{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

PS 1-1 - Problem Set#1 Due July 1st 2010 Comparative...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set #1 *Econ S-1530 Due July 1st, 2010 Comparative Advantage and Money Stock 1. (40 points) The output of labor (assumed to be the only input involved) in production of wine and of cloth in two countries, Upper Utopia and Lower Utopia, is as follows: Table 1: Production Per Hour Upper Utopia Lower Utopia Yard of cloth 5 15 Quarts of wine 10 20 Pleaseshow all work and/or provide an explanation of your answer. a) Comparing the two countries as to possible trade between them and as to production advantages, it would be correct to say that Upper Utopia has (1) an absolute advantage in cloth production (2) an absolute advantage in wine production (3) a comparative advantage in cloth production (4) a comparative advantage in wine production (5) a comparative advantage in neither commodity b) If trade is opened, what will be the direction of trade? i.e. who exports/imports what? c) Before the trading opportunity emerged, each country had its own price ratio reflecting domestic production costs. If trade develops between Upper and Lower Utopia, this ratio—
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}