exam 1 - 3. Suppose that the price of apples is 5 Swiss...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
3. Suppose that the price of apples is 5 Swiss francs per pound and the price of bananas is 3 Swiss francs per pound. Then the price of bananas in terms of apples is A) 5/3 B) 5/3 pound C) 0.6 D) 0.6 pound Feedback: By definition, the price of bananas in terms of apples is (Price of bananas)/(Price of apples), which equals 3 Swiss francs/5 Swiss francs =0.6 in this example. The units (Swiss Francs) cancel out. Points Earned: 1.0/1.0 Correct Answer(s): C 4. Suppose that there are five countries (the United States, the United Kingdom, Japan, Mexico, and Germany). The autarky prices (measured in each country’s currency) for each of two goods are given in the following table: United States (dollars) United Kingdom (pounds) Japan (yen) Mexico (pesos) Germany (euros) Food 9 8 100 11 5 Manufactures 70 200 1,000 120 80 Which country has the lowest price of manufactures in terms of food? A) United States B) United Kingdom C) Japan D) Mexico E) Germany Feedback: By definition, the price of manufactures in terms of food is (Price of manufactures)/(Price of food). Using the information in the problem, we calculate the relative prices as follows: United States (dollars) United Kingdom (pounds) Japan (yen) Mexico (pesos) Germany (euros) Food 9 8 100 11 5 Manufactures 70 200 1,000 120 80 Pm/Pf 70/9 = 7.7 200/8 = 25 1,000/10 = 10 120/11 = 10.9 80/5 = 16 The currency units cancel out. In this example, Pm/Pf is lowest in the United States. Points Earned: 1.0/1.0 Correct Answer(s): A
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
5. Suppose that there are two countries (Home and Foreign). In the absence of trade, the price of a cell phone (X) in terms of a pair of socks (Y) is 20 in Home and 10 in Foreign (i.e., Px/Py = 20 in Home, and Px/Py = 10 in Foreign). Which of the following statements is true? A) Home will export cell phones. B) Home will export socks. C) Home will export both cellphones and socks. D) There will be no trade. Feedback: Each country will export the good in which it has a comparative advantage and import the other good. With two goods (X and Y), the country with the comparative advantage in X is the country for which the price of X in terms of Y is lowest, and the other country has the comparative advantage in Y. In this case, 10 < 20, so Foreign has the comparative advantage in X and Home has the comparative advantage in Y. Points Earned: 1.0/1.0 Correct Answer(s): B 6. The PPF for a particular economy is illustrated in the following diagram: Suppose that this economy can trade with the rest of the world and that with trade, the price of X in terms of Y is 2 (i.e., Px/Py = 2). Which of the following is NOT a feasible consumption point with trade? A) 28 units of Y and 6 units of X. B) 22 units of Y and 9 units of X.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 35

exam 1 - 3. Suppose that the price of apples is 5 Swiss...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online