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Quiz1_Solutions

Quiz1_Solutions - Winter2010 Quiz1 ,January21and22 ANSWER...

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Economics 101 Section 400 Winter 2010 Quiz 1 For discussion in section, January 21 and 22 ANSWER KEY (2 Points per part: Total of 8 points) Drawn below are hypothetical production possibilities frontiers for wool‐growers in Australia and New Zealand. We measure the quantity of fine wool (in millions of bales) and quantity of coarse wool (in millions of bales) on the horizontal and vertical axes, respectively. (a) Draw the joint production possibilities frontier, showing the maximum amount of coarse wool that can be produced in the two countries jointly, for any level of fine wool production between 0 and 10 million bales. Fine wool Fine wool Coarse wool Coarse wool Australia New Zealand 3 9 2 1

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(b) If the price of coarse wool is \$600/bale, what is the lowest price per bale of fine wool that will encourage at least some wool growers in either New Zealand or Australia to produce fine wool? Explain why. ANSWER: Since both goods are produced in the market, the price of fine wool is between 1/3 and 2. Since we are concerned with the lowest relative price
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Quiz1_Solutions - Winter2010 Quiz1 ,January21and22 ANSWER...

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