Assignment 1 Micro

Assignment 1 Micro - Assignment 1: MICROECONOMICS Question...

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Assignment 1: MICROECONOMICS Question 1: Production rate of US and Australia table Country IPods Leather Cases United states (US) 30 30 Australia (Aus) 20 10 a) Opportunity cost is the highest valued alternative that we give up to get something. The opportunity cost of 1 IPod for US is 1 The opportunity cost of 1 leather case for US is 1 The opportunity cost of 1 IPod for Aus is ½ The opportunity cost of 1 leather case for Aus is 2 b) A country has a comparative advantage when one country’s opportunity cost of producing a good is lower than the other country. Therefore, the country that has a comparative advantage in IPods is Australia and the country that has a comparative advantage in leather cases is United States. c) The minimum terms of trade that each country would be willing to accept in order to trade are: 1 IPod for 1 leather case for US and 0.5 IPod for 2 leather cases. d) Consumption before(after) trade Table United States Australia Total IPods 12 (15) 4 (5) 16 (20) Leather cases 18 (20) 8(10) 26 (30) Therefore, according to the table above, US gains 2 leather cases and 3 IPods where as Australia gains 1 IPod and 2 leather cases from the terms of trade. Question 2:
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This note was uploaded on 11/09/2011 for the course BUS ECO 101 taught by Professor Nguyen during the Three '11 term at Monash.

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Assignment 1 Micro - Assignment 1: MICROECONOMICS Question...

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