Question 1: Suppose that the government wants to increase Social Security taxes by $1 per hour of work and is undecided between increasing the tax on workers and increasing the tax on employers. According to the last sentence of this chapter, " the resolution of this conflict ultimately makes not one bit of difference to anybody."
a. Explain the meaning of the quoted sentence, in terms that could be understood by a person who had never taken an economics course.
b. Use graphs to explain why the quoted sentence must be true, in terms that could be understood by your fellow students.
Question 2: Suppose that an acre of land in Iowa can yield either 50 bushels of wheat or 100 bushels of corn, while an acre of land in Oklahoma can yield either 20 bushels of wheat or 30 bushels of corn.
a. What is the cost of growing 200 bushels of wheat in Iowa? What is the cost of growing 200 bushels of wheat in Oklahoma? Which state has a comparative advantage in growing wheat?
b. Which state has a comparative advantage in growing corn?
c. Suppose that the residents of Iowa eat 200 bushels of wheat and 360 bushels of corn, and that the residents of Oklahoma also eat 200 bushels of wheat and 360 bushels of corn. If there is no trade between the states, how many acres must each state devote to agriculture?
d. In part c, suppose that the states begin to trade, with each specializing in its area of comparative advantage. How many acres of Iowa farmland are freed up for other uses? How many acres of Oklahoma farmland?