hw02key - BINGHAMTON UNIVERSITY Department of Economics...

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BINGHAMTON UNIVERSITY Department of Economics Principles of Microeconomics (Econ 160B) Homework #2 Answer Key 1. (10 pts.) Because of the quantity and quality of its resources, the U.S. has an absolute advantage in the production of many goods and services. Does this imply that the U.S. cannot benefit from trading with a developing country that has less productive ability? Why or why not? The U.S. can benefit from trading with less productive countries as long as it produces the goods for which it has a comparative advantage and trades to receive the goods for which it does not. In other words, workers in the U.S. can produce both more software packages and more underwear per hour than can workers in Bangladesh, but compared to the Bengali workers the U.S. workers are more productive at producing software than they are at producing underwear. 2. (12 pts.) The table below shows output per hour for Martha and Stewart who make gift baskets and potholders: Martha Stewart Gift baskets Potholders 10 20 8 12 What is the opportunity cost of a gift basket for Martha? What is the opportunity cost of a gift basket for Stewart? Who has a comparative advantage in producing
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This note was uploaded on 05/27/2008 for the course ECON 160B taught by Professor Michaelvardanyan during the Fall '08 term at Binghamton.

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hw02key - BINGHAMTON UNIVERSITY Department of Economics...

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