macroeconomics

Unit 2 [BU204: Macroeconomics]

Unit 2 Assignment: Economic Models and Comparative Advantage

1. Your Assignment should have a cover sheet with the following information:

● Your Name

● Course Number

● Section Number

● Date

2. You may submit your Assignment using the Unit 2 Assignment template, renaming it as required in

item 4 below.

3. Your answers should follow the APA format by being in double spaced paragraph format, with

citations to your sources and, at the bottom of your last page, a list of references. Your answers

should also be in Standard English with correct spelling, punctuation, grammar, and style.

4. Unless specified differently by your instructor, your completed Assignment should be saved with

the following file name format: course number, an underscore, section number, an underscore, your

LAST name, underscore, your FIRST name, an underscore, the unit number, an underscore, and the

word “Assignment.” It will look like this: BU204_section number_LAST_FIRST_ Unit number_

Assignment. (BU204_2_Smith_Tina_Unit 2_Assignment.docx)

5. Respond to the questions in a thorough manner, providing specific examples of concepts, topics,

definitions, and other elements asked for in the questions. Your paper should be highly organized,

logical, and focused.

6. Required Format:

● Correct filename ● Correct APA format for answers (Title Page with name, course number, section number, unit

number, date, answers double spaced, in Times New Roman 12-point font) ● Correct citations within answers ● Standard English with no spelling or punctuation errors ● Correct references at the beginning of a new page at the end of your paper

Questions:

According to the author, economists approach economic problems with economic models, and these

models will help familiarize you with how economists approach economic problems. The models also

help explain how individuals and countries gain from trade. Accordingly, trade allows people to

specialize in the production of goods and services for which they have comparative advantages and,

then trade for goods and services that other people produce based on their comparative advantages.

Unit 2 [BU204: Macroeconomics]

The Assignment questions deal with the application of the economic models and the roles of

comparative advantage in the gains from trade. Watch the Chapter 2 “What Kinds of Roles do

Economists Take on and Which is More Important” video and the Chapter 3 “Outsourcing” video.

1. Explain the difference between absolute advantage and comparative advantage. Which is

more important in determining trade between individuals or countries? Is it absolute advantage

or comparative advantage? Why?

2. Let us assume two students must prepare a presentation for their marketing class. As part of

their class presentation, they must do a series of calculations and prepare 50 PowerPoint

slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the

slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare

the PPT slides.

a. How much time would it take the two students to complete the project if they

divide the two tasks equally?

b. How much time would it take the two students to complete the project if they

use comparative advantage and specialize in calculating or preparing slides?

c. If Larry and Kate have the same opportunity cost of $5 per hour, is there a

better solution than for each to specialize in calculating or preparing slides?

Unit 2 [BU204: Macroeconomics]

3. Let us assume there are only two countries in the world, and the two countries face the

following production possibilities frontiers. Further assume that the two countries produce

popcorn and peanuts.

Country A’s Production Possibilities

Frontier

Country B’s Production Possibilities

Frontier

a. Assume that country A and country B

decide to use half of the resources in

the production of each good. Indicate

the points of the maximum output of

each good on the graphs for each

country as point A under such resource

use.

b. Assume the two countries choose

autarky and do not trade. What would

be the total world production of popcorn

and peanuts under the autarky?

Unit 2 [BU204: Macroeconomics]

c. Assume that each country decides to

specialize in either popcorn or peanut

based on its respective comparative

advantage. Under the specialization,

what is the total production of popcorn

and peanuts?

d. Assume country A and B decide to

trade 100 units of popcorn for 100 units

of peanuts, show on the graphs the

gain each country receives from trade.

Label these points on the two graphs

“B.”

Unit 2 Assignment: Economic Models and Comparative Advantage

Content and Analysis Points

Possible

Points

Earned

Problem #1

Effectively explained the difference between absolute advantage and

comparative advantage.

4

Problem #2

Correctly calculated the time it would take to complete the project. (a”)

4

Correctly computed the comparative advantages of Gary and Diane. (b) 4

Identified the gains from trade on the graphs.(“c”) 3

Problem #3

Identified points on the graphs for the use of half of the resources (“a”).

3

Calculated Computed the total production without trade.(“b”) 3

Calculated the total production with trade. (“c”) 4

Explained the gains from trade when the goods have equal value. (d) 3

Writing Style, Grammar, and APA Format. 7

Total 35

Unit 2 [BU204: Macroeconomics]