Omar and John can fix computers or write computer programs. The table above shows the number of computers they can fix and the lines of code they can write in a day
a. Who, if anyone, has the absolute advantage?
b. Who has the comparative advantage in fixing computers? Why?
c. Who has the comparative advantage in writing programs? Why?
a. Omar has an absolute advantage in fixing computers and writing code because he can fix 12 per day compared to John who can fix only 4 per day, and can write 800 lines of code per day compared to John who can write only 200 lines a day.
b. John has the comparative advantage in fixing computers. He has the comparative advantage because his opportunity cost of fixing one computer is 50 lines of computer code. Omar does not have a comparative advantage in fixing computers because his opportunity cost of fixing a computer is higher at 66.7 lines of code.
c. Omar has the comparative advantage in writing programs. His opportunity cost of writing one line of code is .015 of a computer fixed. John does not have the comparative advantage in writing programs because his opportunity cost of writing one line of code is 0.02 computers fixed. (Alternatively, to write 1 line of code costs Omar the opportunity to repair 1.5 percent of a computer and costs John the opportunity to repair 2.0 percent of a computer.)
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In the foreign exchange market, U.S. residents wishing to purchase foreign exports or foreign real and financial assets must:
A) demand U.S. dollars by supplying foreign currency. B) demand U.S. dollars by supplying U.S. dollars. C) supply U.S. dollars by demanding foreign currency. D) none of the above.
Under a fixed exchange rate regime, if the domestic currency is initially ________, that is, ________ par, the central bank must intervene to purchase the domestic currency by selling foreign assets
A) overvalued; below B) overvalued; above C) undervalued; below D) undervalued; above