Practice Problems for Comparative Advantage and GDP
COMPARATIVE ADVANTAGE/TRADE
1. Bob and Stella are a married couple. Bob takes 10 minutes to change a lightbulb and
2 minutes to fix a broken fuse. Stella takes 3 minutes to change a lightbulb and 30
seconds to fix a broken fuse. Assume that they spend 2 hours on such home repairs.
a. What is the opportunity cost of fixing a broken fuse for Stella, for Bob?
b. Who has the absolute advantage in lightbulb changing? Who has the absolute
advantage in fuse fixing?
c. If Stella only chooses to do one job and Bob only chooses to do one job which
job should they each choose? Why
2. Use the information in the table to answer the following questions.
Alternate Outputs from One Day’s Labor Input
Wheat Textiles
United States 12 bushels 3 yards
Great Britain 3 bushels 12 yards
a) Which country has the absolute advantage in wheat, and which country has the
absolute advantage in textiles?
b) Which country has the comparative advantage in wheat, and which country has
the comparative advantage in textiles? Why?
c) Which good would the US export and which would it import?
d) Who is helped by trade? Who is hurt? Explain.
GDP
1. The country of Soaring Birds produces only two goods: footballs and basketballs.
Below is a table showing prices and quantities of output for three years:
Year
Price of
Footballs
Quantity of
Footballs
Price of
Basketballs
Quantity of
Basketballs
Year 1 $10 120 $12 200
Year 2 $12 200 $15 300
Year 3 $14 180 $18 275
a) Find nominal GDP for Soaring Birds in each of the 3 years years.
b) Using Year 1 as the Base Year, find real GDP for Soaring Birds in each of the 3 years.
c) By comparing nominal and real GDP what can you say about actual growth rates in
the economy over the three years?
