Ahead of the upcoming test, I have some comments on Homework #1.
- Question 1: everyone did well, it’s straight forward.
- Question 2: also no comment.
- Question 3: some people were 100% correct, but don’t forget to include the value of intrinsic costs. Many people correctly mentioned time with family/children/spouse as an opportunity cost, but didn’t assign a value. Now, of course, you don’t get money for spending time with family, but it still has a value. Estimating a value might be awkward, but consider this. How much would you pay to spend that time with family? That’s the opportunity cost.
- Question 4: Remember, accounting cost is the direct payment of services, opportunity cost is forgone earnings, and economic cost is the combination of the two.
- Question 5: Main comment here is to remember to show your work.
- Question 6: By “combined production possibility frontier” I meant to draw the PPF curve for both countries together, not drawing the individual curve for both countries on the same graph. If you’re not sure what I mean, read the notes, book, or ask me. Second, trade does not take place at the intersection of the two PPF curves. Still not sure? Read or ask me.
- Question 7: This question was tricky. Technically, there isn’t a comparative advantage. United States can just simply produce more of either good. Thus, there wasn’t a comparative advantage, but an absolute advantage. In this instance, the United States can’t benefit from trade. That’s important, trade isn’t a de facto good, but a result of comparative advantage.
Nevertheless, everyone did well. Keep asking questions if you need it.