Problem Set 1 Answers

Problem Set 1 Answers - Cornell University Gregory Besharov...

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Cornell University Gregory Besharov Economics 3610: Problem Set 1 Solutions 1. True/False/Explain . State whether each of the following is true or false and explain your answer. Please limit your explanations to no more than two sentences. a. According to Dani Rodrik’s article “Trading in Illusions,” there are no significant opportunity costs to international integration. False. The opportunity costs of international integration that he lists include the use of human resources, administrative capabilities and political capital that could otherwise be used for education, public health and other government activities. b. It is impossible for a country to trade more than its GDP. False. Because trade data are not in value- added terms, it is possible for countries to trade more than their GDP, and there are in fact countries that do. c. According to the “ Summers memorandum ,” standard economic models provide the reason why dirty industries should not move from more- to less-developed countries. False. The memorandum gives several reasons standard models suggest they should, including lower foregone earnings and income elasticities for health and aesthetic amenities. d. If a country has an absolute advantage in producing a good, it must also have a comparative advantage in producing that good. False. As we have seen in the example developed in class, a country may have an absolute advantage in producing two goods but a comparative advantage in only one of them. 2.
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This note was uploaded on 10/12/2008 for the course ECON 361 taught by Professor Besh during the Fall '08 term at Cornell.

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Problem Set 1 Answers - Cornell University Gregory Besharov...

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