1. Think of an economic system where there are five (5) products available and we want to satisfy the needs of the villagers. In an advertisement in the local newspaper, a villager reflects his willingness to exchange cloth for other items. Look at the ad:

1 yard of fabric in exchange for 5 pounds of pork

3 yards of fabric in exchange for 12 pounds of butter

4 yards of fabric in exchange for 30 pounds of sugar

8 yards of fabric in exchange for 20 pounds of kidney beans

As what is desired is to exchange products (barter) we must know what the value of the products is because money does not exist as a measure of value.

Answer:

A. Calculate the opportunity cost of the other products for the villager who owns cloth?

B. Define what is nominal or money price and relative price

C. If the money price of the pig was known to be $ 1.50 per pound, what would the money price of the cloth be?

D. Calculate the money price of the other products according to the opportunity cost values from part A

E. Calculate the relative price for each of the products and verify that it is equal to the opportunity cost of part A

E. If in the previous economy, you are willing to exchange the pig you own for other products, what would be your willingness to exchange, that is, your ad?