BUS 426 #1 MIDTERM EXAM

# BUS 426#1 MIDTERM - BUS 426 MIDTERM EXAM#1 Chaps 1-6(except 4 Chap 1 COMPARTIVE ABSOLUTE ADVANTAGE Each country produce comparative advantage

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BUS 426 MIDTERM EXAM #1 Chaps 1-6 (except 4) Chap 1: COMPARTIVE & ABSOLUTE ADVANTAGE Each country produce comparative advantage product and trade with each other o increase combined production o “increasing sum” both countries benefit from exchange 1 bottle of wine 1 loaf of bread Poorland 5hrs 10hrs Richland 3hrs 1hr Poorland produces 2 loafs vs. 1 bottle of wine; Richland produces 1/3 bottle of wine vs. 1 loaf of bread NO TRADE= assume 100 hrs of labor/ county; equal amounts of bread and wine Production: 100=5Wp+10Bp >>>Wp=6 2/3 Bp= 6 2/3 ; 100=3Wr+1Br>>>Wr=25 Br=25 Consumption: Bp=Wp; Br=Wr WITH TRADE= poorland shifts 10hrs of labor to activity w/ comparative advantage; rate 1loaf=1 wine Hours employeed New production Production Wp=6 2/3 *5 = 33 1/3 Wine: 43 1/3 hrs 43.333/5= 8 2/3 wine bottles Bp= 6 2/3 * 10 =66 2/3 Bread: 56 2/3 hrs 56 2/3 /10= 5 2/3 loafs “too much wine and not enough bread” Poorland: Import 1.5 loafs and Export 1.5 bottles o 8.667-1.5=7.17 Wine o 5.667-1.5=7.17 loafs Richland: Export 1.5 loafs and import 1.5 bottles o production= 100=3Wr+1Br. ...100=3(Br-3) +Br>>>Br=27.25; Wr=24.25 o Br=27.25-1.5= 25.75 o Wr= 24.25+1.5=25.75 Chap 2: EXCHANGE RATE SYSTEMS o Bimetallism (before 1875): free coinage for both silver and gold o Gresham’s law: Bad \$(abundant money) drive out good \$ o Classical gold standard (1875-1914): fixed price of domestic currency in terms of gold

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## This note was uploaded on 02/01/2012 for the course BUS 426 taught by Professor None during the Fall '08 term at N.C. State.

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BUS 426#1 MIDTERM - BUS 426 MIDTERM EXAM#1 Chaps 1-6(except 4 Chap 1 COMPARTIVE ABSOLUTE ADVANTAGE Each country produce comparative advantage

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