Solution to Problem Set 17-18 (ECO100)

Solution to Problem Set 17-18 (ECO100) - Prof. Gustavo...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Solutions to Problem Set 17-18 1.a) Canada has an absolute advantage in both goods since Canada produces more of each good with a unit of resource than does Japan. b) Opportunity Cost of a ton of Wheat (W) in Canada is 0.4 Microchips (M) since 1/50 resource cost 1/50/1/20 = 0.4. Opportunity Cost of 1 ton of wheat in Japan is 1/2/1/12 = 6 Microchips. Canada Japan W W M M CPC PPC CPC PPC 100 40 100 20 120 c) Canada has the comparative advantage in Wheat. Japan has the comparative advantage in M: 1 M cost 0.16 W compared with 2.5 W in Canada. d) (Japan's CPC doesn't meet the W axis at 120 because Canada can not produce 120W). e) Canada produces and consumes 50W and 20M. Japan produces and consumes 10W and 60M. f) World output is 60W and 80M. g) Constant opportunity costs => total product specialization. Therefore, Canada produces 100W and 0M and Japan 120M and 0W h) Canada consumes 50W and 50M (exports 50W, imports 50M). Japan
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Solution to Problem Set 17-18 (ECO100) - Prof. Gustavo...

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