Comparative_Advantage_and_HO_Theorem

Comparative_Advantag - Final Exam Friday May 4 8:00 – 10:00 a.m FWLR HALL 202 NAKED ECONOMICS LAW’S ORDER 1 – 12 14 FREAKONOMICS and all

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Unformatted text preview: Final Exam: Friday, May 4, 8:00 – 10:00 a.m., FWLR HALL 202 NAKED ECONOMICS LAW’S ORDER, 1 – 12, 14 FREAKONOMICS and all Class Notes and assigned Web Articles The exam is comprehensive, and will consist of 60 Multiple Choice questions. Suppose we have two countries, Germany and France, producing two goods, Wine and Cheese. The hours of labor required to produce these goods in each country are given in the table below: Wine (Hours/Bottle) Cheese (Hours/Pound) England 4 6 Germany 6 8 Are there potential gains to trade between these two countries? Wine (Hours/Bottle) Cheese (Hours/Pound) England 4 6 Germany 6 8 Economist Adam Smith would argue NO. England has an Absolute Advantage in production of both goods. It can produce each good with less labor than is required in Germany. Economist David Ricardo corrected Smith’s reasoning, arguing that benefits to trade exist so long as the countries have Comparative Advantages in production. England: 4 Hours/Bottle 6 Hours/Pound Germany: 8 Hours/Pound 6 Hours/Bottle = = 2/3 Pound/Bottle or 3/2 Bottles/Pound 3/4 Pound/Bottle or 4/3 Bottles/Pound England has a comparative advantage in production of Wine, giving up less cheese per bottle in production. Germany has a comparative advantage in production of Cheese. “Enchiladas”...
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This note was uploaded on 03/18/2011 for the course ECON 415 taught by Professor Holland during the Spring '09 term at Purdue University-West Lafayette.

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Comparative_Advantag - Final Exam Friday May 4 8:00 – 10:00 a.m FWLR HALL 202 NAKED ECONOMICS LAW’S ORDER 1 – 12 14 FREAKONOMICS and all

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