Econ416_PS1

Econ416_PS1 - Theory of Economic Development Econ 416,...

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Theory of Economic Development Econ 416, Spring 2010 Problem Set 1 NOTE: Please provide short answers to each question in the space provided! Problem set is due at the beginning of lecture on Tuesday, March 9 th . Show your calculations and equations/formulas used carefully and precisely. 1. Country A produces only three goods: potatoes, vodka, and haircuts. (a) Suppose that all potatoes are used for the production of vodka. What is the total production of Country A? (b) Now suppose that a technological innovation allows vodka to be produced without the use of potatoes! So the quantity of potatoes produced remains unchanged, but now they are consumed as final goods rather than being used as an input for vodka. What is the revised total production for Country A? Country B produces the same goods, but the quantities and prices differ: (c) Continuing to assume that all goods are final goods (i.e., that potatoes are not used
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as an input in the production of vodka) and given the quantities and prices that prevail in Country B, what is the total production of Country B? (d) Of course, the production of Country A (your answer to part b) is valued in rubles while the production of Country B (your answer to part c) is valued in hryvnias. If we
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Econ416_PS1 - Theory of Economic Development Econ 416,...

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