hello this is billy:


rgding the post below this post AFFECTS T02 ONLY.







OKAY!


time to explain econs. I was sitting in the library today and marcus and I cracked our heads over the bloody comparative thing and whatever it is, for the sake of the people who didint pay attention in class *AHEM BERNICE AHEM* i'm gonna type it here for all to see.


ENJOY THE SHOW!






Basically absolute advantage and comparative advantage goes like this:


(ATTN TO PAGE 55 PROBLEM 1)

Ted can wax 4 cars per day or wash 12 cars. Tom can wax 3 cars per day or wash 6.

1. What is each man's opportunity cost of washing a car?

2.Who has a comparative advantage?

3.Who has an absolute advantage?


-STOP HERE. I SUGGEST YOU TRY IT OUT BEFORE YOU READ THE SOLUTION.-



























Solution:

1. Opportunity cost = next best alternative/the choice or action you must forego in order to perform the action or choice you have chosen.

Therefore, Ted's O.C of washing a car (1)

since 4 wax = 12 wash
4/12 wax = 1 wash
1/3 wax = 1 wash

is 1/3 a wax.

Therefore, Tom's O.C of washing a car (1)

Since 3 wax = 6 wash,
3/6 wax = 1 wash
1/2 wax = 1 wash

is 1/2 wax.

The opportunity cost of Ted washing a car is 1/3 a wax,
While the opportunity cost of Tom washing one car is 1/2 a wax.




2. Since The Principle of Comparative Advantage states that "a person has a comparative advantage over another if his/her opportunity cost of performing a certian task is lower than the other person's opportunity cost." ,

and

O.C of Ted is 1/3 & O.C of Tom is 1/2,

Ted has the Comparative Advantage.



3. Who has the absolute Advantage?

Ted, Because His production per day is 4wax/12wash while Tom's production per day is 3wax/6wash.



In a simple pnut, comparative advantage is one guy having a lower o.c than the other in terms of his ppd. you calculate it by the old sec 2/3 proportion method you used in sec school.

Absolute advantage..quite obvious, the person who has the absolute advantage is the guy who can produce more per unit time, same units.




eg.2

QTN 2 PG 55


Ted can wax a car in 20 mins or wash a car in 60 mins. Tom can wax a car in 15 mins or wash a car in 30 mins.

1. What is each man's o.c of washing a car?

2. WHo has the comparative advantage? (washing cars?)
















Solution:

1. Opportunity cost = next best alternative/the choice or action you must forego in order to perform the action or choice you have chosen.

Therefore, Ted's O.C of washing a car (1)

Since 20 mins = wax & 60 mins = wash for Ted,

and 15 mins = wax & 30 mins = wash for Tom,

Ted's O.C of washing one car is 60/20 = 3 wax

Tom's OC of washing one car is 30/15 = 2 wax.

The opportunity cost of Ted washing a car is 3 waxes,
While the opportunity cost of Tom washing one car is 2 waxes.




2. Since The Principle of Comparative Advantage states that "a person has a comparative advantage over another if his/her opportunity cost of performing a certian task is lower than the other person's opportunity cost." ,

and

O.C of Ted is 3 & O.C of Tom is 2,

Tom has the Comparative Advantage.

Can do? :)

<3>

this is just the tip of the iceberg..more solutions are coming after we the study groups bang our heads into the wall more..

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