concepts of Comparative and Absolute Advantage
This assignment discusses an application of the production possibilities frontier model. It is useful to review Section 2 of the Principle of Macroeconomics online textbook from the background material section. You can also do your own research on the free trade debate or review the resources below:
Blinder, A.S. “Free Trade.” Library of Economics and Liberty. Retrieved from: http://www.econlib.org/library/Enc/FreeTrade.html
Friedman, M. (1997) “The Case for Free Trade.” Hoover Digest. Retrieved from: click here
Kliesen, K. (2004). “Trading Barbs: A Primer on the Globalization Debate.” Retrieved from: http://www.stlouisfed.org/publications/re/articles/?id=19
For a numerical example, please click: Calculating Opportunity Cost
Write a 4-5 page paper that addresses the following questions:
1. Explain the concepts of Comparative and Absolute Advantage.
Suppose the USA and Canada are considering to trade. Assume there are only two goods in the economy: potatoes and rice. The table below illustrates what each country can produce in a given year.
USA 8 4
Canada 10 16
In this case, which country should produce potatoes? Why? Hint: calculate the opportunity cost for each country. For instance, USA can produce 8 units of potatoes OR 4 units of rice. In this case, if the USA produces one unit of rice, then it has to give up 2 units of potatoes. Be sure to review the handout for this module. You can also check out another example by clicking here.
2. How does trade affect the production possibilities frontier? Explain.
3. What are atleast TWO factors that can expand the production possibilites frontier. Explain.
4. Give an argument for or against trade. Explain your reasons. Be sure to support your answer with the background materials and some research on your own.
Case Assignment Expectations:
Use concepts from the modular background readings as well as any good quality resources you can find from the cyberlibrary or other internet search engines. Pleas be sure to cite all sources within the text and provide a reference list at the end of the paper.
Length: 4-5 pages double spaced and typed.
The following items will be assessed in particular:
Your ability to apply the basic concepts of the module to a classic model in economics.
Some in-text references to the modular background material (APA formatting not required).
The essay should address each element of the assignment. Remember to support your answers with solid references including the case readings.
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