In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are

In the ancient country of Roma, only two goods, spaghetti...

Key Concepts

Production Possibility Frontier

The Production Possibility Frontier (PPF) is a curve that represents the maximum possible output combinations of two goods that an economy can produce when all resources are fully and efficiently utilized. It illustrates the trade-offs between the production of different goods, showing the opportunity cost of reallocating resources from one good to another. In the context of the problem, each tribe’s PPF is determined by the fixed production capabilities and the choices they make between producing spaghetti and meatballs.

Opportunity Cost

Opportunity cost is the value of the next best alternative that is forgone when a decision is made to produce or consume one good over another. In the framework of economic production decisions, it reflects how much of one good must be sacrificed in order to produce an additional unit of another good. For each tribe in the question, determining the opportunity cost is key to understanding how their production decisions affect the mix of goods they can produce.

Absolute Advantage

Absolute advantage refers to the ability of an entity, such as an individual, firm, or country, to produce a greater quantity of a good or service with a given quantity of resources compared to another entity. In the problem scenario, it is used to compare which tribe can produce more of either spaghetti or meatballs when using their resources fully.

Comparative Advantage

Comparative advantage is the ability of an entity to produce a specific good at a lower opportunity cost compared to others. It underpins the gains from trade, as different entities specialize in the production of goods for which they have a lower opportunity cost and then trade with each other. In the context of this problem, comparative advantage helps determine which tribe should focus on producing which good to maximize overall production efficiency.

Technological Innovation in Production

Technological innovation in production refers to improvements or discoveries that enhance the production process, allowing more units of a good to be produced from the same inputs. In the problem described, the Frivoli's discovery of a new technique for making meatballs exemplifies how such innovations can shift a production possibility frontier outward, altering both absolute and comparative advantages in the production of goods.

Transcript

00:01 So in the ancient country of roman, only two good spaghetti and meatballs are produced, and there are two tribes in roma, the tiberi, the tivoli and the frivoli.

00:10 So the frivoli each month can produce either 30 pounds, or rather the tivali.

00:26 They can produce either 30 pounds of spaghetti, no meatballs, or 50 pounds of meatballs, no spaghetti, or any combination of both and the five early by themselves each month can produce so the five only by himself can produce 40 pounds of spaghetti and no meat bulbs or 30 pounds of meat bulbs and no spaghetti or any combination of both so the first question states assume that all production of possibility frontiers are a straight line draw one diagram showing the monthly production possibility frontier for the titha li and under showing the monthly production possibility frontier for the frivoly and show how you calculated them so we're going to start with that so the first one the production possibility frontier for tively be over year and the production possibility frontier for the second one which is frivolity be over here so and this side is the spaghetti and this side is the meatballs and this is zero so based on what we're giving they can produce 30 spaghetti no meatballs or 50 meatballs no spaghetti so we need 30 spaghetti on the spaghetti and the x -axis so this is 30 and then they can produce 50 meatballs so let's assume 50s over here so the production particular front here is going to meet up right here and this is going to be the production possibility frontier for tivoli now moving on to frivoly we still have the meatballs over here and we have the spaghetti over here and then we we can see that on the produce 30 meatballs so let's assume 30s over here and 40 spaghetti and let's assume 40s over here so that is going to meet up with this and this is the production possibility frontier for frivoly so this is this is both there so these two diagrams shows the production possibility frontier of frivolity tivoli and frivoly and this is this means um tibberley and this means frivoly so that's it now moving on to the second part of the question it says which tribe has the comparative advantage in spaghetti production and a meatball production so we need to calculate this opportunity costs so to find the comparative advantage right comparative advantage is basically when an economy can produce goods at the lower opportunity cost than the other economy so in this concept of comparative advantage that means the um they are compared to each other in terms of the opportunity cost so we're going to start with the comparative advantage in of spaghetti so and we're also told that in ad in ad andre the privately discovered a new technique for making meatballs that doubles the quantity of meatballs they can produce each month oh that's for this third question i'm sorry but let's continue with the comparative advantage in terms of spaghetti and in order to produce 30 spaghetti for triv or for tybaly as we're giving and 50 units of meatballs so for tiverley.

