frontier
A. Assume that country A and country B decide to use half of the resources in the production of each
good. Indicate the points of the maximum output of each good on the graphs for each country as
point A under such resource use.
B. Assume the two countries choose autarky and do not trade. What would be the total world
production of popcorn and peanuts under the autarky?
C. Assume that each country decides to specialize in either popcorn or peanut based on its
respective comparative advantage. Under the specialization, what is the total production of
popcorn and peanuts?
D. Assume country A and B decide to trade 100 units of popcorn for 100 units of peanuts, show on
the graphs the gain each country receives from trade. Label these points on the two graphs “B.”
Directions for Submitting Your Assignment
Before you submit your Assignment, you should save your work on your computer in a location and with a name that you will remember. Make sure your Assignment is in the appropriate template
provided. Then, when you are ready, you may submit to the Dropbox.
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Unit 2 Assignment: Economic Models and Comparative Advantage
Content and Analysis
Problem #1 Effectively explained the difference between absolute advantage and comparative advantage.
Problem #2 Correctly calculated the time it would take to complete the project. (“a”)
Correctly computed the comparative advantages of Larry and Kate. (“b”) 6
Identified the gains from trade on the graphs. (“c”) 5
Problem #3 Identified points on the graphs for the use of half of the resources. (“a”)
Calculated computed the total production without trade. (“b”) 5
Calculated the total production with trade. (“c”) 6
Explained the gains from trade when the goods have equal value. (“d”) 6
Writing Style, Grammar, and APA formatting. 5