ECON 441 Midterm: Exam1 Summer 2002
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The questions are worth a total of 80 points, as indicated, and you will have 80 minutes to complete the exam: [32 points] the graph below shows production possibility frontiers for two countries, Home and foreign, producing two goods, food and cloth. 120 units of labor, while foreign has 160 units of labor. The intercepts of the ppfs are, for example, l/alf = 4 and thus alf = l/4 = 120/4 = 30. Neither country has an absolute advantage in cloth, since alc*=40 = alc=40. Home has an absolute advantage in food, since alf=30 < alf*=80. Foreign has a comparative advantage in cloth, since alc*/alf* = 40/80 = 0. 50 < alc/alf = 40/30 = 1. 33. Then use the diagram as you"ve drawn it to illustrate, for plausible preferences, both autarky and free-trade equilibria for a world consis ting only of these two countries.
