Russia to answer the following questions.

Output per Hour Worked

Ukraine Russia

Potatoes 3 5

Beets 2 2

a. Which country has an absolute advantage in potatoes? In beets?

b. What is the relative price of potatoes in Ukraine if it does not trade? In Russia, if it does not trade?

c. What is opportunity cost of potatoes in Ukraine? In Russia?

d. Which country has a comparative advantage in potatoes? In beets? Show how you know.

e. What are the upper and lower bounds for the trade price of potatoes?

f. Draw PPFs for Ukraine and Russia for a given day. Assume that both nations can produce up to 8 hours in a given day. Assume that at autarky, Russia produces 20 potatoes, 8 beets and Ukraine produces 18 potatoes and 4 beets. Show these combinations on the PPFs (put potatoes on the horizontal axis).

g. Suppose that Ukraine and Russia follow their comparative advantage in deciding where to produce on their PPF. Label their new production points. If the trade price of beets is 2 kilos of potatoes per beet, draw a trade line showing how Ukraine and Russia can gain from trade.

h. How would your answer to part d change if Russia acquires new technology for producing beets and can produce 5 beets (instead of 2) per hour?

i. What are the upper and lower bounds for the trade price of potatoes after the change in part h.