Download Past Quiz Exercises: Comparative Advantage & Urban Development (EC 430/530) - Prof. Willia and more Study notes Economics in PDF only on Docsity! EC 430/530 CRIB SHEET 09/26/06 EXERCISES FROM 1st QUIZZES OF PAST CLASSES (based on AMOS 5th edition) NOTE: For exercises and answers from the 1st term in which I used AMOS 6th edition, see http://www.uoregon.edu/~whitelaw/432/. 1. In the following statement, circle the correct term in each set of brackets and then complete each part of the sentence correctly. If factors, goods & services were perfectly and costlessly mobile, comparative advantage: a. [ COULD , COULD NOT ] help explain trade, because … ANS: COULD; since transportation costs equal zero, the gains from the differences in productivity are sufficient. Word limit = 20, counting only the words after “because.” b. [ COULD , COULD NOT ] help explain the existence of cities, because … ANS: COULD NOT; no scale economies in transportation would exist and thus no gains from transporting goods in bulk. Word limit = 20, counting only the words after “because.” 2. The table below summarizes the productivity of workers in bread and shirts production in two parts of a region. Output per Hour Opportunity cost West East West East Bread 1 5 Shirts 3 6 a. Complete the table by indicating the opportunity costs of producing bread and shirts in the East and the West. b. The East has a comparative advantage in the production of which good, BREAD ro SHIRTS. (Circle the correct one.) AMOS [5th edition] ANS: a. For bread, the west has a lower opportunity cost and thus a comparative advantage. For shirts, the east has a lower opportunity cost and thus a comparative advantage Output: East Output: West Opportunity cost: East Opportunity cost: West Bread 1 5 3 shirts 6/5 shirts Shirts 3 6 1/3 loaf 5/6 loaves 3. At the beginning of his Chp. 2 [5th edition], AMOS lists three assumptions that together preclude urban development. They are equal productivity of inputs and no scale economies in production of any output, including transportation. Finish the following statement by circling the correct term in the brackets and by completing the rest of the sentence correctly: The residents [ ARE , ARE NOT ] indifferent between (a) specializing in producing shirts or producing bread and then trading and (b) producing both goods, i.e., not specializing at all, because … Word limit = 15, counting only the words after “because.” ANS: NO; because trading wouldn’t compensate for the lost output. (7 words) NO; because trading wouldn’t cover the time diverted from production. (8 words) NO; because diverting time from production to trade would decrease output. (9 words) (AMOS [5th edition], p.20, para.2, s.5) 4. Among the three assumptions AMOS [5th edition] lists in Chp. 2 to generate a region without cities is one concerning transportation, namely, no scale economies in transportation. With a set of axes, appropriately labeled, show the long-run average cost curve that represents this assumption accurately. Word limit = 0, except for the labels on your axes and graph. $ / ton-miles ton-miles LRAC
