Posted: November 2nd, 2015

ECONOMIC

ECONOMIC

1. The following economies produce jalapeno peppers and/or tomatoes.
A) The economy of Pittston can devote all available resources to producing either jalapeno peppers or

tomatoes and produce 10 or 60 pounds, respectively. Calculate the opportunity cost of producing tomatoes in

terms of jalapeno peppers.

B) The economy of Albuquerque has an opportunity cost of tomato production (in terms of peppers) equal to 1.2

(that is, 1.2 peppers must be foregone when 1 extra tomato is produced). After specialization, which economy

would produce jalapeno peppers? Which would produce tomatoes? Explain your reasoning.

2. The economy of Pennsylvania can produce grapes and hardwood lumber (such as black cherry, red maple, red

oak, and sugar maple). You notice that the price of forest-land and logging machines are high, while the

price of labor is low. Explain, using the Heckschler-Ohlin model, what causes the price differences. Which

good, grapes or hardwood, do you predict Pennsylvania has the comparative advantage in?

3. When an economy is under autarky the price of eggplant is $5. The world price of eggplant is $3.50. If

opened to the world market, would consumers or producers benefit? Would consumers or producers lose? Explain

your reasoning (using a graph would be beneficial).

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