Economics Assignment: Comparative Advantage, PPFs, and Market Shifts

This economics assignment delves into fundamental concepts such as opportunity cost, comparative advantage, and the production possibilities frontier (PPF). The first part of the assignment requires calculating opportunity costs for two firms producing kale and tomatoes, determining comparativ...Read More

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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

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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

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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

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7. Application of Demand and supply model
Story: Effect of Good weather condition for fishing salmon fish
During summer, the weather condition for fishing salmon fish were good along the coastline of
California. This was characterized by heavy rains, providing water for breeding. The cooler
ocean temperature facilitates the growth of planktons, food for salmon. During fishing, the
waters were calm and fishing of salmon was excellent.
In this story, the model of supply and demand will show the market for supply before the good
weather. From the graph sketch below, the demand curve before good weather is DoDo with
original equilibrium of $3.25 per pound of salmon and quantity of 250000 fish. The initial supply
before good weather is represented as SoSo. With the good weather effect, the supply curve
shifts to the right S1S1. This is an increase in supply. Good weather increases supply of the
California Salmon fish. The equilibrium quantity also increases while equilibrium price decrease.
This story can be illustrated in the graph as shown below.
The model predicts that a shift to left or right of supply or demand curves is caused by all other
factors affecting supply and demand except price of the product

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Works Cited
Froehlich, Halley E., et al. "Avoiding the ecological limits of forage fish for fed aquaculture."
Nature Sustainability 1.6 (2018): 298.