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Mock Exam 2 Solutions

# Mock Exam 2 Solutions - ECON 452 Solution Mock Exam II 1 D...

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ECON 452 Solution Mock Exam II 1.- D 4.- C 7.- B 10.- B 2.- B 5.- E 8.- B 3.- C 6.- E 9.- D 11.- The information provided is: T = 1200 a tw = 3 a lw = 1 L = 600 a tt = 3 a lt = 2 a) To find which is the factor of production that is used intensively in the production of wine, we need to solve the relationship 33 . 0 3 1 3 2 67 . 0 = = > = = tw lw tt lt a a a a so we know that the production of wine is land-intensive (and the production of tires is labor-intensive. If Thailand would open up to trade with Spain (who has L * = 100 and T * = 1000), then we know that Thailand is relatively labor abundant (and Spain relatively land abundant) 1 . 0 10 1 1000 100 1200 600 2 1 5 . 0 * * = = = > = = = T L T L so we know that Thailand has the comparative advantage in the production of tires, the good that makes relative intensive use of the relative abundant factor of production. The pattern of trade shows Thailand exporting tires and importing wine. b) Original (with L = 600 and T = 1200) 400 & 400 3 3 3 1200 int _ = = = = = + w t w t w tt tw tt t t tt w tw Q Q Q Q Q a a a T Q T Q a Q a Constra Land 600 ~ & 300 ~ 2 1 2 600 int _ = = = = = + w t w t w lt lw lt t t lt w lw Q Q Q Q Q a a a L Q L Q a Q a Constra Labor so the amount of tires and wine produced can be found by setting both equations (constraints) equal and solving for the two unknowns 200 200 * 1 400 200 2 * 100 5 . 0 300 1 400 = = = = = t w w w Q Q Q Q

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The immigration from Malaysia increases the amount of labor to L = 700, so the only constraint that needs to be upgraded is the labor constraint. 700 ~ & 350 ~ 2 1 2 700 int _ = = = = = + w t w t w lt lw lt t t lt w lw Q Q Q Q Q a a a L Q L Q a Q a Constra Labor such that now the new amount of tires and wine produced is (by equating both constraints) 300 100 *
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