Reference no: EM133364317

Question 1) This next problem also concerns the theory of comparative advantage. But let's see if you can extend the logic to a slightly different formulation of the problem.Two countries are capable of producing beans and whiskey. The first country, Absurdistan, can produce beans at a cost $15.00 per ton, and whiskey at a cost of $5.00 per barrel. The second country, Bongolia, can produce beans at a cost of $3.00 per ton, and whiskey at a cost of $12.00 per barrel. Calculate the opportunity costs of producing beans & whiskey in each country, and indicate which country has a comparative advantage in which good. Again, explain your reasoning. [Note: The problem is formulated in terms of money costs, and I've not given you enough information to construct the physical trade-offs between the two goods; so I'm not asking you here to graph the production frontiers.]

Question 2) Use supply & demand curves to explain what might happen in the market for bicycles if the price of gasoline increases