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

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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? 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

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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? 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? consumption points with trade. The first step in solving this problem is to figure out what the country will produce with trade.
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