Question 1 . The countries of Macrostan and Micrastan have the production possib

Question

Question 1

.    The countries of Macrostan and Micrastan have the production possibilities tables for sheep and hogs shown in the tables below. Without trade Macro would produce at Alternative D and Micra would also produce Alternative D. Note that the costs of producing sheep and hogs are constant in both countries.

.   

.    Macrostans Production Possibilities Table

.   

.    A

.    B

.    C

.    D

.    E

.    F

.    Sheep

.    25

.    20

.    15

.    10

.    5

.    0

.    Hogs

.    0

.    5

.    10

.    15

.    20

.    25

.   

.   

.   

.    Microstans Production Possibilities Table

.   

.   

.   

.    A

.    B

.    C

.    D

.    E

.    F

.    Sheep

.    20

.    16

.    12

.    8

.    4

.    0

.    Hogs

.    0

.    3

.    6

.    9

.    12

.    15

.   

.   

.   

.   

.    The domestic opportunity cost of one unit of sheep in Macrostan is

.

.    a.

.    1 unit of hog

.

.    b.

.    5 units of hog

.

.    c.

.    4 units of hog

.

.    d.

.    10 units of hog

.   

1 points

Question 2

.    Refer to the above Table again. We can say the following statement about comparative advantage

.

.    a.

.    Both Macrostan and Microstan have comparative advantage in Sheep.

.

.    b.

.    Both Macrostan and Microstan have comparative advantage in Hog

.

.    c.

.    Macrostan has comparative advantage in Sheep while Microstan has comparative advantage in Hog

.

.    d.

.    Macrostan has comparative advantage in Hog while Microstan has comparative advantage in Sheep

.   

1 points

Question .   

Question 4

.    Let us suppose England and Portugal are two countries producing Wine and cloth. The following are the points in their PPF

.   

.   

.    Englands production possibilities:

.   

.    A

.    B

.    C

.    D

.    Wine

.    15

.    10

.    5

.    0

.    Cloth

.    0

.    5

.    10

.    15

.   

.   

.   

.   

.   

.    Portugals production possibilities:

.   

.    A

.    B

.    C

.    D

.    Wine

.    16

.    12

.    8

.    4

.    Cloth

.    0

.    12

.    24

.    36

.   

.   

.   

.   

.    On the basis of the production possibilities data shown:

.   

.   

.

.    a.

.    England has a comparative advantage in cloth while Portugal has a comparative advantage in wine

.

.    b.

.    England has a comparative advantage in wine while Portugal has a comparative advantage in cloth.

.

.    c.

.    both England and Portugal have a comparative advantage in wine

.

.    d.

.    both England and Portugal have a comparative advantage in cloth

.   

1 points

Question 5

.    Use the information in the Table to answer the following two questions.

.   

.   

.   

.   

.   

.   

.   

.    Year 1

.    Year 2

.   

.    P

.    Q

.    P

.    Q

.    Good X

.    $10

.    5000

.    $5

.    9,000

.    Good Y

.    $20

.    8000

.    $18

.    12,000

.   

.   

.   

.   

.   

.    Calculate real GDP for Year 2, using Year 1 as the base year.

.

.    a.

.    $95,000

.

.    b.

.    $210,000

.

.    c.

.    $261,000

.

.    d.

.    $330,000

.

.    e.

.    $376,000

.   

.   

.    A

.    B

.    C

.    D

.    E

.    F

.    Sheep

.    25

.    20

.    15

.    10

.    5

.    0

.    Hogs

.    0

.    5

.    10

.    15

.    20

.    25

Explanation / Answer

1 a)

2, d)

4. b)

5.d) use current year production at base year prices

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