I am getting thrown off by absolute advantage:
Boston:
Red Socks per worker per hour 3
White Socks per worker per hour 3
Chicago:
Red Socks per worker per hour 2
White Socks per worker per hour 1
A) Without trade, what is the price of white socks (in terms of red socks) in Boston? What is the price in Chicago?
This is my answer to this question:
Boston:
3 White Socks=3 Red Socks
1 White Sock=1 Red Sock
Chicago:
1 White sock=2 Red Socks
.5 White Sock=1 Red Sock
The next question is what is what I am having trouble with:
B)Which city has an absolute advantage in the production of each color sock? Whick city has a comparative advantage it ehe productions of each color sock?
This is my answer:
Boston has the absolute advantage in the production of white socks. Neither city has an absolute advantage in the production of red socks.
Chicago has a comparative advantage in the production of white and red socks.
I am not sure I am answering correctly.
Boston has an absolute advantage in producing both red socks and white socks. For red, a worker in Boston can produce 3 for every 2 a Chicago worker can (3>2). For white, a Boston worker can produce 3 for every 1 a Chicago worker can (3>1).
Chicago has a comparitive advantage in producing red socks only. In Chicago, the opportunity cost to produce one red is .5 white while in Boston the opportunity cost to produce 1 red is 1 white.
So, Boston has a compartitive advantage in producing white socks. In Boston, the opportunity cost to produce 1 white is 1 red. While in Chicago, the opportunity cost of producing 1 white is 2 reds.
Your answer is mostly correct, but there is a small error in determining the absolute advantage for white socks.
Absolute advantage is determined by looking at which city can produce more units of a particular good with the same amount of resources (in this case, workers and time).
For white socks:
In Boston, one worker can produce 3 white socks per hour.
In Chicago, one worker can produce 1 white sock per hour.
Since Boston can produce more white socks per worker per hour than Chicago, Boston has the absolute advantage in the production of white socks.
For red socks:
In Boston, one worker can produce 3 red socks per hour.
In Chicago, one worker can produce 2 red socks per hour.
Since Boston can produce more red socks per worker per hour than Chicago, Boston also has the absolute advantage in the production of red socks.
As for comparative advantage, it is determined by comparing the opportunity cost of producing one unit of a good in terms of the other good. Since you provided the information only about the production rates, we cannot determine the comparative advantage accurately. Comparative advantage depends on the relative opportunity cost, which is based on the production and resource allocation in each city.
In summary:
- Boston has the absolute advantage in the production of both white and red socks.
- Without information about opportunity cost, we cannot determine the comparative advantage accurately.
To determine which city has an absolute advantage in the production of each color sock, you need to compare the productivity levels of each city for each color. The city with the higher productivity level will have the absolute advantage in producing that color sock.
In this case, for white socks:
- In Boston, each worker can produce 3 white socks per hour.
- In Chicago, each worker can produce 1 white sock per hour.
Since Boston has a higher productivity level for white socks (3 socks per hour compared to Chicago's 1 sock per hour), Boston has the absolute advantage in the production of white socks.
For red socks:
- In Boston, each worker can produce 3 red socks per hour.
- In Chicago, each worker can produce 2 red socks per hour.
In this case, both cities have a productivity level for red socks, but Chicago's productivity level (2 socks per hour) is higher than Boston's (3 socks per hour). Therefore, Chicago has the absolute advantage in the production of red socks.
To determine which city has a comparative advantage in the production of each color sock, you need to consider the opportunity cost. The city with the lower opportunity cost for producing a particular color sock will have the comparative advantage in producing that color sock.
Let's calculate the opportunity cost for each city for producing white socks:
- In Boston, the opportunity cost of producing 1 white sock is giving up 1 red sock (since both are produced at the same rate: 1 white sock = 1 red sock).
- In Chicago, the opportunity cost of producing 1 white sock is giving up 2 red socks.
Comparing the opportunity costs, we see that Boston has a lower opportunity cost (1 red sock) compared to Chicago (2 red socks). Therefore, Boston has the comparative advantage in the production of white socks.
For red socks, since both cities produce at the same rate (1 white sock = 1 red sock), the opportunity costs are equal in both cities. Therefore, neither city has a comparative advantage in the production of red socks.
In conclusion:
- Boston has the absolute advantage in the production of white socks.
- Chicago has the absolute advantage in the production of red socks.
- Boston has the comparative advantage in the production of white socks.
- Neither city has a comparative advantage in the production of red socks.