Los principios de la Calidad Total

✷ All societies face a crucial trade-off between consumption in the short run and greater productivity in the long run. Investments in capital goods today help to spur economic growth in the future. However, since capital goods are not consumed in the short run, this means that society must be willing to sacrifi ce how well it lives today in order to have more later.

52 / _{CHAPTER 2} Model Building and Gains from Trade law of increasing relative cost (p. 34)

normative statement (p. 27)

positive statement (p. 27) production possibilities frontier (p. 31)

1. What is a positive economic statement? What is a normative economic statement? Provide an example of each.

2. Is it important to build completely realistic economic models? Explain your response.

3. Draw a production possibilities frontier curve.

Illustrate the set of points that is feasible, the set of points that is effi cient, and the set of points that is infeasible.

4. Why does the production possibilities frontier bow out? Give an example of two goods for which this would be the case.

5. Does having an absolute advantage mean that you should undertake everything on your own? Why or why not?

6. What criteria would you use to determine which of two workers has a comparative advantage in performing a task?

7. Why does comparative advantage matter more than absolute advantage for trade?

8. What factors are most important for economic growth?

QUESTIONS FOR REVIEW

STUDY PROBLEMS

2. The following table shows scores that a student can earn on two upcoming exams according to the amount of time devoted to study:

Hours spent Hours spent

studying Economics studying History for economics score for history score

10 100 0 40

a. Plot the production possibilities frontier.

b. Does the production possibilities frontier exhibit the law of increasing relative cost?

c. If the student wishes to move from a grade of 60 to a grade of 88 in economics, what is the opportunity cost?

1. Michael and Angelo live in a small town in Italy. They work as artists. Michael is the more productive artist. He can produce 10 small sculptures each day but only 5 paintings.

Angelo can produce 6 sculptures each day but only 2 paintings. a comparative advantage in producing paintings?

c. If the two men decide to specialize, who should produce the sculptures and who should produce the paintings?

✷ ✷

3. Think about comparative advantage when answering this question: Should your profes-sor, who has highly specialized training in eco-nomics, take time out of his teaching schedule to mow his lawn? Defend your answer.

4. Are the following statements positive or normative?

a. My dog weighs 75 pounds.

b. Dogs are required by law to have rabies shots.

c. You should take your dog to the veterinarian once a year for a check-up.

d. Chihuahuas are cuter than bulldogs.

e. Leash laws for dogs are a good idea because they reduce injuries.

5. How does your decision to invest in a college degree add to your capital stock? Show this on your projected production possibilities frontier for 10 years from now compared to your pro-duction possibilities frontier without a degree.

6. Suppose that an amazing new fertilizer doubles the production of potatoes. How would this discovery affect the production possibilities frontier between potatoes and carrots? Would it now be possible to produce more potatoes and more carrots, or only more potatoes?

7. Suppose that a politician tells you about a plan to create two expensive but necessary pro-grams to build more production facilities for solar power and wind power. At the same time, the politician is unwilling to cut any other pro-grams. Use the production possibilities frontier graph below to explain if this is possible.

8. Two friends, Rachel and Joey, enjoy baking bread and making apple pies. Rachel takes 2 hours to bake a loaf of bread and 1 hour to make a pie. Joey takes 4 hours to bake a loaf and 4 hours to make a pie.

a. What are Joey’s and Rachel’s opportunity costs of baking bread?

b. Who has the absolute advantage in making bread?

c. Who has a comparative advantage in mak-ing bread?

d. If Joey and Rachel each decides to specialize in order to increase their joint production, what should Joey produce? What should Rachel produce?

e. The price of a loaf of bread can be expressed in terms of an apple pie. If Joey and Rachel are specializing in production and decide to trade with each other, what range of ratios of bread and apple pie would allow both parties to benefi t from trade?

9. Where would you plot unemployment on a production possibilities frontier? Where would you plot full employment on a produc-tion possibilities frontier? Now suppose that in a time of crisis everyone pitches in and works much harder than usual. What happens to the production possibilities frontier?

✷

54 / _{CHAPTER 2} Model Building and Gains from Trade

SOLVED PROBLEMS

1.a. Michael’s opportunity cost is 2 sculptures for each painting he produces. How do we know this? If he devotes all of his time to sculptures, he can produce 10. If he devotes all of his time to paintings, he can produce 5. The ratio 10:5 is the same as 2:1. Michael is therefore twice as fast at producing sculptures as he is at produc-ing paintproduc-ings. Angelo’s opportunity cost is 3 sculptures for each painting he produces. If he devotes all of his time to sculptures, he can produce 6. If he devotes all of his time to paint-ings, he can produce 2. The ratio 6:2 is the same as 3:1.

b. For this question, we need to compare Michael’s and Angelo’s relative strengths. Michael produces 2 sculptures for every painting, and Angelo produces 3 sculptures for every paint-ing. Since Michael is only twice as good at producing sculptures, his opportunity cost of producing each painting is 2 sculptures instead 3. Therefore, Michael is the low-opportunity-cost producer of paintings.

c. If they specialize, Michael should paint and Angelo should do the sculptures. You might be tempted to argue that Michael should just work alone, but if Angelo does the sculptures, it frees up Michael to concentrate on the paintings. This is what comparative advantage is all about. grade falls from 96 to 76 in history.

4.a. Positive. d. Normative.

b. Positive. e. Normative.

c. Normative.

6. A new fertilizer that doubles potato produc-tion will shift the entire PPF out along the potato axis but not along the carrot axis.

Nevertheless, the added ability to produce more potatoes means that less acreage will have to be planted in potatoes and more land can be used to produce carrots. This makes it possible to produce more potatoes and carrots at many points along the production possibili-ties frontier. Figure 2.3 has a nice illustration if you are unsure how this works.

8.a. Rachel gives up 2 pies for every loaf she makes. Joey gives up 1 pie for every loaf he makes. 1 pie per loaf. So any trade between 2:1 and 1:1 would benefi t them both.

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