Econ_181_HW1_S13_Solution

8 therefore the relative wage of iceland

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Unformatted text preview: import y. (b) is correct. Note that you could (and should) have eliminated (a) and (d) at first sight, as you always export what you are good at producing. If you have a comparative advantage in producing cheese, you do not import cheese, you export it!!! Question 4: a) CHEESE HOME: - Absolute advantage for both wine and cheese - Autarchy: 1 cheese = 5/2 wine - Comparative advantage in wine L/alc = 100/5 = 20 L/alw = 100/2 = 50 CHEESE FOREIGN: - No absolute advantage - Autarchy: 1 cheese = 1 wine - Comparative advantage in cheese WINE L*/alc* = 200/6 = 33.3 L*/alw* = 200/6 = 33.3 WINE b) CHEESE Indifference curve L/alc = 100/5 = 20 HOME: - Slope = - 2/5 - price of wine in terms of cheese = 2/5 - price of cheese in terms of wine =...
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This note was uploaded on 01/23/2014 for the course ECON 181 taught by Professor Kasa during the Fall '07 term at Berkeley.

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