Problem Set 17-18 (ECO100)

# Problem Set 17-18 (ECO100) - Prof Gustavo Indart Department...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Problem Set 17-18 1. In Canada, one ton of wheat requires 1/50 unit of resource and 1 microchip requires 1/20 unit of resource to produce. In Japan, one ton of wheat requires ½ unit of resource and 1 microchip requires 1/12 unit of resource to produce. For simplicity, we assume that these are the only two countries in the world. a) Which country has an absolute advantage in the production of wheat? of microchips? b) What is the opportunity cost of producing a ton of wheat in Canada? In Japan? c) What country has a comparative advantage in the production of wheat? microchips? d) Suppose Canada is endowed with two units of this all-purpose resource while Japan is endowed with 10 units. Draw each country's production possibility curve in separate diagrams with wheat on the vertical axis. e) Suppose that prior to trade, each country allocated half of its resource endowments to the production of each good. Indicate the production and

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