Test1Answers2008 - James E. Pesando ECO100 Answers to Term...

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James E. Pesando ECO100 Answers to Term Test 1 (October 24, 2008): 1a) The opportunity cost of producing one car in Canada is 2 bushels of wheat; in Argentina, the opportunity cost of producing one car is 0.5 bushels of wheat. Thus Argentina has a comparative advantage in the production of cars because Argentina can produce cars at a lower opportunity cost. Canada will export wheat, since Canada has a comparative advantage in the production of wheat. 1b) With trade, Canada can consume a maximum of 40 cars per week (by producing 40 bushels of wheat and trading for 40 cars). 1c) No. At this trade ratio, Argentina’s consumption possibilities with trade would be the same as its production possibilities frontier. 2a) P SS SS 1 5 P P 1 DD Q Q 1 Q Old market price: P New market price: P 1 (lower) Old Quantity bought/sold: Q New Quantity bought/sold: Q 1 (higher) 2b) Maximum change is a reduction in price of $5. The demand curve must be perfectly inelastic, so there would be no charge in quantity demanded.
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Test1Answers2008 - James E. Pesando ECO100 Answers to Term...

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