Problem

Does intra-industry trade contradict the theory o…

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Problem 16 Hard Difficulty

You just got a job in Washington, D.C. You move into an apartment with some acquaintances. All your roommates, however, are slackers and do not clean up after themselves. You, on the other hand, can clean faster than each of them. You determine that you are 70% faster at dishes and 10% faster with vacuuming. All of these tasks have to be done daily. Which jobs should you assign to your roommates to get the most free time overall? Assume you have the same number of hours to devote to cleaning. Now, since you are faster, you seem to get done quicker than your roommate. What sorts of problems may this create? Can you imagine a trade-related analogy to this problem?

Answer

Now as the person could do things faster than his friends so he will have more spare time than
his friends which could be a problem. Similarly, in international trades countries might have
problem with trade when they see that one country is getting more gains of trade than other.

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Principles of Microeconomics for AP® Courses

Chapter 19

International Trade

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So in this problem, we know that you clean dishes 70% faster, Um, than your roommates. So I'm just going to sign random numbers to these are not really random. They're kind of thought out. So for the roommates, I'm just going to say that they can in one hour. So our quote unquote labor equals one hour. And, um, in one hour, your roommate can do 10 dishes and can vacuum 10 square feet, which is not a lot at all. But let's just suppose. And now you can clean dishes 70% faster than your roommate. So 70% of 10 would be seven. So 10 plus seven would be 17. Another way of calculating that would be, um, by using the following formula. It would be the observed, minus the expected over the expected. In this situation, the expected are both 10. And you know, this equals 0.7, but this represents is the percent difference. Um, so yeah, you can do, um, and then your observation would be whatever whatever this comes out to be. And we get 17 when we do that. Um, so that's just the example. Formula I used If you guys are doing this on a test. I'm pretty sure that will work too. So I have 17, and now I know that I vacuum, uh, 10% faster than my roommate. So 10% of 10 is one. So I know that I can do 11 square feet in one hour again. Not a lot, but just imagine so. Now we have to figure. So what we have here is basically a comparative advantage matrix kind of thing, right? Um, we have to figure out who has what now it's pretty obvious to see that in both situations, dishes and vacuuming, I have the absolute advantage. So here's where the problem can come up. I can do everything more quickly, but I only have so much time. So we have to. We can come up with a trade situation if, um, there's a comparative advantage involved. So to figure out the comparative advantage, we have to figure out the trade ratio for the opportunity cost of each thing. So for you, one dish is equal to 11/17 square feet, right? And we get this because we have 17 dishes equals one hour, one hour, and we have that 11 square feet equals one hour. And because they both equal one hour, we can set them equal to each other. 17 dishes equals 11 square feet. And when we divide to just get one dish, we have to divide both sides by 17. 18 equals 11 square feet over 17. So one dish is equal to this. Um Oops. Oh, no, This is not working out. Okay, so we have that This is, um, the comparative advantage or the opportunity cost for one dish and Oh, my gosh, we have to do the same thing for square feet, right? So one square foot is equal to 17/11 dishes. And now for the roommate, we have to do the same thing, right? So we have to figure out how much one dish is equal to, and one dish is equal to one square foot. We're gonna use that same formula where we set them both equal to one hour. And then we can set, uh, dishes and vacuuming equal to each other and then divide by, um, the coefficient of whatever we're looking at. And now one square foot is equal to one dish. So we have this. Now we just have to compare the opportunity costs. I'm just gonna write this out on another page. So, um, and this matrix I'm going to write, you remain, um, this is going to be opportunity costs for dishes. This is going to be the opportunity cost for vacuuming. So for you, the opportunity cost. One dish is equal to 11/17 square feet. And for your roommate, one dish is equal to one square foot. Now for vacuuming, one square foot is equal to 17/11 dishes. And here, um, are sorry. Here, one square foot is equal to one dish again. So one dish Now what we have to do is find out where there is the lowest opportunity cost, right, So 11/17 is less than one. So you have the comparative advantage when it comes to washing dishes, and one is less than 17/11. So, um, your roommate has a comparative advantage when, um, vacuuming. So, um, here's what the problems that may arise. Your roommate. That'd be like, Wait, you're faster at doing both. Why don't you just do them? We can both save time, but the problem is you both only have one hour in total. So by you doing the dishes, you're saving time and being more productive And by your roommate vacuuming, um, he or she would be saving time. Um, and being more efficient, you can, or you both together can be more efficient this way. Um, now, when this comes to like a trade analogy, um, to this problem, we can see that there is an absolute advantage, Um, in one quote unquote country. And then, um, you know, no absolute advantage down here. Um, So what happens is what could happen is one country tries to, uh, trade more than it needs to basically dependent when it shouldn't need to. There should be a equal trade off so that things become more efficient. So that's a little example. Put your own situation. Um, there's a lot of examples in the news if you want to look that up. But that's just like a quick little ditty here.

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Principles of Microeconomics for AP® Courses

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Problem

Does intra-industry trade contradict the theory o…

Problem 16 Hard Difficulty

Answer

Now as the person could do things faster than his friends so he will have more spare time than
his friends which could be a problem. Similarly, in international trades countries might have
problem with trade when they see that one country is getting more gains of trade than other.

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Principles of Microeconomics for AP® Courses

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Watch More Solved Questions in Chapter 19

Video Transcript

Steven A. Greenlaw, David Shapiro, Timothy Taylor

Principles of Microeconomics for AP® Courses

Now as the person could do things faster than his friends so he will have more spare time thanhis friends which could be a problem. Similarly, in international trades countries might haveproblem with trade when they see that one country is getting more gains of trade than other.

Principles of Microeconomics for AP® Courses

Steven A. Greenlaw, David Shapiro, Timothy TaylorPrinciples of Microeconomics for AP® Courses

Now as the person could do things faster than his friends so he will have more spare time than
his friends which could be a problem. Similarly, in international trades countries might have
problem with trade when they see that one country is getting more gains of trade than other.

Steven A. Greenlaw, David Shapiro, Timothy Taylor

Principles of Microeconomics for AP® Courses