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# Test12006 - Page 1 of 6 Last Name First Name Student Number...

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Page 1 of 6 Last Name: ____________________ First Name: ____________________ Student Number: ________________ Economics 100 Professor James E. Pesando Term Test 1 – October 27, 2006 Length: 55 minutes answer ALL questions in the space provided Aids: Pen/ Pencil and non-programmable calculator ________________________________________________ please enter the multiple choice answers in the box below : 1 2 3 4 5 6 7 8 9 ________________________________________________ examiner’s report: question points 1 2 3 4 5 total

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Page 2 of 6 1. (20 points) Country L and Country S each produce 2 goods, food and books. In Country L, each worker can produce either 2 units of food or 4 books. In Country S, each worker can produce 4 units of food or 4 books. (a) In each country, what is the opportunity cost of producing one book? Which good will Country S import? Why? (b) Due to climate change, each worker in Country L becomes one-half as productive and thus can produce only 1 unit of food or 2 books. How does this change the comparative advantage of Country L and of Country S? Which good will Country S now import? (c) If the trade ratio were one book for one unit of food, would Country L benefit from trade? Why or why not? Would Country S benefit from trade? Why or why not? 2. (14 points) You have decided to attend a rock concert, which is free. The alternatives are to attend a hockey game, which you value at \$30, or to attend a book reading, which you value at \$25. Both are also free. (a) What is the opportunity cost of your attending the rock concert? Why? (b) How would this opportunity cost change if the hockey game was no longer free, but cost \$15?
Page 3 of 6 (c) When you arrive at the rock concert, you are told that there is a fee of \$20 to pay for crowd control. Do you pay the \$20 and attend the rock concert or just go home? Why?

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Test12006 - Page 1 of 6 Last Name First Name Student Number...

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