EC120 Study Guide - Midterm Guide: Comparative Advantage, Production Function, Deadweight Loss

Use the following table to answer study questions 8 through 11

On a 10-acre farm, one farmer can produce these quantities of corn or wheat in Alpha and Beta.

Corn Wheat

Alpha 200 400

Beta 100 300

8. The opportunity cost of corn in Beta is

a. 300 wheat. b. 1 wheat. c. 3 wheat. d. 100 corn. e. 5 corn.

9. The opportunity cost of corn in Alpha is

a. 400 wheat. b. 2 wheat. c. 4 wheat. d. 100 corn. e. 5 corn.

10. The opportunity cost of wheat in Beta is

a. 333 corn. b. 1 wheat. c. 3 wheat. d. 300 wheat e. 5 corn.

Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate. Minutes Needed to Make 1 Bushel of Pound of Wheat Beef whats lobbB Andia 20 12 Zardia 15 10 - What Els B 8. Refer to Table 2. Assume that Andia and Zardia each has 60 minutes available. If each person spends all his time producing the good in which he has a comparative advantage, then total production is a. 3 bushels of wheat and 6 pounds of beef. b. 3.5 bushels of wheat and 5.5 pounds of beef. C. 4 bushels of wheat and 5 pounds of beef. d. 7 bushels of wheat and 11 pounds of beef.

Production per unit of labor hour UK US Wheat 6 1 Furniture 6 3 1. Which country has absolute advantage in the production of Wheat, of Furniture? 2. According to the absolute advantage theory which country will export Wheat?: 3. According to the comparative advantage theory how much is the opportunity cost of Wheat production in UK and in US? 4. According to the comparative advantage theory how much is the opportunity cost of Furniture production in UK and in US? 5. When trade opens according to the comparative advantage theory which country will export wheat? Why? 6. When trade opens according to the comparative advantage theory which country will export Furniture? Why? 7. At autarky price (before trade) what are the relative prices (domestic cost ratios) in UK? 8. At autarky price (before trade) what are the relative prices (domestic cost ratios) in US? 9. If trade between them take place at terms of trade of 1 W for 2 F why each country benefits from trade? Explain.