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Unformatted text preview: Principles of Microeconomics ECON 1101 - Fall 2010 Department of Economics University of Minnesota Practice Problem on the Benefits of Trade Lectures: Website: Oce: Hours: Email: Tel: Fax: Problem 1. Consider an economy with two locations, Minnesota and Illinois. The locations can make two goods Sugar Beets and Soybeans. Minnesota and Illinois can produce the goods as follows: Soybeans Sugar Beets Minnesota 8 hours/unit 5 hours/unit Illinois 2 hours/units 4 hours/unit (a) Fill in the following table, computing the opportunity cost of production for each good at each location. (Note the opportunity cost of one more soybean is in terms foregone sugar beets. The opportunity cost of one more sugar beet is in terms of foregone soybeans.) Soybeans Sugar Beets Minnesota Illinois (b) Who has the absolute advantage in the production of soybeans? Why? (c) Who has the comparative advantage in the production of soybeans? Why? 2 Practice Problem on the Benefits of Trade (d) Consider the price of soybeans in terms of sugar beets. What is the highest price at which(d) Consider the price of soybeans in terms of sugar beets....
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