Chapter 2: Q 2.5 (page 27)
Distinguish between absolute and comparative advantage.
Comparative Advantage refers to lower opportunity cost whereas Absolute Advantage refers to the production of more units of goods with the given labor and input prices.
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You and a friend decide to spend \(100 each on concert tickets. Each of you alternatively could have spent the \)100 to purchase a textbook, a meal at a highly-rated local restaurant, or several Internet movie downloads. As you are on the way to the concert, your friend tells you that if she had not bought the concert ticket, she would have opted for a restaurant meal, and you reply that you otherwise would have downloaded movies. Identify the relevant opportunity costs for you and your friend for the concert tickets that you purchased. Explain briefly.
Like physical capital, human capital produced in the present can be applied to the production of future goods and services. Consider the table in Problem 2-13, and suppose that the nation’s residents are trying to choose between combination C and combination F. Other things being equal, will the future production possibilities curve for this nation be located farther outward if the nation chooses combination F instead of combination C? Explain.
Suppose that in Fig 2-2, the nation currently is producing combination D in the table and on the graph of the production possibilities curve. What is the opportunity cost of producing 5 million more smartphones and moving to production combination C?
Evaluate why everyone, whether poor or affluent, faces the problem of scarcity.
In spite of the lower opportunity cost of rail-gun projectiles instead of missiles, does the U.S. Navy continue to face an increasing additional cost, in terms of forgone ship production, to obtain additional weapons? Explain briefly.
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