PS6 - Justify your answer 2 Suppose that Cuba suddenly...

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1. Consider a simple world that consists of just Lithuania and Cameroon. These two countries can produce either coffee or fur coats. Cameroon can produce 600,000 pounds of coffee in a given year if it does nothing else, or it can produce 10,000 fur coats if it does nothing else. Similarly, Lithuania can produce 10,000 pounds of coffee or 20,000 fur coats. Each country experiences constant opportunity costs. a. Show what each country can produce if it does not trade. b. What country has a comparative advantage in what activity?
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Unformatted text preview: Justify your answer. 2. Suppose that Cuba suddenly opens up to trade with the rest of the world and finds that the “world price” of sugar is much higher than the domestic (Cuban) price of sugar. Use consumer and producer surplus to answer the following questions: a. What happens to the well-being of Cuban sugar manufacturers? b. What happens to the well-being of Cuban sugar consumers? c. What happens to the well-being of the Cuban economy? 3. Why has the yen become so strong the dollar in the last year or so?...
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