Homework Assignment: Part I $--$ Comparative Advantage $($Chapter $2)$

$($Note: this assignment is structured much like the example presented in class, which is available on Blackboard in the Supplemental Materials folder.$)$ Assume a world with two economies, Idaho and California. Each economy is capable of producing two agricultural products: potatoes and avocados. Assume each economy has the following production capacities, in some unspecified units, if they employ half their resources on each.

Potato

Idaho

Avocado

$100$

California

Assume that within each economy resources are equally adaptable to either product $($i$.$e$.,$ if you allocated all the resources to one product, you would get double the production$).$

Question $1$: If each economy were to employ half their resources on potatoes and half on avocados, how many units of each product would each produce, and how much of each product would be produced in total $($i$.$e$.,$ combining both economies$)?$

Idaho ${?}_{(})$

California ${?}_{(})$

Total ${?}_{(})$

Potato

Avocado

Question $2$A: What if we tried to take advantage of the Law of Comparative Advantage and had economies specialize? Which economy should specialize in potato? Explain why. You can be brief, but be precise $($be careful to focus on opportunity cost$).$

Question $2$B: Assuming we specialize, with all resources employed in each economy on the product where it has a comparative advantage, how many units of each product would be produced in each economy, and in total?

Idaho ${?}_{(})$

California ${?}_{(})$

Total ${?}_{(})$

Potato

Avocado

Continued on back: