Burning Down the House

It was most unfortunate that the fire alarm disrupted class on Wednesday (January 24). Apparently a young child found that the alarm mechanism looked like a toy. Although I went ahead and dismissed class, we were given the all clear in a matter of minutes. We would have made good use of about 15 more minutes but unfortunately, I had to make the call to not have us all hang out outside. I hope you made good use of your early dismissal. ;-)

The material I was covering as we were so rudely interrupted can be found in the Krugman and Wells text, pp. 22-25, in Chapter 2. This information is helpful in answering the first problem (trucks and corn). The remainder of Chapter 2 had already been discussed. I used a Gilligan and Maryann example. Your text offers other examples. Problem two has you calculate opportunity costs and use the definitions of absolute and comparative advantage. Again, the text should be very helpful, as well as your notes.

There have been a few questions regarding calculating the opportunity costs in the second part of the first problem (trucks and corn). Here are a few hints:

The opportunity cost is in terms of the amount of corn (in bushels) that they must give up in order to get the next 10 trucks.

When the economy produces no trucks they can produce 70 bushels of corn (point A). When they produce 10 trucks (point B) the production of corn falls to 60 bushels, ten fewer. The opportunity cost of the first 10 trucks is 10 bushels of corn.

When the economy produces 10 more trucks (total of 20), they move from point B to point C. The production of corn would drop to 45 bushels. That is 15 bushels fewer than at point B. The opportunity cost of the next 10 trucks is 15 bushels of corn.

So figure out how many bushels are given up when they move from C to D and again for D to E.

I hope that helps.

JJ