opportunity cost

Choose two student to reply, just write down what do you think about their opinion. MADELINE KIMBERLY: C = Copper W = Wheat 1. United States opportunity cost for Copper (max wheat/ max copper) = 8/2 = for 1 thousand pound of copper, 4 millions tons of wheat is the opportunity cost (1C:4W) United States opportunity cost for Wheat (max copper/ max wheat) = 2/8 = for 1 million ton of wheat, 0.25 thousand pounds of copper is the opportunity cost (1W:1/4C) 2. Chile opportunity cost for Copper (max wheat/ max copper) = 4/2 = for 1 thousand pound of copper, 2 millions tons of wheat is the opportunity cost (1C:2W) Chile opportunity cost for Wheat (max copper/ max wheat) = 2/4 = for 1 million ton of wheat, 0.50 thousand pounds of copper is the opportunity cost (1W:1/2C) 3. Yes, they would both benefit through specialization. United States should specialize in Wheat and so they would produce 8 million ton of wheat while Chile would specialize in Copper and produce 2 thousand pounds of copper. Outputs after specialization US = 8 million ton of wheat Outputs after specialization Chile = 2 thousand pounds of copper 4. United States exports 3 million ton of wheat for 1 thousand pounds of copper and so, after trade, their output is 5 million ton of wheat and 1 thousand pounds of copper. US wheat outputs after trade = (wheat outputs after specialization) – (exports) = 8 – 3 = 5 million ton of wheat US copper outputs after trade = (copper outputs after specialization) + (imports) = 0 + 1 = 1 thousand pounds of copper Then, the gains from trade would be the added amount of output after they specialized. US gains of wheat from specialization and trade = (output after trade) – (output before trade) = 5 – 4 = 1 million ton of wheat US gains of copper from specialization and trade = (output after trade) – (output before trade) = 1 – 1 = 0 Chile imports 3 million ton of wheat for 1 thousand pounds of copper and so, after trade, their output is 3 million ton of wheat and 1 thousand pounds of copper. Chile wheat outputs after trade = (wheat outputs after specialization) + (imports) = 0 + 3 = 3 million ton of wheat Chile copper outputs after trade = (copper outputs after specialization) – (exports) = 2 – 1 = 1 thousand pounds of copper Then, the gains from trade would be the added amount of output after they specialized. Chile gains of wheat from specialization and trade = (output after trade) – (output before trade) = 3 – 2 = 1 million ton of wheat US gains of copper from specialization and trade = (output after trade) – (output before trade) = 1 – 1 = 0 5. The limits on the terms of trade between two nations is more than 0.25 thousand pounds of copper but below 0.5 thousand pounds of copper for 1 million ton of wheat. This is because US would not accept a trade for 1 million ton of wheat for less than 0.25 thousand pounds of copper and Chile would not trade for 1 million ton of wheat for more than 0.5 thousand pounds of copper as that would eliminate the advantage of trade and specialization. From the numbers given in #4, the TOT there would be right between that range, with 0.33 thousand punds of copper for each million ton of wheat. NAVJOT KAUR: What is the United States opportunity cost for wheat and copper – show your math work? Wheat= 8 (2/8) = ¼ (1 W= ¼ C) Copper= 2 (8/2)= 4 (1 C= 4 W) What is Chile’s opportunity cost for wheat and copper –show your math work? Wheat= 4 (2/4) = 1/2 (1 W= 1/2 C) Copper= 2 (4/2)= 2 (1 C= 2 W) Could these two countries gain through specialization? If so, in what products should they specialize in? Yes, they can because Chile has a lower opportunity cost to produce copper than the U.S. The United States should specialize in wheat while Chile should in Copper because Chile would be giving up half the amount less when making copper when compared to the U.S. Following specialization, suppose the United States exports 3 million tons of wheat to Chile in exchange for 1 thousand pounds of cooper. What are the gains from trade for each country? (Show your work on how you calculated this number). United States 3 Wheat to 1 copper: ( 1 W= 1/3 C) , so without specialization the U.S was giving up 4 million tons wheats to produce 1 thousand copper, but now they are only giving