February 8, 2008 Note: You should leave your answers in the folder for your TA in the Economics Department Office 1. Consider the following...

February 8, 2008 Note: You should leave your answers in the folder for your TA in the Economics Department Office 1. Consider the following production possibility curve. What will happen to the opportunity cost of manufactures if we move from point A to point B? Explain why. Suppose that the country is at point A and there is a technological innovation that significantly improves manufacturing productivity. What impact do you think that this will have on the relative price of manufactured goods? Explain why, given that there is a direct connection between relative prices and opportunity cost. 2. Tom and Hank are stranded on a desert island, where they can either hunt rabbits or fish for sea trout. Tom can catch 16 rabbits or 8 trout per day while Hank can catch 2 rabbits or 4 trout per day. A) b) c) Illustrate the production possibilities curves for Tom and Hank and calculate their opportunity costs. Who has a comparative advantage in what?