Econ 212-Spring 2007 Final

Econ 212-Spring 2007 Final - Spring, 2007 ECONOMICS 212...

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1 Spring, 2007 ECONOMICS 212 Professor D. K. Benjamin FINAL EXAM Print and encode your (i) name, (ii) student number, and (iii) course and (iv) quiz section number on the scoring sheet (see the overhead). If you fail to do the preceding actions correctly, you will be penalized five points . On the answer sheet, mark the letter corresponding to the correct answer, using a pencil. There are fifty (50) questions. You have plenty of time; read the questions carefully and engage brain before putting pencil in gear. Go Tigers. Questions 1-4 are based on the following information. Two countries, Italy and America, initially are capable of producing only two goods: potables (P) and edibles (E). America can produce a maximum of 60 P and 0E, or 120 E and 0P, or any linear combination of these numbers. Italy can produce a maximum of 40 P and 0 E, or 30 E and 0 P, or any linear combination of these numbers. 1. Given this information, you can conclude that a. Italy has a comparative advantage in producing P b. Italy has a comparative advantage in producing E c. Neither has a comparative advantage in producing P d. America has a comparative advantage in producing E e. Both (a) and (d) 2. Suppose the price of edibles, measured in dollars, is equal to the price of potables, also measured in dollars. If the two countries seek to maximize their income (measured in dollars), how much of each good will each country produce? a. Italy will produce only potables, America only edibles b. Italy will produce only edibles, America only potables c. Both countries will produce only potables d. Both countries will produce only edibles e. Italy will be indifferent about how to spend its time between edibles and potables 3. Suppose that, as a result of Mediterranean climate change, Italy’s ability to produce both potables and edibles increases dramatically. Specifically, assume Italy can now produce a maximum of 80 P and 0E, or 60 E and 0P, or any linear combination of these numbers. As a result of this technological change, a. Italy’s wealth is now much lower than before b. Italy now has a comparative advantage in producing P c. America now has a comparative advantage in producing E d. the comparative advantage of each country is unchanged e. both (a) and (d) are correct NOTE: D is preferred, but I also gave credit for B and C. 4. Suppose the price of edibles, measured in dollars, now rises to become three time the price of potables, also measured in dollars. If the two countries seek to maximize their income (measured in dollars), how much of each good will each country produce? a. Italy will produce only potables b. Italy will produce only edibles c. Both countries will produce only edibles d. America will be indifferent about how to spend its time between edibles and potables e. both (a) and (d) are correct NOTE: C is preferred, but I also gave credit for B.
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2 Questions 5 and 6 are based on the following information : Robinson Crusoe (RC) and Friday (Friday) are shipwrecked on a Mediterranean island where they live happily ever
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Econ 212-Spring 2007 Final - Spring, 2007 ECONOMICS 212...

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