up 1 million tons less of wheat to receive the same amount of copper, and thus have increased efficiency by 25%. Chile: 1 copper to 3 Wheat= (1 C= 3 W), Before specialization Chile’s opportunity cost was 2 million tons of wheat for every 1 thousand copper they produced, but now they are receiving 1 million tons of wheat more for the same cost due to trade. What are the limits on the terms of trade between the two nations? They both are more efficient in producing wheat than copper, so maybe it would be better to trade with another nation whose specialty highly contracts with the other trade company. There are many trade restriction that the countries can run into, which reduces the economic efficiency and can raise prices in each nation. Tariffs, there are taxes on imports which can raise the price of the imported goods and thus the demand goes down as so does the efficiency because tariffs shift resources from more effective to less effective producer. Standards will be higher, so the health and safety would be stricter than if produced in the nation. They might run into the issue of the amount that can be imported, called quotas, so if the nations are depended on each other for the product and then hits a limit, it will be difficult for both nations to again start producing each product. Licenses may be required for the foreign goods and there are limits on the number of licenses issued. KEVIN D NUNEZ: 1) US: The OC of one Wheat is equal to 1/4,000,000 Copper The OC of one Copper is equal to 4,000 Wheat 1 Wheat = 1000/4,000,000 Copper 1 Copper = 4,000,000/1,000 Wheat 2) Chile: The OC of one Wheat is equal to 1/2,000,000 Copper The OC of one Copper is equal to 2,000 Wheat 1 Wheat = 1,000/2,000,000 Copper 1 Copper = 2,000,000/1,000 Wheat 3)Both countries should specialize in Copper because they make thousands in wheat per one Copper compared to a Wheat costing a small percentage of a Copper. 4)US gains 1,000 Copper which equals up 4 million Wheat, so they gain 1 million surplus from the 3 million Wheat sale. While Chile gains, 3 million Wheat which translates to 1.5 thousand Copper. So they bought the Wheat of a discount of a half thousand copper. 5) Both Chile and US profit from the same resources, there is a limit to both countries when it comes to profiting from the same source. They need to find a another different country that they can both export and import goods from, that way US and Chile and the country they will be partnering with will benefit from the trades. RICHARD J LEARY: 1. US opportunity cost is as follows: 8wheat / 2copper = 4 wheat for every 1 copper produced and also 2copper / 8 wheat = 1/4 copper for every 1 wheat produced. 2. Chile opportunity cost is as follows: 4wheat / 2copper = 2 wheat for every 1 copper produced and also 2copper / 4 wheat = 1/2 copper produced per 1 wheat. 3. Yes, these countries could be benefit from specialization. The United States should specialize in wheat and Chile in copper. 4. If the US exports 3 million tons of wheat to Chile in exchange for 1 thousands pounds of copper, then each nation would have gained zero copper as seen below after the answers. 5. The US has a limit on how many millions of tons of wheat it can export to Chile or else it would end up either breaking even or losing in the trade. In other words it cannot exceed 4 million tons to export or else it would lose its advantage in specialization. Conversely, Chile could not export more than 1 thousand pounds of copper for losing its advantage in specializing in the production of copper. If nations did this, then specialization would be meaningless and detrimental to the country’s economy. Column #1 #2 #3 #4 #5 Country Outputs before Specialization Outputs after Specialization (Question #3 has the answer) Amounts Exported and Imported (Data in question #4 below) Outputs Available After Trade (Column #2 plus or minus Column #3) Gains from Specialization and Trade (Column #4 – Column #1) United States (Point A on Graph) _4___ Wheat _1___Copper _8__Wheat _0__Copper Minus _3_ Wheat Plus _1_ Copper _5__ Wheat _1__ Copper _1__ Wheat _0__ Copper Chile (Point a on Graph) _2__ Wheat _1__ Copper _0__Wheat _2__Copper Plus _3__ Wheat Minus _1_ Copper _3__ Wheat _1__ Copper _1__ Wheat _0__ Copper