PS 1-1 - Problem Set#1 Due July 1st 2010 Comparative Advantage and Money Stock*Econ S-1530 1(40 points The output of labor(assumed to be the only

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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 Please show 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—
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This note was uploaded on 10/21/2010 for the course ECON 1530 taught by Professor Ohly during the Spring '10 term at Dartmouth.

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PS 1-1 - Problem Set#1 Due July 1st 2010 Comparative Advantage and Money Stock*Econ S-1530 1(40 points The output of labor(assumed to be the only

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