Announcement

1
Announcement

• Clicker company has promised full refunds on
  clickers returned to bookstore by a week from
  today.
• Bookstore says any time except Saturday
• This batch of clickers has a bad chip that causes
  batteries to leak slowly while in sleep mode

2
I think that using clickers in class and giving
credit for attendance is a good idea.

• Strongly Agree
• Agree
• Neutral
• Disagree
• Strongly Disagree

3
Farmers Alf and Barney can plant wheat or hay.
Alfs land yields 60 bushels of wheat per acre
and Barneys yields 30. Alfs land yields 3
tons of hay per acre and Barneys yields 2

• Alf has comparative advantage in both crops.
• Barney has comparative advantage in hay.
• Barney has comparative advantage in wheat.

4
Why is that?

• The ratio of Alfs productivity in hay to his
  productivity in wheat is
• 3 tons/ 60 bushels 1/20 tons/bushel
• The ratio of Barneys productivity in hay to his
  productivity in wheat is
• 2 tons/30 bushels1/15 tons/bushel
• 1/151/20 so Barney has comparative advantage in
  hay.

5
Alf has 100 acres. He can get 60 bushels of wheat
per acre or 3 tons of wheat per acre. The
following equation shows the combinations of
bushels of wheat (W) and tons of hay (H) that he
can grow on his farm.

• 60W3H100
• (W/60)(H/3)100
• 3W60H
• 60W3H

6
Why is that?

• He gets 60 bushels of wheat from every acre
  planted in wheat and three tons of hay from every
  acre in hay.
• To get W bushels of wheat he needs to plant
  W/60 acres in wheat. To get H tons of hay, he
  needs to plant H/3 acres in hay.
• He has 100 acres to plant in one or the other so
  he can choose any combination where
• (W/60)(H/3)100.

7
The ratio of productivity in hay to productivity
in wheat for Alf is 1/20 ton per bushel, and for
Barney it is 1/15 ton per bushel. The price of
wheat is 1 per bushel. If the price of hay is
18 per ton

• Alf will specialize in wheat and Barney in hay.
• Both will produce wheat.
• Both will produce hay.
• Alf will specialize in hay and Barney in wheat.

8
Why is that?

• By switching his cropland from hay to wheat, Alf
  gets 20 bushels of wheat for every ton of hay he
  gives up. 20 bushels of wheat are worth 20. A
  ton of hay is worth 18.
• By switching cropland from wheat to hay, Barney
  gets 1 ton of hay for every 15 bushels of wheat
  that he gives up. 15 bushels of wheat are worth
  15. A ton of hay is worth 20.

9
.
Alfs Options
Gold line shows production possibilities. 1 ton
of hay costs 20 bushels of wheat.
6000 bushels
Pink line shows combinations Attainable by
specializing in wheat And trading at price 18
per ton for Hay and 1 per ton for wheat. .
5400 bushels
Dotted pink line shows Combinations available to
Alf If he specializes in Hay. (Bad Choice)
H
333.3
300 tons
10
..
Barneys Options
W
3600
The green line shows combinations of Hay and
wheat that Barney could produce On his 100 acre
farm.
3000 bushels
The pink line shows combinations he Could obtain
by specializing in hay And trading at world
price of 18/per Ton of hay, 1 per bushel of
wheat.
Dotted pink line shows combos Available by
specializing in wheat (Bad idea)
H
200 tons
11
Final Exam

• Last Name starts with A-B or Y-Z go to Buchanan
  1940
• Last Name starts with C go to South Hall 1431.
• Others (D-X) go to Campbell Hall
• No cell phones, or electronic communicating
  devices.
• Bring ID, scantron, pencil.

12
And on to our lecture