Test1Answers2006 - James E. Pesando Answers Term Test 1...

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James E. Pesando Answers Term Test 1 (October 27, 2006): 1. (a) The opportunity cost of producing one book is: 0.5 units of food in Country L one unit of food in Country S Country L will export books, since Country L has a comparative advantage in the production of books. Therefore Country S will import books. (b) The opportunity cost of producing one book in Country L is unchanged, so the comparative advantage of each country is unaffected. Country S will continue to import books. (c) Country L would benefit from trade (its consumption possibilities would be to the right of its production possibilities frontier). Country S would not benefit from trade (its consumption possibilities would remain equal to its production possibilities frontier). 2. (a) $30 since attending the hockey game is your next best alternative. (b) $25 would be the new opportunity cost since attending the free book reading would become your next best alternative. (c) The monetary value that you assign to attending the rock concert must be at
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Test1Answers2006 - James E. Pesando Answers Term Test 1...

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