Q1: 25 years ago, simple textiles (T-shirts, jeans, socks, etc) were available but primarily produced in high-wage industrialized countries where there was demand for these product. Since then, income has increased and fashion has changed and today the demand for these simple textiles has increased dramatically throughout the world. At the same time, production has moved to lower-waged developing countries where these textiles are produced using modern and efficient technologies. Given this information, what does the demand-supply model of the market for simple textile predict about the change in quantity bought and sold and the change in price paid over the last 25 years.
Q2:Suppose that Mr. A and Mr. B have the following production table for 8 hours of work.
Products Mr. A Mr. B
X XA XB
Y YA YB
a. Write down the ratios that define each persons opportunity cost of producing each product.
b. If Mr. A has an absolute advantage in producing X and Mr. B has an absolute advantage for producing Y, then XA>XB and YB>YA. It follows that [(YA)/(YB)] < 1 < [(XA)/XB]. Does that have any implication with respect to Mr. A and Mr. B's comparative advantages in producing X and Y? (Hints: Multiply by (YB)/(XA) > 0)
Q3:Use the Cost-Benefit Principle to analyze the choice between going to a concert by Moist or a concert by the Barenaked Ladies, both performing at the same time. The situation is as follows: You live within a short walking distance of the place where Moist is playing meaning there is $0 transportation costs. Since you feel it would be wroth $50 to hear Moist, you have already bought a $40 ticket to that concert. After that you hear about the concert by the Barenaked Ladies. However, the Barenaked Ladies are performing in downtown and while you feel that the benefit to you of hearing this band is $80, it will cost you $15 for the round trip to downtown and the ticket price there is $30.
a. Compute the opportunity costs of going to each concert.
b. Based on the Cost-Benefit Principle, which concert is the best choice? Explain your answer.