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Economics Assignment: Opportunity Cost, PPFs, and Advantages of Specialization and Trade

   

Added on  2022-10-17

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Lastname 1
Firstname Lastname
Name of Instructure
Economics
September 21, 2019
Economics Assignment:
5. The table shows what two firms can produce if they put all of their resources into either
kale or tomatoes.
Firm 1 Firm 2
Kale 80 150
Tomatoes 200 90
a) Calculate the opportunity costs and find out who has comparative advantage for
each good. [3]
The opportunity cost for 80 kales = 200 tomatoes for firm 1. Therefore, the opportunity
cost of 1 kale = 2.5 tomatoes
Form firm 2, opportunity cost for 150 kales = 90 tomatoes, therefore opportunity cost of
1 kale = 0.6 tomatoes
Firm 1 has comparative advantage in tomatoes as opportunity cost for tomatoes in terms
of kales is smaller
Firm 2 has comparative advantage in kales as opportunity cost for kales in terms of
tomatoes is smaller
Economics Assignment: Opportunity Cost, PPFs, and Advantages of Specialization and Trade_1
Lastname 2
b) Sketch their individual PPFs and the PPF after they trade. [2]
Individual PPFs
0
50
100
150
200
250
0 10 20 30 40 50 60 70 80 90
Tomatoes
Kales
Firm 1
0
10
20
30
40
50
60
70
80
90
100
0 20 40 60 80 100 120 140 160
Tomatoes
Kales
Firm 2
Economics Assignment: Opportunity Cost, PPFs, and Advantages of Specialization and Trade_2
Lastname 3
PPF after trade we have
c) What advantages are there to this specialization and trade? [3]
The general advantages of specialization and trade for the opportunity cost include, consumer
benefits, efficient economic growth and opportunities for competition from other growing sectors
i. Opportunities for competitive sectors, the investors explore many sectors
worldwide to enjoy the economies of scale as they seek for opportunities
ii. Greater efficiency is achieved by most countries through earning of economies of
scale during production. This is realized by low cost of production and availability of
skilled labour due to specialization
iii. Consumer benefits: The consumers are the winners when there is specialization
because, worldwide, many goods are produced at low price due to low opportunity
cost.
iv. Lastly, through specialization, countries tend to gain from trade until the price is
equal to their trading partners
0
50
100
150
200
250
300
350
0 50 100 150 200 250
Tomatoes
Kales
Combine PPFs
Economics Assignment: Opportunity Cost, PPFs, and Advantages of Specialization and Trade_3

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