Question 1 (12 marks in total)
(a) (4 marks) Explain the difference between absolute and comparative advantage. Can a producer
have comparative advantage in both goods? What about absolute advantage?
(b) Consider two producers, Bonny and Clyde. Bonny can produce 10kg of cheese per day or 4
litres of wine, whereas Clyde can produce 6kg of cheese per day or 2 litres of wine. This
information is summarised in the following table:
(i) (2 marks) Which producer has an absolute advantage in the production of wine? Which
producer has an absolute advantage in the production of cheese?
(ii) (4 marks) Which producer has a comparative advantage in the production of wine? What
about cheese? Explain and show your workings.
(iii) (2 marks) If they want to specialise and exchange, who should specialise in producing
cheese? Who should in specialise in producing wine?
Question 2 (12 marks in total)
(a) (4 marks) Assume that a firm is producing smartphones and decides to provide training for its
employees, and the training raises the productivity of those workers. Show the impact of this
on the firm’s production function.
(b) (4 marks) Why is the production function for the firm not a straight line?
(c) (4 marks) How would the increase in the productivity of workers (in part (a)) affect the feasibility
frontier of the firm?
Question 3 (6 marks in total)
Explain the Malthusian model. How has the Industrial Revolution proven the Malthusian model to be
incorrect regarding economic growth?