Worksheet 9a - Spring 2010 Introductory Macroeconomics Econ...

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Spring 2010 – Introductory Macroeconomics – Econ 104a,c,d,e,f - Voorheis Answer Key Worksheet 9 International Trade 1. Consider the production possibilities for the following planets of Ecotopia and Automatania. Then use the theory of comparative advantage to draw them consumption possibilities frontiers…that is, if they trade, what could each consume? Automatania Fun Machines 100 CPF (All advantages of trade going to Automatania) 1 14 1 50 8 | | | 400 700 800 1400 Tons of Food Ecotopia Fun Machines 100 87 CPF (All advantages to trade going to Ecotopia) 1 8 50 1 14 | | 350 700 Tons of Food What will the range of terms of trade be between these two countries? If they trade between the ratios of 1 fun machine to 14 tons of food and 1 fun machine to 8 tons of food, both countries will be better off. The exact terms of trade will depend on a variety of economic and political issues, and in particular the bargaining strength of each country.
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2. Who first formulated the theory of free trade, comparative advantage? Explain the basic logic of the theory. Adam Smith began the theory and David Ricardo in 1817 developed the complete theory of absolute and comparative advantage. 3.
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This note was uploaded on 10/19/2011 for the course ECON 104 taught by Professor Dolenc during the Spring '08 term at UMass (Amherst).

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Worksheet 9a - Spring 2010 Introductory Macroeconomics Econ...

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