Group+1+Comparative+Advantage

//Week 1: The Gains from Trade//
The United States has 20,000 hours of labor with which it can produce either corn or tractors. It takes 50 hours to produce a ton of corn, and 100 hours to produce a tractor.
 * 1) Graph the U.S. production possibility frontier (PPF), with the quantity of corn on the vertical axis.
 * 2) What is the opportunity cost of producing a tractor (in terms of tons of corn) in the United States?
 * 3) Now assume that Mexico can also produce corn and tractors with its 15,000 hours of labor. However, in Mexico it takes 75 hours to produce a ton of corn and 200 hours to produce a tractor. Graph Mexico's PPF. What is the opportunity cost of producing tractors in Mexico?
 * 4) Which country has the absolute advantage in producing corn? Which country has the absolute advantage in producing tractors? Explain your answer.
 * 5) Should these two countries trade? Why or why not? If they should trade, which product should the United States specialize in, and why?

Group One "Gains from Trade" Answer Key