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Surname [1]
Student’s Name
Professor’s Name
Economics
18 September 2017
Economics Quiz
1. When does a nation have comparative advantage in producing a good?
When the nation produces a good at a lower opportunity cost than other nations.
TABLE 1
Output per Worker
Cars
Soap
Brazil
5
30
Costa Rica
2
8
Use Table 1 and the Ricardian Model of trade to answer Questions 2 – 10.
2. Which country has absolute advantage in the production of soap? Which country has
absolute advantage in the production of cars?
Brazil has absolute advantage in the production of both soap and cars.
3. Under autarky, what are the relative prices of cars and soap in each country?
Surname [2]
Notably, in autarky, relative prices are equal to the opportunity cost of production.
Assuming that brazil is home and Costa Rica be foreign:
Brazil: Pc/Ps=ac/as=5 cars/30 soap
Costa Rica: P*c/P*s=a*c/a*s= 2/8= 1 car/ 4 soap
4. Which country has comparative advantage in cars? Which country has comparative
advantage in soap? How do you know? (i.e.: show your work)
A country has a comparative advantage if it has a lower ULC than...