chapter 18

# Chapter 18 - Chapter 18 1.1 Suppose that each U.S worker can produce 8 units of food or 2 units of clothing daily In Izodia which has the same

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Chapter 18 1.1 Suppose that each U.S. worker can produce 8 units of food or 2 units of clothing daily. In Izodia, which has the same number of workers, each worker can produce 7 units of food or 1 unit of clothing daily. Why does the United States have an absolute advantage in both goods? Which country enjoys a comparative advantage in food? Why? The United States has an absolute advantage in food because it can produce 8 units of food per worker, which is more than the 7 units of food per worker that Izodia can produce. The United States has an absolute advantage in clothing because it can produce more units of clothing per worker per day. US: 8 food=2 clothing, so divide both by 8 and see that 1 food=2/8 clothing Izodia: 7 food=1 clothing, so divide both by 7 and see that 1 food=1/7 clothing Izodia has a comparative advantage in food because it costs the US 1/4 a unit of clothing to produce one unit of food, but it only costs Izodia 1/7 a unit of clothing to produce a unit of food. 2.1 What determines which goods a country should produce and export? The simple explanation is demand. Within history when the potato famine occurred the

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## This note was uploaded on 03/05/2012 for the course MACRO 101 taught by Professor Ducharme during the Spring '12 term at Grantham.

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Chapter 18 - Chapter 18 1.1 Suppose that each U.S worker can produce 8 units of food or 2 units of clothing daily In Izodia which has the same

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