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Mathspert VII  Comparative Advantage.
Amy and Bob each have an allotment and grow only two crops: potatoes
of her allotment to growing potatoes,
her yield is 2
potatoes and 1
±
his yield is
1.5
±
potatoes and 2(1
±
)
y
U
=
xy:
Bob, surprisingly, has the same preferences.
(i) Autarky: suppose Amy eats
x
= 2
potatoes and grows
y
= 1
and so obtains utility
U
= 2
(1
)
:
Show her utility maximising choice is
= 1
=
2;
utility
U
A
= 1
=
2
:
Repeat the argument for Bob and show he chooses
±
= 1
=
2;
i.e. Bob grows
U
B
= 3
=
4
:
(ii) Market Trade: suppose a market is set up where potatoes trade at price
p
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This note was uploaded on 12/31/2011 for the course ECON MR 102 taught by Professor Huyduong during the Winter '11 term at RMIT Vietnam.
 Winter '11
 HuyDuong

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