05:53 In order to produce 30 units of spaghetti, tavoli has to give up one 50 units of meatballs.

06:14 So that means that one unit of spaghetti, right? to produce one into spaghetti, it would be divided by 50 divided by 30 units of meatballs.

06:30 So that's 5 over 3 to produce 1 unit of spaghetti.

06:36 So that means.

06:37 To produce one into spaghetti tivali needs to give up 1 .66 units of meatballs so to produce one unit of spaghetti tivali needs to give up 1 .66 units of meatballs right so the other part which is trivary frivoly rather so for trivalli to produce 40 units of spaghetti 5 really needs to give up 30 units of meatballs so therefore to produce one unit of spaghetti they will need to give up 30 divided by 40 units of meatballs so therefore to produce one unit of spaghetti frivoly on the other hand needs to give up 0 .75 units of meatballs so that's smaller than on the unit type only is to give up so therefore we can say that frivoly as a comparative advantage in terms of spaghetti because you know that to give one unit of spaghetti privately um needs to give up lesser units of meatballs so it has a comparative advantage in terms of spaghetti because they have to give up lower amount of meatballs to produce each units of spaghetti if that makes sense so therefore frivoly as a comparative advantage in terms of spaghetti as they have to give up fewer amount of meatballs so now moving to the comparative advantage in terms of meat meatballs because this one is spaghetti right so we're going to move to the comparative advantage in terms of meatballs so for tyverley in order for tyverly to produce 50 of meatballs they will need to give up 30 units of spaghetti so that means that one units for one unit produced of meatballs they need to give up 30 divided by 50 units of spaghetti so therefore to produce one unit of meatballs tively needs to give up 0 .6 units of spaghetti right so now moving on to trivoli now for trivoli to produce 30 units of spaghetti or whether to produce 30 units of meatballs trivoli has to give up i think it was five five only i'm sorry and then this is trivoli the second one is trivoli so trivoli has to give up 40 units of spaghetti to produce 40 units of meatballs so so that means that one unit of meatballs would give 40 divided by 30 units of spaghetti.

12:23 So that means that to produce one unit of, to produce one unit of meatballs, trivoli has to give up 1 .33 units of spaghetti.

13:00 So if you look at it, we can see that the smaller one is for five orly, or rather tively i'm sorry this is tively oh the first one is tively the second one is trivoli i'm sorry so this is tiveoli and then the second one is priivoli so we can see that the smaller unit of spaghetti is for tivali right so it's for tivoli so therefore tiberly has a comparative advantage in terms of meatballs because they need to give up fewer amounts of spaghetti to produce the meatballs so then that's for that question now moving on to question three it says that um in 80 undread favorily discovered a new technique for making meatballs that doubles the quantity of meatballs and they produce they produce every month so i had to draw the monthly the new monthly production possibility frontier for the frivolity so question three the new production possibility frontier will change because the amount of meatballs they can produce if they can devote the resources to meatballs will double from 30 to 40 to 60 so because it says that it's making um it's doubling the amount of meatballs so that means the amount of meatballs they can produce will double from 30 to 60 meatballs will double from 30 to 60 so then the new possibility um production possibility front here will look like this and this is for five really five really rather so that will look like this and then this side is the meatballs and then this side is spaghetti so this is going to go from zero to 70 so we have 10 20 30 40 50 50 50 60 70 and here we have 10, 20, 30, 40, 50, 60 and so on.

18:05 So at 0 .40, that's what we need.

18:09 It's going to go to 0 .30 because it was 30 before.

18:13 And then now it's going to become 60.

18:14 So we increase from 30 to 60, right? so at 40 units of spaghetti, it increased from 30 units of meatballs to 60 units of meatballs.

18:26 So then we can say that then we can say that this increase to this side so that's an increase in the production possibility frontier so this is the new production possibility frontier for frivoly now moving on to the four question after the innovation which tribe now has an absolute advantage in producing meatballs in producing spaghetti and which has the comparative advantage in producing meatballs and spaghetti so we want to find the absolute advantage and the comparative advantage for both goods.

19:38 So now, after the innovation, right, we can start with the absolute advantage...

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