ch19hw - Chapter 19 Homework Suggested Solutions Problem 12...

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Chapter 19 – Homework Suggested Solutions Problem 12: The United States has an absolute advantage because a single worker can produce more of both goods than can a single worker in Fredonia. Fredonia has a comparative advantage in food production because the opportunity cost of producing one more unit of food in Fredonia is equal to the cost of one-seventh of a unit of cloth, compared with a cost of one-fourth of a unit of cloth in the United States. Problem 14: An effective import quota holds imports below the level that would occur with free trade. In the following graph S + q represents domestic supply ( S ) plus the quota. The horizontal distance between S and S + q equals the amount of the quota. With free trade, the price equaled the world price P w ; The quota raises the price to P q . At the higher price, the quantity consumed falls from D to C , and consumer surplus falls by areas a + b + c + d + e . However, the higher price encourages domestic production, and producer surplus rises by area
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This note was uploaded on 07/14/2008 for the course ECON 2301 taught by Professor Butler during the Summer '08 term at Blinn College.

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ch19hw - Chapter 19 Homework Suggested Solutions Problem 12...

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