ECON 252 American University of The Middle East Problems

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Summer 2020 – Individual Assignment 2 – (15%)
ECON252 – Macroeconomics- O1
Name
ID
Problem 1: (20 points)
Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an
hour. She spends 5 hours per day studying.
a) Draw Maria’s production possibilities frontier for reading economics and sociology.
b) What is Maria’s opportunity cost of reading 100 pages of sociology?
Problem 2: (40 points)
Suppose Argentina each month can produce either 500 pounds of coffee and no tea, or 250
pounds of tea and no coffee, or any combination in between. Brazil each month can produce
either 400 pounds of coffee and no tea, or 400 pounds of tea and no coffee, or any combination
in between.
a) Which country has an absolute advantage in producing Tea? Which country
have absolute advantage in producing Coffee? Explain.
b) Which country has a comparative advantage in coffee production? Which
country has a comparative advantage in Tea production? Explain.
c) Which country should specialize in coffee? Which country should specialize in
Tea? Explain.
d) If there are trade between Argentina and Brazil, how much will be the
production of each good in each country?
e) Assume that in autarky people in Argentina consume 200 pounds of coffee and 150
pounds of tea. People in Brazil consume 200 pounds from each good. Assume now that
the two countries open to trade. What is the gain from trade if each country exports all
the excess of the good he is producing in exchange for the other good he needs?
Problem 3: (40 points)
2010 (base year)
2017
2018
Product
Quantity
Price
Quantity
Price
Quantity
Price
Boots
1000
20
1200
25
1250
25
Burger
5000
3.5
5500
4
5500
4.5
Smartphones
1500
225
2000
250
2100
275
Bread
3000
1
3200
1
3400
1
Leather
600
8
700
10
800
12
Consider a small economy producing five goods. Note that half of the bread is used in
burger production and leather is totally used in boots production.
Answer the following questions:
1. Calculate nominal and real GDP of the economy in 2017 and 2018.
2. Calculate the real GDP growth rate in 2018. Interpret.
3. Calculate GDP Deflator in 2017 and 2018.
4. Calculate inflation rate in 2018.

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Explanation & Answer:
3 Problems

Tags:
economics

opportunity cost

Comparative Advantage

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