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Unformatted text preview: d) If James and Peter specialize in producing the goods in which each one has a comparative advantage, and they trade 1 jacket for 15 caps (terms of trade), who gains from the specialization and trade? Question 4: Suppose that Peter buys a new machine for making jackets that enable him to make 20 jackets an hour. (He can still make only 80 caps per hour). a) Who has a comparative advantage in producing jackets b) Can peter and James still gain from trade? c) Would Peter and James still be willing to trade 1 jacket for 15 caps? Explain your answer. Question 5: capital accumulation and technological change bring economic growth, which means that the PPF keeps shifting outward: production that was unattainable yesterday becomes attainable today; and production that is unattainable today will become attainable tomorrow. Why doesn’t this process of economic growth mean that scarcity is being defeated and that it will one day be gone?...
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- Fall '08
- Economics, Food crops, Ken Chesoli Econ